O2Micro Reports Fourth Quarter and Fiscal Year End Financial Results

O₂Micro^® International Limited (NASDAQ^®:OIIM) (SEHK:0457), a leading supplier of innovative power management and security components, reported its financial results today for the fourth quarter and fiscal year ended December 31, 2008.

Financial Results for the Fourth Quarter ending 12/31/2008:

Net sales in the fourth quarter of 2008 were $22.7 million. Sales decreased by 52%, compared to the fourth quarter of 2007. The decrease in sales was exacerbated by the global economic crisis that worsened in the quarter. The GAAP gross margin was 55.6% in the fourth quarter of 2008 and declined from 58.7% in Q4 2007. The lower gross margin was primarily due to reduced revenue levels and the fixed cost component inside of the cost of sales.

GAAP operating expenses were lower than the year-ago period, excluding non-recurring items. R&D expense was $8.4 million in Q4 2008 and it was $1.4 million less than the corresponding expense in Q4 2007. SG&A expense was $8.3 million in Q4 2008 and it was down $2.7 million from the comparable year-ago period. During the fourth quarter of 2008, the company also recorded a non-recurring charge of $2.8 million for goodwill impairment. There was no comparable impairment charge in the fourth quarter of 2007. Similarly, there was not any non-recurring litigation income in the fourth quarter of 2008, although there was $500,000 of non-recurring litigation income in the fourth quarter of 2007.

The company reported a GAAP loss from operations of $6.9 million in the fourth quarter of 2008, compared to GAAP income from operations of $7.5 million in the fourth quarter of 2007. The decline from the fourth quarter of 2007 to the fourth quarter of 2008 was due to lower revenue and gross margin and the non-recurring goodwill impairment charge that was incurred this quarter, in addition to the non-recurring litigation income that was collected in the year-ago quarter.

In Q4 2008, O₂Micro had non-operating income of $796,000 and incurred $715,000 of income tax expense. This compares with Q4 2007 non-operating income and income tax expense of $462,000 and $191,000, respectively. Non-operating income consists primarily of interest income on the company’s cash and investments and income tax expense relates to statutory tax accruals from certain international geographies.

During the fourth quarter of 2008, these results produced a GAAP net loss of $6.8 million, compared to GAAP net income of $7.7 million in Q4 2007. The GAAP loss per ADS was $0.19 in Q4 2008 and compares with GAAP earnings per ADS of $0.20 in Q4 2007.

Financial Results for the Fiscal Year Ended 12/31/2008:

For the twelve months ending December 31, 2008, revenue was $138.8 million. Revenue declined by 16% from the prior year due to progressively worsening economic conditions. The GAAP gross margin was 58.1% for the complete 2008 fiscal year. The fiscal 2008 gross margin percentage reflected an improvement from 57.1% in fiscal 2007.

GAAP operating expenses decreased slightly from 2007 to 2008 after excluding non-recurring income and expenses. R&D expense increased from $34.6 million in 2007 to $37.4 million in 2008. This increase reflects the company’s commitment to developing new products. This increase was more than offset by lower SG&A expenses, which declined from $45.6 million in 2007 to $39.0 million in 2008. During 2007, the company received $9.4 million of non-recurring litigation income and it received an additional $2.0 million of one-time litigation income in 2008. In addition, the company expensed $5.7 million of combined non-recurring items for the write-off of prepaid foundry services in the third quarter of 2008 and the impairment of goodwill in the fourth quarter of 2008.

GAAP income from operations was $564,000 in fiscal 2008. Income from operations was down from $23.6 million in fiscal 2007. Approximately $13.1 million of the year-to-year decline in income from operations was due to higher non-recurring expenses in 2008 and lower litigation income compared to 2007. The remaining decline in operating income is attributable to the normal operating results of the company.

Non-operating loss was $11.1 million in 2008, compared to non-operating income of $2.8 million in 2007. The non-operating loss that was reported in 2008 includes a one-time impairment loss of $13.1 million in long-term investments that was incurred in Q3 2008.

GAAP net loss in 2008 was $12.7 million, including $18.8 million of non-recurring expenses and $2.0 million of non-recurring litigation income. This compares to GAAP net income of $25.0 million in 2007, which includes $9.4 million on non-recurring litigation income. GAAP loss per ADS was $0.34 in 2008 and compares with GAAP earnings per ADS of $0.64 in 2007.

Supplementary Data:

As of December 31, 2008, O₂Micro had unrestricted cash and short-term investments of $104.2 million, or $2.84 per ADS. Net accounts receivable was $10.6 million, and there were 63 days sales outstanding in accounts receivable at the end of the fourth quarter of 2008. Inventory was $16.4 million and turned over 2.3 times in Q4 2008.

As of 12/31/08, O₂Micro’s headcount consisted of 876 employees, of which 586 are engineers. This headcount was down from 943 employees at the end of the third quarter of 2008.

Management Commentary:

Sterling Du, Chairman and CEO, commented, "During these turbulent times, we are taking the opportunity to streamline our operations and improve our efficiency. We are working harder than ever to be successful and we aren’t standing still and waiting for an economic recovery.” He continued, "We are continuing to invest our R&D dollars in several young product lines and we are seeing early signs of success with them.”

Conference Call: O₂Micro will hold its fourth quarter conference call at 2:00 p.m. PST, 5:00 p.m. EST, and 6:00 a.m. (February 5, 2009) Hong Kong time. You may participate using the following dial-in information.

A replay of the call will be available by phone until February 11^th using the following dial-in information.

A live simulcast will also be available on the company website at www.o2micro.com, and an online replay will be available on the website for one week.

About O₂Micro

Founded in April 1995, O₂Micro develops and markets innovative power management and security components for the Computer, Consumer, Industrial, and Communications markets. Products include Intelligent Lighting, Battery Management, Power Management, and SmartCardBus^® products.

O₂Micro International maintains an extensive portfolio of intellectual property with 11,377 patent claims granted, and over 12,000 more pending. The company maintains offices worldwide. Additional company and product information can be found on the company website at www.o2micro.com.

O₂Micro, the O₂Micro logo, SmartCardBus, and combinations thereof are registered trademarks of O₂Micro. All other trademarks are the property of their respective owners.

Certain statements in this release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. They include statements regarding O₂Micro’s future growth, long term profitability, increases in shareholder value, introduction of innovative technologies, expansion of O₂Micro’s product and patent portfolios, legal expenditures, litigation activity and other statements regarding O₂Micro’s or management’s intentions, hopes, beliefs, expectations, representations, projections, plans or predictions of the future. Such statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in these statements. Factors that could cause actual results to differ materially include risks and uncertainties such as reduced demand for products of electronic equipment manufacturers which include O₂Micro’s products due to adverse economic conditions in general or specifically affecting O₂Micro’s markets, technical difficulties and delays in the development process, and errors in the products. You are also referred to the Form F-1 in connection with the company’s initial public offering in August 2000, Form F-3 in connection with the company’s public offering in November 2001, and the annual reports on Form 20-F, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. The company assumes no obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise.