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Power-One (PWER) Acquisition Presentation

Power-One (PWER) Acquisition Presentation. October 2006. Disclaimer.

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Power-One (PWER) Acquisition Presentation

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  1. Power-One (PWER) Acquisition Presentation October 2006

  2. Disclaimer This presentation contains forward-looking statements, which are made pursuant to the Safe-Harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as “forecast,” “expect,” “anticipate,” “will,” “looking,” “believe” and similar expressions reflecting something other than historical fact are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. Forward-looking statements are not guarantees, but rather are predictions of and make certain assumptions regarding anticipated future results. Please refer to the end of this presentation for complete disclaimer.

  3. Power-One Mission Statement To be recognized as the leader in system-level power and power management solutions from AC to the IC in the communications and high-technology markets, utilizing our technical leadership to deliver comprehensive low-cost solutions; providing increasing value to customers, employees, and investors

  4. Power-One Power Supplies Are Everywhere Over 30 million power supplies shipped & Silicon… Our products convert, process & purify electricity to the high levels of quality, reliability, & precise direct current required by the digital economy Soon: Custom, Alternative Energy, digital motor controls, specialty transportation & systems

  5. Power Conversion Products for Communications & High-technology Infrastructure Markets AC/DC Power Powers Telecom, Networking & Industrial Equipment Controls Power at the System Cabinet DC/DC Power Plus Digital Power Management Controls Power on the Printed Circuit Board

  6. Power-One Today • 30+ years of success • One of the world’s top power supply companies • Broad-line power conversion supplier – 100’s of standard product families • Over 2,500 employees • Top brand name & quality reputation • Industry leading Gross Margins • Five acquisitions since 1999 • Highly-automated worldwide manufacturing • Strong balance sheet (~$72M in cash- no debt) • Revenues est. at $300M in 2006 • Investing ~$7M/yr in R&D for silicon design • (Soon 4000!) • (Soon six!) • (Soon $530-550M) Today, Power-One is the technology leader in power; a consolidator; and a developer of silicon products

  7. Where Power-One Excels • Worldwide Mfg. and R&D (Asia, Americas & Europe) • Worldwide Customer Service and Support Including Field Applications, Sales & Sophisticated IT Infrastructure (EDI) • Technology: • In-house silicon development and packaging capabilities • Digital Power Management, Z-OneTM Digital IBA, the first complete power conversion AND power management solution • Density leadership in DC-DC bricks and POLs • Leadership in AC Front Ends and Telecom Power Systems • Industry’s highest efficiency and power density • Competitive on a world class level • We are a complete supplier from AC to the IC

  8. Digital Power Revolution--- ZZZZ A Digital Power Revolution • Conversion … Communications… Control

  9. Power Management and Power Conversion Becomes One … with Digital Technology Conversion Communication Control(Pwr. Mgt.) Goal: 20% Market Share in 5 Years

  10. The “Before” – Unmanageable with Analog “BRICK” DC/DC Converter POL3.3V POL2.5V POL3.0V POL1.8V V1 V2 V3 V4 Analog Controller 48 V Intermediate Bus Voltage (12V) “BRICK” DC/DC Converter POL POL POL V6 V5 V7

  11. The “After”: Z-One DIGITAL IBA™ 48 V “BRICK” DC/DC Converter DPM Z-POL Z-POL Z-POL Z-POL V2 V1 V3 V4 Z-POL Z-POL Z-POL V5 V6 V7 Intermediate Bus Voltage (12V) I2C from Host System

  12. 8-output Power System Comparison IBA with Analog Power Mgmt Z-OneDigital IBA # of components # of traces PCB space Development time Total cost Power mgmt functions BREAKTHROUGH 9 200+ 600+ <100 ~10 in2 3.8 in2 3 Days 8 Weeks ~$90 ~$100+ Virtually Unlimited Limited

