SOURCE: Zoran Corporation

April 21, 2008 16:05 ET

Zoran Corporation Reports First Quarter 2008 Results

DTV and Mobile Phone Processors Achieve Records in Revenues and Units Shipped, Growing Revenues Sequentially 19 and 84 Percent, Respectively

SUNNYVALE, CA--(Marketwire - April 21, 2008) - Zoran Corporation (NASDAQ: ZRAN), a leading provider of digital solutions for applications in the growing digital entertainment and digital imaging markets, today reported results for its first quarter ended March 31, 2008.

Revenues for the first quarter were $109.0 million, compared to $129.4 million last quarter and $101.7 million for the first quarter of 2007. The Company reported a net loss for the first quarter of $4.7 million, or $0.09 per share, which includes charges of $9.2 million related to the amortization of acquisition-related purchased intangible assets and stock-based compensation expenses of $2.9 million. This compares with net income of $58.7 million, or $1.11 per diluted share for the previous quarter and a net loss of $5.9 million, or $0.12 per share for the first quarter of 2007. Net income for the fourth quarter of 2007 included a tax benefit of $56.2 million.

Non-GAAP net income for the first quarter was $3.5 million, or $0.07 per diluted share, which excludes charges related to the amortization of acquisition-related purchased intangible assets and stock-based compensation expenses. This compares with non-GAAP net income of $18.1 million, or $0.34 per diluted share, for the previous quarter, and $9.5 million, or $0.19 per diluted share, for the same period last year. On a non-GAAP basis, the Company adjusted its annual tax rate in the fourth quarter from 10.7 percent to 4.7 percent, resulting in a net tax benefit of $2.9 million.

"During the first quarter we saw increasing momentum in DTV where we achieved 19 percent sequential growth and 68 percent annual growth, resulting in record revenues and units shipped," said Dr. Levy Gerzberg, Zoran's president and chief executive officer. "Zoran's SupraHD processors continued to gain traction and we saw multiple LCD TV models based on this technology enter the retail market under well-known brands now available at major outlets such as Best Buy, Costco and WalMart. Our mobile phone processor product line grew 84 percent from last quarter, exceeding expectations. We currently expect to achieve even stronger growth in the second quarter. Our DVD and digital camera businesses were adversely impacted by weak consumer spending as well as seasonal softness, however we believe we are well positioned to benefit from the return of favorable market trends later in the year."

Recent Highlights

--  Revenues by product line for the first quarter of 2008 were 27 percent
    Digital Camera, 25 percent DTV, 21 percent DVD, 19 percent Printer Imaging,
    7 percent mobile phone processors and 1 percent other
    
--  Zoran Powers Coship's New Family of China Cable Set-Top Boxes
    
--  Zoran Demonstrates Latest Set-Top Box and Digital Television
    Technologies at CCBN in Beijing
    
--  Zoran Powers NTIA-Certified Converter Boxes From Eight Manufacturers
    Including Apex Digital, RCA and others
    
--  Zoran's COACH Processors Power Over 50 new Digital Camera Models at
    PMA
    
--  Zoran Demonstrates COACH 11 Digital Camera Processors with Face
    Tracking & Blur Correction Technologies at PMA
    
--  Zoran Demonstrates Camera and Multimedia Technology for Mobile Phones
    at Mobile World Congress
    
--  Zoran Demonstrates New DVD, HDTV, Digital Camera, Multimedia Mobile
    Phone, and Printer Technologies at CES2008
    
--  Zoran Announces VaddisHD Multimedia Processor Platform for Blu-Ray
    Players
    

Future Outlook

The following statements are based on our current expectations. These statements are forward-looking, and actual results may differ materially.

The Company is currently expecting second quarter 2008 revenues to range between $130 million and $135 million, with gross margins ranging between 46 and 46.5 percent. Excluding any acquisition-related costs and stock-based compensation expense, operating expenses are expected to be in a range of $53 million to $54 million. Acquisition-related costs are expected to be approximately $9.2 million with stock-based compensation expense expected to range between $2.8 and $3.3 million. The Company expects to record second quarter earnings in the range of a loss of $0.03 per share to net income of $0.03 per diluted share. Non-GAAP earnings for the quarter, which exclude acquisition-related costs and stock-based compensation expense, are expected to range between $0.14 and $0.18 per diluted share on approximately 52.2 million shares.

Zoran will provide more commentary on its first quarter results during the quarterly conference call.

Use of Non-GAAP Financial Information

In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, Zoran provides non-GAAP financial information, consisting of non-GAAP operating expense and non-GAAP net income (loss) that excludes the one-time tax benefit, proceeds received as part of litigation settlements and the associated provision for income taxes, amortization of acquired intangible assets and stock-based compensation expense.

