SOURCE: Zoran Corporation

May 09, 2011 01:00 ET

Zoran Corporation Reports First Quarter 2011 Results

SUNNYVALE, CA--(Marketwire - May 9, 2011) - Zoran Corporation (NASDAQ: ZRAN), a leading provider of digital solutions for applications in the digital entertainment and digital imaging markets, today reported results for its first quarter ended March 31, 2011.

Revenues for the first quarter of 2011 were $84.9 million, compared to $74.2 million for the previous quarter and $90.5 million for the first quarter of 2010. The Company reported a first quarter GAAP net loss of $30.4 million, or $0.62 per share, which compares with a GAAP net loss of $32.9 million, or $0.67 per share, for the previous quarter and a GAAP net loss of $4.0 million, or $0.08 per share, for the first quarter of the prior year.

Non-GAAP net loss for the first quarter was $21.3 million, or $0.43 per share, which excludes $1.5 million of amortization of acquired intangible assets, $1.8 million of restructuring expenses, $2.3 million of acquisition related expenses, $1.9 million related to shareholder consent revocation activities, $3.9 million of stock-based compensation expenses, and includes an adjustment of $2.4 million for the tax provision to a non-GAAP rate. This compares with a non-GAAP net loss of $15.2 million, or $0.31 per share, for the previous quarter, and a non-GAAP net loss of $1.4 million, or $0.03 per diluted share for the same period last year.

"During the first quarter we achieved a number of new design wins with new customers in DTV, including several tier-one manufacturers which was consistent with our goals and resulted in an expanded and more diversified customer base," said Dr. Levy Gerzberg, president and chief executive officer of Zoran. "In printer imaging, momentum continued to build around our laser solutions which address both color and monochrome printers, and we achieved multiple deployments of our proprietary IPS software with new and existing customers. In our set-top-box product line, which includes Broadband-receivers, we saw new design wins and deployment of our solution with operators in India. While we are seeing slower than anticipated adoption of Docsis 3.0, continued demand for the traditional Docsis 2.0 slightly offset the shortfall. DVD continued to increase profits as we harvest end-of-life revenues.

"In digital camera, our results were in-line with previous expectations for the first quarter. We are pleased to announce that, during the quarter, we secured a new design win from one of the few remaining large tier-one manufacturers who were not already buying our COACH processor. We expect this new customer to begin contributing to revenue starting in the third quarter of this year.

"While our camera team continues to execute well, Cisco's recently announced decision to exit the video camcorder segment will negatively impact digital camera revenues in the second quarter and balance of the year. However, as a result of Zoran's leading market position and broad customer base, we believe that our other COACH customers will eventually fill a good portion of the market void, generating increased demand for our COACH processors. Combined with the aforementioned new customer, we expect digital camera revenues to grow significantly in the third quarter.

"During the quarter and driven by the tragedy in Japan, we saw cautious order patterns from customers across all of our core markets. However, we are already seeing signs of recovery as optimism builds and while outlook for the second quarter is relatively flat, the third quarter is expected to show significant revenue growth."

Dr. Gerzberg continued, "Zoran is fully committed to move towards the completion of our pending merger with CSR plc, which is expected to close by the end of the second quarter. We remain excited about the possibilities presented by our highly complementary and synergistic technology and product portfolios and the resulting opportunities for integration."

Recent Highlights

--  Zoran's revenues by product line for the first quarter of 2011 were 39
    percent Digital Camera, 25 percent STB (includes broadband receivers),
    18 percent Printer Imaging, 11 percent DTV, and 7 percent DVD

--  Zoran signs definitive agreement to merge with CSR Plc

--  Zoran and Software Imaging Limited launch new Universal driverless
    printing solution for Smartphones & Tablets

--  Zoran secures new design win for COACH with one of the few remaining
    tier one customers who is not already a customer

--  Zoran delivered customer samples of COACH 14 which will power a new
    generation of high end cameras and secured several top tier designs
    with the product

--  Zoran demonstrates DTV and Set-Top-Box platforms for worldwide
    manufacturers at CCBN in Beijing

--  Zoran demonstrates Set-Top platforms for Pay Satellite manufacturers at
    Convergence India in New Delhi

--  Zoran demonstrated to customers its Android TV platform based on its
    new SupraHD DTV processor

Future Outlook

The following forward-looking statements are based on our current expectations and reflect expectations regarding the impact of Cisco's exit of the video camcorder market as well as the tragedy in Japan among other factors, and actual results may differ materially.