  13. Results for Z-One Digital Power • We have a significant head-start on the competition • The Z-series disruptive architecture is a true revolution in power • Licensed technology (second sourcing) • Benefits in broader/larger market, licensing fees & technology sharing • Module 2nd source in Dec. ’04 with C&D Technologies (top 5 supplier) • Semiconductor Z-affiliate announced with Atmel in July’05; and with Micrel LDO (Low Drop-Out) regulator IC in Sept ‘06 • Recent announcement – Silicon Labs is joining the Z-Alliance • Meeting with other potential partners • Customers who implement the “Z” can offer products with additional system features and benefits; and with faster TTM (time to market) • New markets opened, e.g., Storage & Server, Military, Aerospace & Security (total POL market exceeds $1.0 billion) • Core business is growing as a result of the “Z” • ~70 Z-One board-level design wins & growing (now with top 10 cust.) • Significantly more embedded in the customers’ systems architecture

  14. Transaction for Power Electronics Group of Magnetek, Inc. • Power-One, Inc. has signed a Definitive Agreement to acquire the Power Electronics Group (P.E.G.) of Magnetek, Inc. • P.E.G. has been operating essentially as an autonomous business unit for many years • Transaction Closing is expected to be in October • Power-One has secured $50M of acquisition financing via an 18 month loan. We will be investigating a variety of options for longer-term financing that is more accretive • The company will use a portion of its cash and investments, but will keep ~$40M on our balance sheet. Total post-closing debt, with financing will be 65-70M

  15. Overall Transaction Assets • Three main factories • 230K sq. ft. in Shenzen (Baoan) China • 180K sq. ft. in Valdarno, Italy (Includes R&D and Admin, with low-cost “feeder plant” in Hungary) • 50K sq. ft. in Chatsworth, CA • Best-in-class R&D Center (80+ experienced engineers) • Custom product capability • New applications, like Alternative Energy (AE) & digital control for motors • High-volume purchasing leverage Shenzhen, China Valdarno, Italy Chatsworth, California

  16. Liabilities – What Power-One Will Not Get • Only taking the liabilities of the parent company (Magnetek, Inc.) that are for the Power Electronics Group • The transaction does not include the liabilities of the parent company: • Fluorescent lighting lawsuit and liabilities will remain with Magnetek • Employee benefits and pension liability of Magnetek, Inc. is retained by them

  17. Excellent Strategic Value • Purchase price of ~$72M in cash, plus $17M debt • Grows Power-One’s revenue by over 50% with overall purchase price of approximately 0.5x forecasted sales for 2007 • Power-One will become a ½ billion dollar company in 2007; forecast sales range from $530M to $550M • Power-One continues to be a consolidator with this 6th acquisition in 8 years • Lowers Overheads & Operating Expenses

  18. Strategic Synergies & Importance • Accretive in Early 2007 • R&D resources and technologies • Size and purchasing power of larger company • High-volume, low-cost China operation • Alternative Energy initiative • European operations expanded • Augments top customer base • Customs and new applications widen market

  19. Strategic Synergies & Importance #1 – Accretive in Early 2007 • The acquisition is strategic and accretive • Will be accretive in Q1 of 2007 • Synergies will be additive to earnings per share ~$9M ($0.10 per share) in 2007 ~$20M ($0.22 per share) in 2008 • Although acquisition has lower gross margins than Power-One, it also has lower operating costs. Post merger will see margins in the high 20’s%, but should gradually increase throughout 2007 to above 30%, with further improvements into the low 30’s% in 2008 • Primary drivers for margin improvement are synergies in purchasing and manufacturing • Operating expenses of ~30% of sales will immediately decrease into the mid to high 20’s% range; gradually decrease throughout 2007 with a target goal in the low 20’s% • Cash generation expected to begin in 2007

  20. Strategic Synergies & Importance#2 – R&D Resources And Technologies • Experience (breadth and depth) in Italy with 80+ Engineers • Augments other European Design Centers in Switzerland and Slovakia • Increased IP portfolio • Low cost for experienced R&D personnel • Products range from smart motor driver and control circuits to large 50KW power modules Custom Power Supplies Inverters High Density Data Storage

