Earnings Presentation to Investors and Analysts

Copyright© 2008 ARC International All rights reservedCopyright© 2008. ARC International. All rights reserved.

ARC International’s 1H 2008 Financial Review

ARC International’s 1H 2008 Financial Review

2Copyright© 2008. ARC International. All rights reserved.

Overview of ARC International

• Revenues from contract licenses, maintenance and engineering services, and royalties

• Semiconductor company royalties ~3 years afterinitial contract license

• OEM royalties ~1 year after initial contract license

• Unique “vertically integrated” portfolio of multimedia products

• Dual revenue streams from both semiconductor companies and OEMs

• 148 semiconductor customers globally

• Award-winning multimedia products

• More than 300 million ARC-Based™ chips shipping annually by customers

Leader inMultimediaSolutions

Leader inMultimediaSolutions

Intellectual PropertyBusiness Model

Intellectual PropertyBusiness Model

High Growth CompanyHigh Growth Company


ARC’s Strategic Goals

Top Line Growth to Outpace the Semiconductor Industry

Top Line Growth to Outpace the Semiconductor Industry

Higher Value Products to OEMs which DriveHigher Fees and Royalties

Higher Value Products to OEMs which DriveHigher Fees and Royalties

Close Higher Value Consumer Product Design WinsClose Higher Value Consumer Product Design Wins

Continue to Enhance the Company BrandContinue to Enhance the Company Brand

Profitability and BeyondProfitability and Beyond


1H 2008 Company Highlights

• Top line revenue up 32%

• Licensing revenue up 33%

• Royalty revenue up 53%

• 16 licensing contracts completed

• Adds a new, complementary class of customer and revenue channel

• Sonic Focus-ready multimedia subsystems already introduced

• First customer post acquisition shipping higher value royalty-bearing products

Solid Financial Performance

Solid Financial Performance

Strategic Acquisition ofSonic Focus Completed

Strategic Acquisition ofSonic Focus Completed

• Chip ASPs declining despite continued increases in unit shipments; Semi IP industry has been affected

• Standalone technologies no longer cost-effective approach for differentiating end products

• Trends expected to continue into 2009

Fundamental Shifts in theSemiconductor Market

Fundamental Shifts in theSemiconductor Market

Copyright© 2008. ARC International. All rights reserved.

1H 2008 Financial Results1H 2008 Financial Results

Copyright© 2008. ARC International. All rights reserved.


1H 2008 Financial Results

• 16 contracts completed

• 148 total customers

• Fourth consecutive quarter of royalty growth

• Operating expenses before acquisition were £10.4 million

• Incremental expense from acquired company was£0.3 million

• Net loss without acquisition remained flat at £1.5 million

– With acquisition, net loss at £2.0 million

• Revenue up 32% to $18.3 million (£9.3 million)

• Licensing up 33% to $8.4 million (£4.3 million)

• Royalties up 53% to $8.3 million (£4.2 million)

• Bookings down 30% to $18.5 million

• Total backlog down 17% to $17.2 million

• Cash position at $33.0 million (£16.6 million)

Continued RevenueGrowth

Continued RevenueGrowth

Operating ExpensesOperating Expenses

Ongoing IndustryAdoption

Ongoing IndustryAdoption


Healthy Bookings and Backlog

$ 0.0 M

$ 2.0 M

$ 4.0 M

$ 6.0 M

$ 8.0 M

$ 10.0 M

1H'04

2H'04

1H'05

2H'05

1H'06

2H'06

1H'07

2H'07

1H'08

(in $

Mil.

)

Contractual

Other Def.

Maint/Train

$ 0.0 M

$ 5.0 M

$ 10.0 M

$ 15.0 M

$ 20.0 M

$ 25.0 M

$ 30.0 M

1H'04

2H'04

1H'05

2H'05

1H'06

2H'06

1H'07

2H'07

1H'08

(in $

Mil.

)

Asia

Europe

N.Amer.

