ARC International plc Announces Unaudited Preliminary Results For the Year Ended December 31, 2007

SAN JOSE, Calif. & ST. ALBANS, England—(BUSINESS WIRE)—February 19, 2008— ARC International (LSE: ARK), the world leader in multimedia subsystems and configurable CPU/DSP cores, today announced its unaudited preliminary results for the full year ended December 31, 2007.
Highlights from Year Ended December 31, 2007 (Compared to Financial
 Year 2006)
                             $               GBP        % Increase (2)
Total Revenue (1)      $28.9 million   GBP 14.4 million      +17%
Royalty Revenue         $9.7 million   GBP 4.9 million       +54%
Bookings               $37.3 million   GBP 18.7 million      +23%
Total Backlog          $16.6 million   GBP 8.3 million       +96%
Licensing Revenue (1)  $15.0 million   GBP 7.4 million       +2%

(1) Revenue of $28.9 million excluded an estimated $0.8 million of revenues from an acquisition made during the year. As a result of the completion of purchase accounting analysis these revenues have been offset against acquired goodwill.

(2) On a dollar basis
-- 2007 closed with record highs in backlog and sales pipeline

-- Net loss without acquisitions decreased 10% to GBP 1.0 million. Net
    loss with acquisitions increased to GBP 2.5 million

-- Closing cash and short term investment position remain strong at
    GBP 21.2 million

-- Completed and integrated strategic acquisitions
     -- Alarity, Teja, and Tenison establish ARC's ability to deliver
         vertically integrated multimedia solutions to high value
         semiconductor companies
     -- Sonic Focus adds a new, complementary class of customer and
         revenue channel through licensing its audio enhancement
         software directly to OEMs

-- New first-time royalty contributions; Increase in ARC-Based(TM)
    unit shipments
     -- 6 post 2004 contracts contributed royalty revenues

-- Total ARC customers now at 144
     -- 20+ customer contracts announced in 2007
     -- Intel signs new multi-year, royalty bearing licensing
     -- Broadcom signed a new ten year licensing agreement
     -- $15 million agreement with one of the world's largest consumer
         electronics companies

Commenting on the company's performance, Carl Schlachte, president and chief executive officer, said, "2007 was a year of important achievements and solid growth for ARC International. ARC's revenue growth again outpaced the semiconductor market. Royalties increased to a record high and contracts completed since 2004 began to contribute royalty revenue during the year. Two of the largest customer agreements in the company's history were announced, including Intel, and ARC enters 2008 with record highs in backlog and the sales pipeline.

"Three acquisitions were completed and integrated in 2007, and already are contributing to ARC's ability to build deeper relationships with a greater number of high value semiconductor companies. The additions of Teja, Tenison, and Alarity fill out ARC's technology. Management now is focusing on more vertical solutions and adding new types of customers and revenue channels to leverage the existing business with semiconductor companies. Sonic Focus is the first such acquisition: For the first time in ARC's history the company will derive licensing and royalty fees directly from OEMs, which typically are higher than those obtained from chip firms and creating more demand for ARC-Based products."

Commenting on the financial results, Victor Young, chief financial officer, said, "We were particularly pleased with the strong growth in royalty revenue. While the fourth quarter reflected softness some customers in North America were experiencing as a result of economic conditions, management remains confident about the market prospects for 2008 and the record highs in the sales pipeline and backlog reflect this potential. Contracts that were delayed to 2008 from the fourth quarter are expected to close within the first half of this year. Cost savings have been realized as a result of integrating the acquired companies, and we will look to maximize additional opportunities moving forward."

Statement from the President and Chief Executive Officer


In 2007 ARC International continued to make good progress in expanding the use of its products and brand. The company's revenue growth again outperformed the semiconductor industry and many competitors. More high value customers took licensing agreements in the year, including Intel, and three strategic acquisitions were completed and integrated. ARC introduced several new multimedia subsystems and configurable cores, and contracts completed since 2004 started to contribute to ARC's royalty stream as planned.