  21. Strategic Synergies & Importance#2 (Cont) – R&D Resources And Technologies • 90% of products are digital implementations with micro/DSP and software • Fewer competitors - less commoditization • Higher margins over time • Greater functionality - market diversity • Higher performance • Software-driven with reduced parts count, higher reliability • Augments Power-One’s board-level Z-One® digital power management capabilities DSP-based Motor Controls Digital Smart Appliance Control & Management

  22. Strategic Synergies & Importance#3 – Size & Purchasing Power Of Larger Company • Catapults Power-One into becoming the 6th largest power supply company in the world – from 16th position • Combined sales in 2007 is forecast to be in the range of $530M to $550M • Economy-of-scale facilitates ability to compete with the largest competitors in purchasing components • Size and breadth of products are important in servicing the Server/Storage markets • Material purchases is largest part of COGS; this is the most significant and fastest way to achieve synergy

  23. Strategic Synergies & Importance#4 – High-volume, Low-cost China Operation • China manufacturing expertise • 500+ manufacturing people; local management for 5+ years • 230,000 sq. ft. of operations - with capacity & scaling capability • Factory is close to current Power-One factory that builds the Power Systems product line • Added manufacturing in China addresses high-volume need for future growth • Critical mass in Asia has been reached with Power-One factories handling high-volume demand; Contract Manufacturers (CM) will continue to support mid-volume

  24. Strategic Synergies & Importance#4 (Cont.) – High-volume, Low-cost China Operation • New China operation reduces cost and increases control. Reduces issues with current CM arrangement • Acquisition will increase profitability with higher-volume jobs. No “dual” profits required • Customers are driving for more control over the mfg. process. Main Competitors do not use CM’s • Allows better service and support of local customers

  25. Strategic Synergies & Importance#5 – Alternative Energy Initiative In Power Inverters Solar – Wind – Fuel Cells • High reliability and efficiency power converters • High power-density & compact size • Primary energy source control • Grid interactive control • System level control Compact Fuel Cell Power Conditioners Wind Power Converters Photovoltaic Inverters

  26. Strategic Synergies & Importance#5 (Cont) – Alternative Energy Systems Aurora® PVI-Wind Interface adapts solar PV power inverter for use with wind turbines Aurora PrePack Panels (Integrated Solar PV power inversion system) MultiMode World Inverter (MWI) Tailors power input from any Alternative Energy Source to any AC or DC power application (grid interface and/or local load) Power conditioners and interfaces for Compact Fuel Cells

  27. Strategic Synergies & Importance#6 – European Operations Expanded • Italy – 180,000 sq. ft. of R&D, Admin, & Operations • Impressive R&D center • Specialized products and manufacturing • Alternative Energy Systems • Intelligent digital Motor Driver and Controls • Specialty transportation • Excellent mid-volume/complex product capability • Low-cost “feeder plant” in Hungary (30K sq. ft.) • Local support for European regional customers

  28. Strategic Synergies & Importance#7 – Acquisition Augments Premier Customer Base Bottom Row Shows Significant Additions to PWER Base

  29. Strategic Synergies & Importance#8 – Customs & New Applications Widen Market • Adds “custom” capability to Power-One’s standard product offerings • Large Custom market • AC/DC Custom market in 2007 is ~$7B, which is more than twice as large as Standard + Modified AC/DC market. Additionally, the Custom market is growing ~7-9%... more than twice as fast as the Standard market. • Customers have been asking Power-One to do more Customs; the issue has been R&D resources. The acquisition will greatly expand the resources. Digital Business Machines Segway “HT”

