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O2Micro International Limited 11 July 2008

Update Report – 1Q 08 Results

FY 2008 and FY 2009 net sales and gross margin outlook broadly unchanged

ADR BUY Fundamental research indicates a 63% upside in the ADR over the next 6-12 months. We have
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report free of
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a weighted average of target prices
http://www.iirgroup.com/researchoracle/viewreport/show/20294
obtained using DCF and comparative valuation methodologies. We have taken a 6-12 month
investment horizon for this stock, as the semiconductor industry in which the company operates is
Ticker: OIIM highly cyclical and therefore trends can be captured more accurately with a shorter investment
Target price: US$9.43 horizon.
Current price: US$5.79 We reiterate the ADR a BUY with a 6-12 month target price of US$9.43 per ADR.

Hong Kong BUY The Hong Kong stock is expected to appreciate 44% over the next 6-12 months as the 63%
fundamental upside is offset by the anticipated reduction in the Hong Kong stock premium2 over the
Stock1 same period. The currency impact on the Hong Kong stock is assumed to be neutral since the Hong
Ticker: 0457.HK Kong dollar is pegged to the US dollar.
Target price: HK$1.58
Current price: HK$1.10 We reiterate the Hong Kong stock (1 ADR = 50 common shares) a BUY with a 6-12 month target price
of HK$1.58 per share.

Supervisor: Shilpen Shah

Analyst: Shazia Naik
Editor: Heloise Capon
Global Research Director:
Satish Betadpur, CFA
Investment horizon - short term actionable trading strategies
This report addresses the needs of strategic investors with a long term investment horizon of 6-12 months. If this
report is provided to you by your broker under the Global Settlement, you may now also access (free of charge) the
short term trading outlook that we publish from time to time for this issuer, looking at the coming 5-30 days for
readers with a shorter trading horizon. These are available online only at www.researchoracle.com

Next news due:

2Q 08 results, 30 July 2008

Report summary
O2Micro International Limited’s (O2Micro) 1Q 08 net sales increased 7.2% y-o-y and gross margin
increased 392 bps y-o-y, driven by increased efficiency in product design and a favorable product mix,
in line with our expectations, However, adjusted non-US GAAP operating and net margin3 were
marginally below our estimates. Going forward, we expect O2Micro to continue to benefit from the
ongoing market transition from Cathode Ray Tube (CRT) to Liquid Crystal Diode (LCD) based displays.
Moreover, growing demand for mini-notebooks, steady demand for LCD-TVs and notebooks and
increasing acceptance of the company’s products are expected to augment net sales growth and limit
the impact of overall industry weakness. Furthermore, Management’s cost reduction initiatives are
expected to support margin expansion. Subsequently, our net sales and gross margin outlooks for the
company in FY 2008 and FY 2009 remain broadly unchanged but we have revised downwards our
adjusted non-US GAAP operating margin3 estimates to reflect a higher than previously anticipated
increase in Research & Development (R&D) expenses. We maintain our optimistic outlook for the
company based on the factors outlined above. Given the recent decline in the ADR price, the stock
offers an attractive investment opportunity at current levels.

Currency impact for US investors

The company reports in US dollars, which is its major trading currency. Earnings forecasts are
therefore also expressed in US dollars. Although the company has costs as well as revenues in other
currencies, we assume the impact of currency movements on the price of the ADR to be neutral.
Where specific currency risks are identified those will be highlighted in the report.

Page 1 Refer to page 5 for footnotes