Rolling 12 Month Backlog Bookings


Summary Profit & Loss

(in £ million) H1 '08 H1 '07 Variance % of Variance

Revenue 9.3 7.0 2.3 32%

Gross Margin % 92% 90% 2% 2 ppts

Loss - E B I T D A (1.5) (1.8) 0.3 19%

Loss - E B I T (2.9) (2.4) (0.5) -20%

Net Loss (2.0) (1.5) (0.5) -34%


Operating Expenses

(in £ million) H1'08 H1'07 Variance% of

Variance

Cost of Revenue 0.7 0.7 (0.0) -1%

R & D Exp 4.5 3.4 1.1 33%

Sales& Marketing Exp 3.1 2.7 0.4 12%

General & Corporate Exp 2.3 1.8 0.5 25%

Share Option Exp 0.2 0.2 (0.0) -17%

OPER EXP + COS 10.7 8.8 1.9 22%

TOTAL EXPENSES* 12.1 9.4 2.7 29%

* Total expenses include depreciation & amortization expenses and a share of loss in associated company


Net Loss without Sonic Focus

H108 H107

£'000 £'000 £'000 %

Net Loss (2,012) (1,543) (469) -30%

Sonic Focus

Revenue 38 38

Expense

Engineering (314) (314)

Admin & facilities (31) (31)

Dep'n and amort (159) (159)

Net Loss (466) (466)

Net Loss without Sonic Focus (1,546) (1,543) (3) 0%

Change


Balance Sheet Summary

(in £ million)June2008

June2007

Dec2007

N O N - C U R R E N T A S S E T SIntangible Assets 5.9 3.9 4.1Goodwill 5.4 0.0 3.4Tangible Assets 1.8 1.3 1.5Trade & Other Receivables 0.4 0.4 0.4Investments 0.4 0.0 0.4

Total Non-Current Assets 13.9 5.6 9.9

NET C U R R E N T A S S E T SInventory 0.0 0.2 0.1Trade & Other Receivables 6.1 3.6 5.6Trade Payables (1.2) (0.2) (0.7)Other Payables (4.3) (2.0) (3.9)Deferred Revenue (1.4) (2.0) (1.2)Short Term Provision (0.2) (0.2) (0.2)Cash & Short Term Investments 16.6 26.0 21.2

Total Net Current Assets 15.6 25.5 20.9Long Term Provision / Liabilities (1.2) (0.1) (0.5)

N E T A S S E T S 28.3 30.9 30.2


Cash Flow Summary

(in £ million) H1 '08 H1 '07

Opening Cash and Short-term Investments 21.2 31.6

Net Cash Outflow from Ops. (3.0) (2.9)

Net Interest & Taxes 1.8 1.5

Cash from (used by) Operating Activities (1.1) (1.4)

Capital Expenses (1.4) (1.2)

Acquisitions (2.0) (3.4)

Issue of Ord. Share Cap. 0.0 0.4

Exchange (0.1) 0.0

Closing Cash and Short-term Investments 16.6 26.0

CASH INFLOW/(OUTFLOW) (4.7) (5.6)


CEO’s ReportCEO’s Report


Market OpportunityConsumer demand for audio, video, and graphics in power efficient devices will drive sales of billions of chips needing

programmable multimedia subsystems.

ARC’s MissionARC will be the leading provider of multimedia IP to accelerate development of personalized media-centric chips by licensing

our patented IP based upon configurable technology.

“Enabling the YouTube Generation”


1H ARC Highlights

• New product innovations

– Introduced new Energy PRO™ core family

– Introduced new annual multimedia codec library subscriptions

– ARC® Video Subsystem family supports RealVideo format

• 16 new customer agreements for high-growth applications

Mobile & HDTVApplications Flash Applications

Multimedia & Security Applications


Customer Spotlight: ViXS Systems

• ViXS taken a new license for ARC® multimedia solution

• ARC’s acquisitions contributed to winning the new agreement

• New license enables ViXS chips to deliver multiple HD video streams

• Analysts predict 200M households to have HDTVby 2012

• ARC-Based™ XCode™ chip family already adopted by major OEMs

Advanced DTVsAdvanced DTVsPersonal ComputersPersonal ComputersPersonal VideoRecorders