The Company believes that its non-GAAP financial information provides useful information to management and investors regarding financial and business trends relating to its financial condition and results of operations because it excludes items that management considers to be outside of the Company's core operating results. The Company believes that this non-GAAP net income (loss), in combination with the Company's financial results calculated in accordance with GAAP, provides investors with additional perspective and a more meaningful understanding of the Company's ongoing operating performance. In addition, the Company's management uses these non-GAAP measures to review and assess the financial performance of the Company, to determine executive officer incentive compensation, and to plan and forecast performance in future periods. The Company's non-GAAP net income (loss) is not prepared in accordance with GAAP, is not an alternative to GAAP financial information, and may be calculated differently than non-GAAP financial information disclosed by other companies.

Quarterly Conference Call

Zoran Corporation has scheduled a conference call for 2:00 p.m. PT today to discuss first quarter results. To listen to the call, please call 617-801-9702 approximately five minutes prior to the start of the call. For those who are not available to listen to the live conference call, a replay will be available from approximately 4:30 p.m. PT on April 21, until 4:30 p.m. PT on April 28, 2008. The access number for the replay is 617-801-6888, confirmation number 48134525. Additionally, the conference call will be broadcast live over the Internet and can be accessed by all interested parties through the investor relations section of Zoran's website at www.zoran.com. Please access the website at least fifteen minutes prior to the start of the call to register and to download and install any necessary audio software.

Company Profile

Zoran Corporation, based in Sunnyvale, California, is a leading provider of digital solutions for applications in the growing digital entertainment and digital imaging markets. With two decades of expertise developing and delivering digital signal processing technologies, Zoran has pioneered high-performance digital audio and video, imaging applications, and Connect Share Entertain technologies for the digital home. Zoran's proficiency in integration delivers major benefits for OEM customers, including greater capabilities within each product generation, reduced system costs, and shorter time to market. Zoran-based DVD, digital camera, DTV, multimedia mobile phone, and multifunction printer products have received recognition for excellence and are now in hundreds of millions of homes and offices worldwide. With headquarters in the U.S. and operations in Canada, China, England, Germany, India, Israel, Japan, Korea, and Taiwan, Zoran may be contacted on the World Wide Web at www.zoran.com or at 408-523-6500.

Forward-Looking Statements

This press release includes forward-looking statements, including the chief executive officer quotation and the material presented under "Future Outlook," that reflect the Company's current views with respect to future events and financial performance. These forward-looking statements are subject to many risks and uncertainties that could cause actual results to differ materially from what is expected, including risks associated with: the rapidly evolving markets for the Company's products and uncertainty regarding the pace and direction of development of those markets; cost and timing of new product development; timing and impact of new product introductions by the Company and its competitors and transitions away from older products; intense competition in our markets; the Company's reliance on fourth parties for wafer supplies, product assembly and testing, and scalable manufacturing capacity; the effects of changes in revenue and product mix on the Company's gross margins; the Company's dependence on sales to large customers; fluctuations in product mix; dependence on key personnel; litigation related to our review of historical stock option practices and related financial restatements; and reliance on international sales and operations, particularly operations in Israel. Further information regarding these and other risks and uncertainties can be found in the Company's most recently filed Annual Report on Form 10-K and other filings with the SEC.

Zoran, the Zoran logo, SupraHD, SupraTV, VaddisHD, Quatro, APPROACH and IPS are trademarks of Zoran Corporation in the United States and/or other countries. All other brands or names may be claimed as property of others.


                            ZORAN CORPORATION
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  (in thousands, except per share data)
                                (unaudited)


                                                     Three Months Ended
                                                          March 31,
                                                  ------------------------
                                                      2008         2007
                                                  -----------  -----------

Revenues:
   Hardware product revenues                      $    94,297  $    87,182
   Software and other revenues                         14,734       14,477
                                                  -----------  -----------
      Total revenues                                  109,031      101,659

Costs and expenses:
   Cost of hardware product revenues                   57,789       44,198
   Research and development                            27,887       24,988
   Selling, general and administrative                 25,639       28,593
   Amortization of intangibles                          9,237       12,169
                                                  -----------  -----------
      Total costs and expenses                        120,552      109,948

Operating loss                                        (11,521)      (8,289)

Interest and other income, net                          3,813        4,205
                                                  -----------  -----------
Loss before income taxes                               (7,708)      (4,084)

Provision (benefit) for income taxes                   (3,030)       1,800
                                                  -----------  -----------
Net loss                                          $    (4,678) $    (5,884)
                                                  ===========  ===========

