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To: John B. Dillon who wrote (205)	12/22/1998 11:23:00 AM
From: Alan A. Hicks	Respond to of 327

John, thanks for the info on Vicor. I will post something on the VICR thread in the next few days.

To: John B. Dillon who wrote (205)	12/22/1998 11:27:00 AM
From: Alan A. Hicks	Respond to of 327

After 5 months of no permanent CEO, the arrival of Chuck Boesenberg should boost morale at ISI and provide the leadership to realize ISI's considerable potential. ISI's press release from December 15 describes his background and why he joined ISI. Listening to the the conference call announcing Boesenberg, it is clear he brings a fresh outlook to ISI and extensive management experience. Beyond developing a single strategic vision for ISI, Boesenberg said he would focus on bringing the ISI team together to do "a 100 things a little bit better" - in other words execute. Boesenberg views the embedded market as still in an early growth phase that is creating new market opportunities. He feels the embedded market is not a market share game but growth will be driven by identifying and participating in these new market opportunities. As an example, he sees smart internet appliances as a major new market opportunity which ISI is well positioned for (ISI's Epilogue division is the market leader in internet protocols, remote monitoring and network management for embedded systems). He noted internet appliances are expected to grow from 1.5 million this year to 45 million devices over the next 4 years. He also said he would sharpen ISI's market focus on vertical opportunities in ISI's traditional markets in datacom/telecom, auto electronics, and consumer electronics. Boesenberg also has considerable experience developing joint ventures and partnerships and wants to apply this experience to ISI. One possibility could be moving discussions with Microsoft back to the front burner. Boesenberg's first day was December 15. He indicated he will be talking to ISI's customers and reviewing all parts of ISI's business to focus their resources on ISI's most promising opportunities. He also indicated shareholder value is very important to him since his main incentive is based on the stock price. With ISI's has a rich technology base, in a rapidly growing market and at the beginning of a new product cycle; the pieces are in place for a renewed growth phase at ISI.

To: John B. Dillon who wrote (205)	12/22/1998 11:30:00 AM
From: Alan A. Hicks	Read Replies (2) \| Respond to of 327

ISI reported $0.17 in operating earnings in Q3, up 143%, beating analyst EPS estimates in the $0.13 to $0.15 range. ISI's revenues grew 17% year over year to $35 million. Japan declined approximately 14% and as a % of total revenues from 19% to 14%. Excluding Asia, revenues grew 25%+ year over year. Non-recurring legal expenses for an arbitration dispute with Green Hills reduced reported EPS to $0.14. Expenses were in line, with the exception of product gross margins which were impacted by some write-offs. Product gross margins which are normally in the 80%+ range were 75% in the quarter. Overall gross margins are expected to move up 2 to 3% points in Q4 from 69% in Q3. Management felt they had "turned the corner" and I thought they were the most optimistic that they have been for some time citing a stronger tone of business and a good pipeline of business going into the fourth quarter. ISI bought back 926,000 shares in the quarter at prices ranging from $6.50 to $12.84. The company spent about $7.7 million on the share buy back while generating $7.6 million in cash leaving cash at the end of the quarter at $74.9 million. Total diluted number of shares outstanding are now 23.2 million. Highlights for the quarter included the announcement of pRISM 2.0 which will ship in January along with an upgraded version of pSOSystem. A new JAVA compiler from their Diab division was released. ISI believes their Diab compilers are providng competitive differentiation in the market versus lower performance GNU compilers that have been popular in embedded market. pOSEK for auto electronics is also now shipping. Investors clearly liked the quarter and the announcement of Boesenberg as CEO. The stock moved up 4 1/2 points last week culminating in a breakout from a 9 month downtrend and breaking through the 200-day moving average both at around 13 5/8 on over a million shares on Friday. It was the third largest week of trading in ISI's history at over 3 million shares. Average daily volume is around 125,000 shares. The break out point in the $13 to $14 range should now be support for ISI shares. Hambrecht & Quist analyst Shiela Ennis released a report on Friday reiterating her "Buy" with a report titled "ISI's Impressive Third Quarter a Testament to Underlying Product Strength." She had had $0.15 in EPS (operating) and $33.6 in revenues. Ennis cited strength of pRISM+ sales and that pRISM+ "permits a level of tool interaction and customer flexibility that are otherwise currently unavailable in the market place. I have not seen any other analyst reports but they all had had short-term neutral or market performer ratings on ISI based largely on the lack of a CEO. These include Dain Rausher, Everen and Lehman Brothers. They will most likely want to meet with the new CEO early in 1999 and give him a chance to articulate a growth strategy for ISI as well as affirming evidence of top line and bottom growth before raising any ratings. Earnings estimates for the fourth quarter are $0.18 versus $0.14 last year. Excluding all the non-recurring expenses in Q2 ($0.03) and Q3 ($0.03), earnings would be $0.52 for the year versus $0.26 last year. ISI should be able to be meet the estimates as the fourth quarter is always the strongest quarter and gross margins are expected to improve. Estimates for next year are in the $0.65 to $0.70 range. The Green Hills arbitration decision is expected next February and is not expected to have a significant impact one way or the other.