Micrel Issues Open Letter to Shareholders

San Jose, CA, April 1, 2008 — Micrel, Incorporated (Nasdaq: MCRL) and its Board of Directors today issued the following letter to its shareholders regarding public letters and filings by Obrem Capital Management (“OCM”), which is apparently a new Micrel shareholder and which has made several proposals to the Company:

Dear Shareholder:

We are writing you in response to recent public statements and proposals by Obrem Capital Management. We believe OCM has made a number of inaccurate and self-serving assertions in their letters and proposals in relation to their efforts to take control of the Company’s board of directors. We want to take this opportunity to outline for all shareholders the facts about Micrel and why we believe continuing to execute our strategic plan will deliver superior long-term value for you.

While there is no question that recent market conditions have been challenging across the semiconductor industry, and Micrel has not been immune to these conditions, we have been taking important, measurable steps in recent quarters to ensure the Company continues to outperform our peers and expand market share while continuing to reduce costs and increase profitability. We are excited about the Company’s future.

Micrel has increased revenue in 24 out of its 29 years of existence and our ten-year revenue compound annual growth rate of 9.5% has significantly outpaced the overall analog industry growth rate of 6.3%. We are pursuing an R&D strategy to increase our product and design win pipeline that we believe will position the Company for superior revenue growth in the future.

In addition to growing our top line, your Board and management team have, against a backdrop of a challenging time in the semiconductor industry, driven earnings growth through operational improvements. Between 2003 and 2007, we improved our GAAP gross margin from 39.5% to 57.1% and our operating margin from 2.4% to 18.4%, significantly growing GAAP earnings. During the same period, we also improved our return on equity from 1.7% to 18.6%. We continue to take actions to streamline operations and reduce manufacturing costs.

Contrary to OCM’s statements, Micrel outsources manufacturing where it makes sense to control costs, including the outsourcing of all of our assembly and over ninety percent of our test operations. We believe there are substantial benefits to both Micrel and customers of our vertically-integrated front-end manufacturing strategy. Our captive wafer fabrication facility, together with third party foundries, allows us to optimize the Company’s cost, quality, delivery, customer service, time-to-market, and technology roadmap.

We believe OCM’s statements about Micrel’s cost structure and operating margins reflect their lack of in-depth knowledge about the industry and that their filings contain factual errors and inconsistencies, such as the mixing of GAAP versus non-GAAP metrics in their comparisons and the use of an extremely narrow and “cherry-picked” set of comparables. As compared to a broader and more representative set of analog companies, our operating margins are in line with or, in the majority of instances, superior to these peers. In 2007, our GAAP operating margin was 18.4%, compared to a median of 13.9% for such peers. The Company’s 2007 GAAP SG&A as a percent of sales was 17.5%, placing us at the lower end of the peer group and significantly below the median of 20.5% for our peers. It is also worth noting that Micrel has lowered SG&A expense by more than 20% over the past 8 quarters.

Micrel CY 2007 Operating Statistics vs. Peers

Source: Company filings

As a result of our sound financial management, our GAAP EPS has grown at a 10-year CAGR of 11.0% and 83.7% over the last five years. We have a long-term record of delivering results, having been profitable on a GAAP earnings basis for 28 of our 29 years of existence.

Micrel GAAP EPS Growth

 

Source: Company filings; ROE calculated as GAAP Net Income divided by average shareholder equity over the period

At the same time, your Board and management have been investing for future growth. These investments have resulted in the development of industry-leading technologies, such as our patent-pending Hyper Light Load™ power capability and the Super LNR™ devices, as well as what we believe are the world’s fastest switching regulators. We introduced 82 new products in 2007 and believe we have amassed one of the largest patent portfolios of any analog company of similar size. In our opinion, OCM’s assertions about the Company’s growth and margins completely miss a key point — our investments are positioning the Company to outpace industry growth. We do not believe that Micrel’s stock price today fully reflects this potential.

Micrel’s revenue growth and operational efficiency have also driven a strong record of cash flow generation. Over the past 10 years, Micrel has generated close to $580 million in cash flow from operations and has had positive cash flows in each of those 10 years. This has enabled us to repurchase over $280 million in stock since the inception of our share repurchase program, representing more than 25% of our outstanding shares, and to begin paying quarterly dividends to shareholders.

As OCM apparently only commenced acquiring Micrel shares a few weeks ago, the lack of understanding of Micrel’s business and the industry is not surprising. However, this obvious lack of knowledge and experience is troubling to the Board and should be troubling to other long-term shareholders as OCM is seeking control of the Company.

According to recent Securities and Exchange Commission filings, OCM has purchased approximately 10.7 million shares of Micrel common stock over the past five weeks at a weighted average cost of approximately $8.01. By undertaking their purchases at prices near our five-year lows, OCM may have different objectives as to their returns. The Board is concerned that OCM is trying to force action to secure their own near-term gain without any reference to Micrel’s fundamental value, long-term potential or the interests of all our shareholders.

In addition, OCM has proposed removing your CEO and the entire Board, which includes the Company’s largest shareholder. We believe their nominees have very limited semiconductor industry and operating experience and that your directors bring a valuable blend of deep strategic and operational expertise to their work on the Board.

Your Board and the management team are singularly focused on creating shareholder value and in that regard, we are excited about the future. Our optimism about Micrel’s future is shared by two of Micrel’s long-term shareholders, Messrs. Muller and Zinn, who in aggregate own approximately 30% of the Company and support the full Board and Micrel management.

We will send you in the coming days and weeks additional materials including a proxy statement.  In the meantime, should you have any questions please contact MacKenzie Partners, Inc. at (800)-322-2885 Toll-Free or micrelproxy@mackenziepartners.com.

We are committed to taking actions that are in the best interests of ALL our shareholders, and we look forward to continuing to hear your views, while we, in turn, keep you apprised of our progress.

Your Board of Directors,

Raymond D. Zinn Michael J. Callahan David W. Conrath

Neil J. Miotto Frank W. Schneider

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