  30. Strategic Synergies & Importance#8 (Cont) -- Customs & New Applications Widen Market D . ISSIPAT P ICCOLO 3E8 64500000 T . RASF C AMBIOTENSIO I C NDUTTANZE ARICABATTERIE C ARICABATTERIE NE 82100017ATM 82100016ATM 3E864800000 A LIMENTATORE C .1 C .2 OND E OND T RASFORMATORE 3E864300000 80102358ATM T RIFASE 82100019ATM I U NDUTTANZE DI SCITA 82100021ATM S C CHEDA ONTROLLO 9153E860203 A S 1 C.B SSIEME ENSORI 3E864600000 A M IGBT SSIEME ODULI 3E864100000 A S 2 SSIEME ENSORI 3E864700000 I F L NDUTTANZA ILTRO INEA 82100020ATM Other New Applications • Intelligent motor drive and controls • Embedded, Variable-Speed Motor Drives • Temperature Control Boards • User Interfaces • Specialty transportation products • 55kW multi-voltage APSS for European Intercity Trains

  31. Synergistic with Other Products • Purchasing power of high-volume components will carry-over to lower-volume components • Engineering collaboration between AC/DC R&D • Digital techniques in AC/DC • Standardization of Custom products • Capitalize on Power-One distributors and channels • Cross-selling opportunities, e.g., Telecom products DC Power Systems Rectifiers Electronic Power Distribution Unit Control Unit ‘Smart’ Solid-State Circuit Breakers

  32. Integration Plan • Objective is to combine both into a stronger company • Will be integrated into Power-One’s functional structure • Allows quick actions and savings – functional orientation will facilitate integration • Materials & purchasing cost reductions will be 1st priority • Move high-volume products from CM to new China factory. Note: new China factory in Baoan is very close to our current factory in Shekou. Both are in Shenzhen. • Shift Italy’s R&D team to focus on much larger business deals; from smaller to larger ($5M - $10M) projects.  Power One has several large deals pending. • Globally – Operations, Engineering, and Marketing & Sales forces will be combined “Day 1”

  33. Integration Status Synergy leadership teams have been identified and planning is in place to timely capture savings In-depth discussions, meetings, and site visits were used both for Due Diligence and “Fast-track” integration

  34. Acquisition Supports PWER’s 2006 Goals (In Prior IR Presentations – and Acquisition Impact)  $160M+ added $530-550M in 2007 10-15% growth forecast in 2006 Decrease material costs Combination will benefit Execution of higher-volume projects with Server & Storage customers China factory will be used for high-volume manufacturing Adding resources in Europe (Slovakia & Switzerland) Italy & Hungary Increase AC/DC presence both in channel & products Custom AC/DC products Alternative Energy, Transportation, Smart Motor Drive & Control Systems Introduce new products/applications Superb R&D Center with 80+ experienced engineers Increase engineering capabilities

  35. Power-One’s History & Strategic Direction Acquired Powec Acquired HC Acquired IPD Acquired Melcher Acquiring PEG of MAG Custom Products & China Mfg. Silicon Division Silicon POL’s + 1st Power Mgt. Acquired di/dt High-density Bricks & POL’s Silicon Initiative Silicon R&D Center Startup Power Systems (Europe/Asia) Power Systems (North America) DC/DC Bricks (North America) DC/DC Conversion (Europe) AC/DC – North America 1973 2000 2001 2006 1998 2005 2002 2003 1997 1999 2004 Strategic Direction Entered Server/Storage markets & acquiring Custom capability Strategic shift to communications infrastructure markets & acquisitions A technology leader in powering communications. Integrated five acquisitions, developed silicon & digital power mgt. Initial Public Offering (IPO) Founded as AC/DC power conversion company

  36. Power-One’s New Global Footprint Ireland Slovakia Andover, MA Switzerland Hungary San Jose, CA Italy Chatsworth, CA Baoan, Shenzhen, China Camarillo, CA Dallas, TX Shekou, Shenzhen, China Carlsbad, CA Dominican Rep. Penang, Malaysia Singapore Australia Manufacturing Centers NEW Mfg Centers R&D Centers NEW R&D Centers