Zoran currently expects revenues for the second quarter of 2011 to range between $80 million and $85 million, with gross margins ranging between 52 and 53 percent. The Company expects to record a second quarter GAAP net loss in the range of $0.50 to $0.53 per share on approximately 50 million shares. On a non-GAAP basis, which excludes acquisition-related amortization costs and stock-based compensation expenses, the Company expects to record a second quarter net loss of $0.40 to $0.43 per share.

Zoran expects a significant increase in revenues for the third quarter of 2011 and expects to be profitable on a non-GAAP basis in the second half of 2011.

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, including non-GAAP net income (loss) and non-GAAP EPS that excludes charges such as amortization of acquired intangible assets, acquisition related expenses, stock-based compensation expense, restructuring expense, shareholder consent revocation expenses, and associated income tax adjustments. Non-GAAP results are reconciled to GAAP results on the attached Schedule.

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 financial information, 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 financial information, 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.

Company Profile

Zoran Corporation, based in Sunnyvale, California, is a leading provider of digital solutions for the digital entertainment and digital imaging markets. With over 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 DTV, set-top box, broadband receivers (silicon tuners), DVD, digital camera, 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 additional operations in China, France, Germany, India, Israel, Japan, Korea, Taiwan, and the U.K., 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 that reflect the Company's current views of future events and future financial performance, including each of the chief executive officer quotations, and the material presented under "Future Outlook," including statements regarding the Company's future results of operations including in the second and third quarters of 2011, business prospects, and statements regarding potential design wins, new customer sales contribution, prospects and expectations for our COACH line of digital camera products in light of Cisco's decision to terminate its Flip product, the prospects of various business lines, and expectations regarding the timing of closing the CSR transaction. These forward-looking statements are subject to many risks and uncertainties that could cause actual results to differ materially from what is currently expected, including risks associated with the earthquake and related nuclear accident in Japan; risks associated with the Company's ability to acquire new, and increase its business from current, customers; potential declines in the Company's sales as a result of the continuing global economic slowdown that could continue to reduce demand for consumer electronic and other products; the impact of Cisco's decision to discontinue its Flip product line on the Company's results of operations, including that new customers may not buy COACH products as anticipated, inability to close or delays in closing the CSR transaction due to failure of or any delay in the satisfaction of any condition precedent or otherwise; continued tightening in global credit markets, which could result in insolvency of key suppliers, customers, or retailers and customer inability to finance purchases of our products; the rapidly evolving markets for the Company's products and uncertainty regarding the pace and direction of development of those markets; the impact of further ASP declines; the Company's dependence on sales to a limited number of large customers; cost and length of time required for new product development; timing and impact of new product introductions by the Company and its competitors, and of transitions away from older products; intense competition in the Company's markets and in the markets in which its customers operate; the Company's reliance on other parties for wafer supplies, product assembly and testing, and manufacturing capacity; the effects of changes in revenue and product mix on the Company's gross margins; fluctuations in tax rate caused by projections of the geographic sources of Company income; dependence on key personnel; reliance on international operations, particularly operations in Israel; the possibility of disruption from the consent solicitation making it more difficult to maintain business and operational relationships; disruption or uncertainty caused by future shareholder actions, including by Ramius Group;. Please refer to the discussion of the risks and uncertainties under the caption "Risk Factors" and elsewhere in Forms 10-K, 10-Q and 8-K filed by the Company with the SEC for further information regarding risks and uncertainties that could cause actual results or events to differ materially from those contained in the forward-looking statements included in this press release. The Company assumes no obligation to update any forward-looking statements as a result of new information or future events or developments, except as required by law.

Zoran, the Zoran logo and SupraHD are trademarks or registered trademarks of Zoran Corporation and/or its subsidiaries 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,
                                                  ------------------------
                                                      2011         2010
                                                  -----------  -----------

Revenues:
   Hardware product revenues                      $    72,877  $    79,050
   Software and other revenues                         12,043       11,401
                                                  -----------  -----------
      Total revenues                                   84,920       90,451

Costs and expenses:
   Cost of hardware product revenues                   40,926       43,720
   Research and development                            35,285       26,114
   Selling, general and administrative                 31,995       23,011
   Amortization of intangibles                          1,511          109
   Acquisition related expenses                         2,307            -
   Restructuring expense                                1,841            -
   Shareholder consent revocation expense               1,860            -
   IP licensing related settlements                         -        1,115
                                                  -----------  -----------
      Total costs and expenses                        115,725       94,069