Basic and diluted net loss per share              $     (0.09) $     (0.12)
                                                  ===========  ===========

Shares used to compute basic and diluted net loss
 per share                                             51,445       49,442
                                                  ===========  ===========



                            ZORAN CORPORATION
                     NON-GAAP ADJUSTMENTS TO NET LOSS
                  (in thousands, except per share data)
                                (unaudited)


                                                  Three Months Ended
                                                      March 31,
                                                ----------------------
                                                  2008          2007
                                                --------      --------

GAAP net loss                                   $ (4,678)     $ (5,884)

Adjusting items to GAAP net loss:
   Amortization of intangibles                     9,237  (a)   12,169  (a)
   Operating expenses related to stock based
    compensation expense                           2,943  (b)    3,236  (b)
   Benefit from income taxes                      (4,009) (c)        -  (c)
                                                --------      --------

Non-GAAP net income                             $  3,493  (d) $  9,521  (d)
                                                ========      ========

Non-GAAP basic net income per share             $   0.07  (d) $   0.19  (d)
                                                ========      ========
Non-GAAP diluted net income per share           $   0.07  (d) $   0.19  (d)
                                                ========      ========

Shares used to compute non-GAAP basic net
 income per share                                 51,445        49,442
                                                ========      ========
Shares used to compute non-GAAP diluted net
 income per share                                 52,034        50,667
                                                ========      ========


(a) This adjustment reflects the amortization of intangible assets
associated with the acquisitions of Oak Technology, Inc. in August 2003,
Emblaze Semiconductor in July 2004 and Oren Semiconductor, Inc. in June
2005.  These acquired intangible assets are amortized over their estimated
useful lives.  Such amortization expense does not impact the Company's cash
flows and is excluded by management when evaluating our core operating
results.  (see (d) below)

(b) This adjustment reflects the stock-based compensation expense recorded
under SFAS 123R.  For 2007, the adjustment also includes additional stock
based compensation expense attributable to options that were remeasured as
part of the stock option review and the attributable tax implications under
IRS regulation 409(A) that will be incurred by the Company.  The Company
excludes these items when it evaluates the continuing operational
performance of the Company as management believes this GAAP measure is not
indicative of its core operating performance.  (see (d) below)

(c) This adjustment represents the difference between the non-GAAP income
tax rate and the GAAP income tax rate. The Company excludes this item when
it evaluates the continuing operational performance of the Company as it is
considered a non-recurring item which is not part of our ordinary, ongoing
and customary course of operations.  (see (d) below)

(d) The Company believes that its non-GAAP financial information provides
useful information to management and investors regarding financial and
business trends relating to its financial condition and results of
operations because it excludes charges that management considers to be
outside of the Company's core operating results. The Company believes that
this non-GAAP net income, in combination with the Company's financial
results calculated in accordance with GAAP, provides investors with
additional perspective and a more meaningful understanding of the Company's
ongoing operating performance. In addition, the Company's management uses
these non-GAAP measures to review and assess the financial performance of
the Company, to determine executive officer incentive compensation and to
plan and forecast performance in future periods. The Company's non-GAAP net
income is not prepared in accordance with GAAP, is not an alternative to
GAAP financial information, and may be calculated differently than non-GAAP
financial information disclosed by other companies.




                            ZORAN CORPORATION
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                              (in thousands)
                                (unaudited)


                                                   March 31,   December 31,
                                                      2008         2007
                                                  -----------  -----------

ASSETS

   Current assets:
      Cash and short-term investments             $   314,496  $   319,809
      Accounts receivable, net                         55,054       58,220
      Inventory                                        64,602       48,992
      Prepaid expenses and other current assets        27,930       25,189
                                                  -----------  -----------
         Total current assets                         462,082      452,210

   Property and equipment, net                         17,555       17,636
   Other assets                                       134,321      155,850
   Intangible assets, net                             185,399      194,636
                                                  -----------  -----------

      Total assets                                $   799,357  $   820,332
                                                  ===========  ===========



LIABILITIES AND STOCKHOLDERS' EQUITY

   Current liabilities:
      Accounts payable                            $    52,525  $    67,836
      Accrued expenses and other liabilities           38,930       43,968
                                                  -----------  -----------
         Total current liabilities                     91,455      111,804

   Long term liabilities                               22,029       20,756

   Stockholders' equity:
      Common stock                                         51           51
      Additional paid-in capital                      850,677      847,597
      Accumulated other comprehensive income              694          995
      Accumulated deficit                            (165,549)    (160,871)
                                                  -----------  -----------
         Total stockholders' equity                   685,873      687,772

      Total liabilities and stockholders' equity  $   799,357  $   820,332
                                                  ===========  ===========

Contact Information