O2Micro International : 2021 Annual Report

Ugland House,

Grand Cayman KY1-1104

Cayman Islands

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CHAIRMAN'S STATEMENT

To Our Shareholders

Fiscal 2021 was another strong year for O2Micro. Revenues were $101.1 million, up 29.1% from $78.3 million in 2020 and we reported full year GAAP net income of $12.1 million, or $0.39 earnings per fully diluted ADS, up 97.7% from $6.1 million, or $0.21 earnings per fully diluted ADS a year ago. After a similarly strong fiscal 2020, 2021 was even better as both our power management and intelligent lighting segments continued to register strong progress. We finished 2021 in strong financial condition, with $50 million in unrestricted cash and short-term investments and no debt. At year end, O2Micro had 315 employees, 56% of which are engineers.

We finished strong in 2021, however we expect 2022 to bring challenges to the entire tech sector. The COVID-19 pandemic continues to compel all of us to adapt to new ways of living, working and entertaining. Supply chains around the globe, showing sign of improvement, may see continued impact by both geopolitical pressures, and as economies struggle balancing infection rates against public safety, yet through these headwinds we will continue to strive to capitalize on the trends transforming the world around us.

Our fundamental technology supports new and advanced products in both the Intelligent Lighting and the Battery Management markets. New products are targeted at more complex Consumer, Industrial and Automotive markets that will broaden our market focus and expand our customer base. These new products are based on our unique technology backed by a large intellectual property patent portfolio that is significantly larger than most companies our size.

While we continue to expand our revenue base, our major customers can carry our company to more new design wins for innovative products as we increase our penetration of their product portfolios. Major OEMs that already use our products and battery management technology include Bissell, Black & Decker, Bosch, Dyson, Electrolux, Hitachi, Lexy, LG, Makita, Murata, Panasonic, Philips, Samsung, Sharp and TTI and Toshiba. Major OEMs that use our lighting products include BOE, Dell, HP, Hisense, Honda, Hon Hai Foxconn, Lenovo, Panasonic, Samsung, Sharp, Skyworth, TCL and Toyota.

Intelligent Lighting

In fiscal 2021, our Intelligent lighting product line continued to grow as we aggressively developed new products, many of which are specifically focused on serving rapidly expanding applications, such as advanced lighting systems using mini-LED.

In fact, the demand for our lighting products is at record high levels. For instance, monitor demand has been very strong due to the proliferation of larger screens and the increase in gaming activity. Both are positive trends for O2Micro. Larger screens require multiple parts while gaming applications require the highest level of monitor response, such as that uniquely available through our multi-scan technology. Our multi-scan, local dimming backlight IC continues to win market share as the backlight subsystem is made of thousands of full array LEDs with our local dimming, which creates a higher contrast ratio, providing more light when the brightness is necessary and darker where darkness is demanded. It also eliminates blur, which is particularly useful in high end gaming systems.

Our latest IC we rolled out for this market has the ability to control the dimming through either analog function or pulse width function (PWF). The two in one mode control further simplifies the TV system design architecture because it enables the manufacturer to support different types of panel dimming solution with only one IC.

We believe the use of mini-LED technology will initially become the trend for notebooks, from there migrating to certain high end desktop monitors.

In displays, mini-LEDs significantly increase the number of zones, which will reduce 'blooming' - the halo effect you get from lower performing displays. Also, the mini-LED lighting has enhanced contrast performance level similar to OLED, high brightness characteristics and long life time. They can also reduce power consumption.

Since mini-LED technology offers much smaller size compared to conventional package LCD size, it also gives the TV system designer more space to design the dimming layout.

For O2Micro, mini-LED will both increase our ASP as well as enable the regular LCD panel to reach the performance levels of like OLED, which OLED is still very costly due to the production challenges. This opens the

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