  37. Summary of Potential Synergies

  38. Growth Opportunities • NEW OPPORTUNITIES • New Markets • New Products • Digital Power • CORE GROWTH • Technology Leadership • High Density/Efficiency • Broad Product Portfolio Communications & Industrial Markets Server & StorageMarkets Standard Products Custom Products Power Systems(Indoor) Power Systems(Outdoor & Access) AC/DC Power Supplies AC/DC Front-ends DC/DC Bricks Analog POLs Z-One™ Digital Power-Digital POLs-Digital Power Mgt. Acquisitions

  39. Significance of Acquisition for Investors • Power-One is a consolidator and can compete with biggest competitors • More opportunities with large, global, well-funded company in fast-growing markets • Acquisition is very accretive, very quickly • Power-One is the only significant “Pure Power” play • High synergistic and strategic value in the acquisition • Augments and helps fund continuing digital power developments • Power-One forecasts 4th quarter range to be between $120-130M with acquisition, depending upon closing date; $530-550M in 2007.

  40. Other Power-One “Take-a-ways” • 2005 was a return to profitability year (Q3 & Q4) • 2006 is a return to growth; Bookings & Backlog are at the highest levels since 2000. Q3 Guidance: $74-78M • Telecom Power Systems should be high-growth business • Server & Storage design wins will turn into revenue (‘06 forward) • AC/DC Front-End business is strong, especially with new products • DC/DC products continued strength in market with bricks & POLs • Z-One™ digital power management gaining momentum • Z-Alliance includes C&D Technology, Atmel, and now Silicon Laboratories! • Design-wins growing, multiple platforms, top 10 customers • “No-bus” Z-1000 addresses lower end systems – power mgt. for free! • 2nd generation Digital Power Manager now controls non-Z-One devices • Continuing to forecast 10-15% organic growth for 2006

  41. Thank You!

  42. Disclaimer & Forward Looking Statements This presentation contains forward-looking statements, which are made pursuant to the Safe-Harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as “forecast,” “expect,” “anticipate,” “will,” “looking,” “believe” and similar expressions reflecting something other than historical fact are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. Forward-looking statements are not guarantees, but rather are predictions of and make certain assumptions regarding anticipated future results. Achievement of actual results are dependent upon and will involve a variety of risks and uncertainties that could cause actual results to differ materially from assumptions and predictions. Such risks and uncertainties include, but are not limited to, the risk that Power-One’s and Magnetek’ businesses will not be integrated successfully; distraction of management as a result of, and the challenges of integration and restructuring associated with the transaction or other acquisitions, and the challenges of achieving anticipated synergies in whole or in part; costs related to the transaction; the possibility that the market for the sale of certain products and services may not develop as expected; Power-One’s ability to manage its international operations; the risk that the process of reconciling certain Magnetek, Inc. financial information to U.S. GAAP could result in changes to Magnetek’ financial statements that adversely impact the Power-One’s pro forma estimates regarding the transaction; the existence or enactment of adverse U.S. and foreign government regulation; the risk that the development of products and services may not proceed as planned; adverse general domestic and international economic conditions including interest rate and currency exchange rate fluctuations; the difficulty of efficiently managing the company’s cost structure for capital expenditures, materials and overhead, as well as operating expenses such as wages and benefits due to the vertical integration of the company’s manufacturing processes; the possibility that the transaction or other contemplated acquisitions may not close; the impact of competitive products or technologies and competitive pricing pressures; potential business disruptions, including labor unrest, work stoppages, or other short or longer term labor disruptions; and other risks that are described from time to time in Power-One's Securities and Exchange Commission reports. See “Risk Factors” in the Company’s 2005 Form 10-K on file with the Securities and Exchange Commission for greater detail regarding factors that constitute cautionary statements with respect to such forward-looking statements, including certain risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. Readers of this information are cautioned not to place undue reliance on these forward-looking statements, since, while we believe the assumptions on which the forward-looking statements are based are reasonable, there can be no assurance that these forward-looking statements will prove to be accurate. This cautionary statement is applicable to all forward-looking statements contained in these materials. We undertake no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise.

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