Operating loss                                        (30,805)      (3,618)

Interest and other income, net                            867        2,349
                                                  -----------  -----------
Loss before income taxes                              (29,938)      (1,269)

Provision for income taxes                                428        2,700
                                                  -----------  -----------
Net loss                                          $   (30,366) $    (3,969)
                                                  ===========  ===========

Basic and diluted net loss per share              $     (0.62) $     (0.08)
                                                  ===========  ===========

Shares used to compute basic and diluted net loss
 per share                                             49,079       51,174
                                                  ===========  ===========




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




                                                 Three Months Ended
                                                      March 31,
                                              ------------------------
                                                2011           2010
                                              ---------      ---------

GAAP net loss                                 $ (30,366)     $  (3,969)

Adjusting items to GAAP net loss:

  Operating expenses related to stock based
   compensation expense                           3,945  (a)     2,196  (a)
  Amortization of intangibles                     1,511  (b)       109  (b)
  Acquisition related expenses                    2,307  (c)         -
  Restructuring expense                           1,841  (d)         -  (d)
  Shareholder consent revocation expense          1,860  (e)         -
  IP licensing related settlements                    -          1,115  (f)
  Provision for income taxes                     (2,362) (g)      (900) (g)
                                              ---------      ---------

Non-GAAP net loss                             $ (21,264) (h) $  (1,449) (h)
                                              =========      =========

Non-GAAP basic and diluted net loss per share $   (0.43) (h) $   (0.03) (h)
                                              =========      =========

Shares used to compute non-GAAP basic and
 diluted net loss per share                      49,079         51,174
                                              =========      =========



(a) This adjustment reflects the stock-based compensation expense recorded
under ASC 718-10.  The Company excludes this item 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 (h) below)

(b) This adjustment represents the amortization of intangible assets
associated with the acquisition of Let It Wave, Inc. in June 2008 and
Microtune, Inc. in November 2010.  Such amortization expense does not
impact the Company's cash flows and is excluded by management when
evaluating its core operating performance.  (see (h) below)

(c) This adjustment represents acquisition expenses associated with the
pending merger with CSR plc and the acquisition of Microtune, Inc. which
was completed during the fourth quuarter of 2010.  The Company excludes
this item 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 (h) below)

(d) This adjustment reflects various resturcturing expenses recorded by the
Company during the quarter ended March 31, 2011 in order to reduce ongoing
operating costs.  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 (h) below)

(e) This amount represents the shareholder consent revoation expenses
associated with our Ramius shareholder.  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 (h) below)

(f) This adjustment reflects non-recurring expenses associated with IP
licensing related settlements.  The Company excludes this item 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 (h) below)

(g) This adjustment represents the difference between the non-GAAP income
tax rate and the GAAP income tax rate. This adjustment is made by the
Company when it evaluates its continuing operational performance.  (see (h)
below)

(h) 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 performance. 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.




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





                                                   March 31,   December 31,
                                                      2011         2010
                                                  -----------  -----------

ASSETS

   Current assets:
         Cash and short-term investments          $   251,479  $   261,266
         Accounts receivable, net                      25,065       22,815
         Inventory                                     42,923       48,139
         Prepaid expenses and other current
          assets                                       21,554       22,379
                                                  -----------  -----------
            Total current assets                      341,021      354,599

   Property and equipment, net                         16,347       16,959
   Other assets                                        78,769       82,006
   Intangible assets, net                              54,456       53,825
                                                  -----------  -----------

         Total assets                             $   490,593  $   507,389
                                                  ===========  ===========



LIABILITIES AND STOCKHOLDERS' EQUITY

   Current liabilities:
         Accounts payable                         $    33,497  $    25,158
         Accrued expenses and other liabilities        43,358       42,236
                                                  -----------  -----------
            Total current liabilities                  76,855       67,394

   Long term liabilities                               38,367       38,517

   Stockholders' equity:
         Common stock                                      49           49
         Additional paid-in capital                   861,827      857,154
         Accumulated other comprehensive income         1,053        1,467
         Accumulated deficit                         (487,558)    (457,192)
                                                  -----------  -----------
            Total stockholders' equity                375,371      401,478

         Total liabilities and stockholders'
          equity                                  $   490,593  $   507,389
                                                  ===========  =========== 


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