Strategic Direction and 2007 Acquisitions

The consumer electronics market continues to drive much of the semiconductor industry. But many devices, such as camera-enabled cell phones and MP3 players, still offer mediocre quality video and audio. Delivering the highest quality multimedia experience to consumers - regardless of form factor - presents a significant market opportunity and is a key part of ARC's strategy. I call this "Enabling the YouTube Generation," which was outlined in my keynote presentation at the ConfigCon(TM) Silicon Valley developer conference December 2007. A highlight video of the conference is available on ARC's Website.

To bolster ARC's multimedia products serving these opportunities in the semiconductor market and to further increase revenues, ARC acquired Teja, Tenison, and Alarity. These acquisitions were a cost-effective way for ARC to obtain important tools and software, which combined with ARC's subsystems and cores provide the basis for ARC to develop more of a vertically integrated solution for chip designers. By offering more of the solution ARC can command a higher premium on licensing fees. Customer feedback from these acquisitions has been positive, and as a result ARC already is engaged with a greater number of high value companies building chips for audio and video applications. Management expects to be able to announce the first licensing agreements as a result of these discussions within the next few quarters.

Entering Complementary Markets

ARC's ability to develop and deliver integrated multimedia solutions to the semiconductor industry is established. Now ARC can target a new class of customers and add new sources of revenue to complement ARC's existing semiconductor licensing business. The acquisition of Sonic Focus in 2008 brings these opportunities to ARC. Sonic Focus licenses its award-winning sound enhancement software directly to OEMs. By obtaining royalties directly from the OEM rather than semiconductor suppliers, Sonic Focus products can command much higher per unit royalty revenue than semiconductor intellectual property (IP) companies normally obtain.

Furthermore, the acquisition of Sonic Focus provides additional leverage for ARC's traditional licensing business with chip designers. By having an OEM select Sonic Focus's audio software to semiconductor firms, those semiconductor suppliers looking to win business with that OEM are more motivated to adopt an ARC solution for their chip design.

Announced acquisitions:
-- Sonic Focus, Inc.
   Sonic Focus, based in Northern California, provides award-winning
    audio enhancement software, restoring natural surround sound to
    digitally compressed stereo files. Sonic Focus has an established
    revenue stream and growing customer list of leading OEMs. The
    company already has achieved design wins in a number of desktop
    PCs, laptops, and a range of consumer electronics products. Sonic
    Focus's artisans and engineers draw upon decades of close
    partnerships with music icons and media companies.

-- Alarity Corporation, Inc.
   Alarity has a renowned team of specialists in multimedia software
    applications based in St. Petersburg, Russia. Prior to the
    acquisition, Alarity was engaged in select opportunities with
    larger ARC customers using ARC's multimedia subsystems and
    configurable processors. The integration of Alarity will make
    available its full set of software resources to a broader number
    of ARC customers worldwide.

-- Teja Technologies
   Teja, located in Northern California, develops software used in the
    creation of chips implementing multiple processors. Teja was
    founded in 1998 with funding from venture firms such as the
    Mayfield Fund and Intel Capital. Their  customer  list  included
        companies  such  as  Intel,  Cisco  Systems,  Samsung,  and  Sun
        Microsystems.  Their  multiprocessor  technology  will  be  instrumental
        to  ARC's  future  multimedia  subsystems.

--  Tenison  Technology  EDA,  Ltd.
      Tenison,  located  in  Cambridge,  England  provides  highly  accurate
        simulation  models  of  processors  and  system-on-chips  (SoCs).  The
        acquisition  includes  key  members  of  Tenison's  engineering  team,
        patents,  and  products.  Tenison's  customer  list  included  companies
        such  as  Broadcom,  Freescale,  and  Renesas.  This  technology  will  be
        key  to  providing  ARC's  customers  with  accurate  simulation  models
        of  next-generation  multimedia  solutions.

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