Personal VideoRecorders


License-to-Royalty Model

1626

41

5560

7278 82 85 88

98106

114

127

137 141 144 148

0

20

40

60

80

100

120

140

160

'97 -'99

1H '00 2H '00 1H '01 2H '01 1H '02 2H '02 1H '03 2H '03 1H '04 2H '04 1H '05 2H '05 1H '06 2H '06 1H '07 2H '07 1H '0 8

No.

of U

niqu

e Li

cens

ees

Current Royalties

From Legacy Customers

63 New Licensees

~3 years from license to royalty


1H Sonic Focus Highlights

• Sonic Focus licenses award-winning audio enhancement software to OEMs globally

• Acquisition of Sonic Focus adds new complementary class of customers and revenue channel

• Sonic Focus integrated; strong industry interest– First Sonic Focus-ready multimedia subsystems introduced– Significant interest by OEMs creating PCs and laptops,

handsets, and Digital TVs– Target customers realize Sonic Focus technology is a key

differentiator for consumer electronics products• Also see how Sonic Focus technology can reduce BOM costs

• OEMs underscoring how Sonic Focus technology delivers higher quality audio compared to competitive solutions


Customer Spotlight: HP

• New all-in-one TouchSmart PC “redefines home computing”

• High quality audio enabled by Sonic Focus enhancement technology

• Higher value royalty revenueIndustry Reviews:

“Opens the door to a new way for consumers to

engage with their content”

“Good sound quality despite not having a subwoofer”

“I absolutely love this piece of equipment”

Industry Reviews:“Opens the door to a new way for consumers to

engage with their content”

“Good sound quality despite not having a subwoofer”

“I absolutely love this piece of equipment”


Market ConditionsMarket Conditions


More/New ContentFor Consumers

OEMs OfferingDifferentiated DevicesTargeting Consumers

“Digital Lifestyle”

Chip CompaniesProviding Solutions

Optimized to a Specific Application

New Consumer OEM Requirements

Standalone Technologies No Longer OfferCost-Effective Advantages


ARC’s IP Approach

Hardware IPHardware IP16-bitCPU/DSP

32-bitCPU/DSP

128-bitSIMD

EntropyDecode

EntropyEncode

MotionEstimation

DMAEngines

Software IPSoftware IP

Development ToolsDevelopment Tools

Imaging Decode

Imaging Encode

Audio Decode

Audio Encode

Video Decode

Video Encode

Network StacksMPlayer

Modelers

Profilers

Simulators

ConfigurationManagement

IDE

Debuggers

Compilers

OperatingSystems

Building Integrated Solutions

Application IPApplication IP Surround SoundMulti-ChannelStereo Expansion

Audio Restoration


Example:ARC® AM 401V

Multimedia Subsystem

ARC’s IP Approach

Application Optimized

Enables Differentiation

Based Upon Award-Winning Technology

“Product of the Year”

“Editors Choice” Award

Twice Winner of “Partner of the Year”


Summary and OutlookSummary and Outlook


Outlook

Challenging Market Trends to Continue into 2009Challenging Market Trends to Continue into 2009

ARC will Strengthen its Ability to Deliver Higher Val ueMultimedia Solutions

ARC will Strengthen its Ability to Deliver Higher Val ueMultimedia Solutions

ARC will Look for Additional Cost-Effective WaysTo Realize Acquisition Synergies

ARC will Look for Additional Cost-Effective WaysTo Realize Acquisition Synergies

ARC will Extend its Revenue Growth and Transition to Profitability

ARC will Extend its Revenue Growth and Transition to Profitability


Disclaimer

The content of this presentation has not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000 (“FSMA”). Reliance on the information contained in this presentation for the purposes of engaging in any investment activity may expose the investor to a significant risk of losing all of the property or assets invested. Any person who is in any doubt about the investment to which this presentation relates should consult a person duly authorised for the purposes of FSMA who specialises in the acquisition of shares and other securities.

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August 2008

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Earnings Presentation to Investors and Analysts