Company Achieves Second Consecutive Quarter of Profitability from Operations

SHELTON, Conn. — (BUSINESS WIRE) — October 28, 2009 — TranSwitch Corporation (NASDAQ: TXCC), a leading provider of semiconductor solutions for the converging voice, data and video network, today announced financial results for the third quarter ended September 30, 2009.

Net revenues for the third quarter of 2009 were approximately $15.2 million, as compared to net revenues of $14.5 million for the second quarter of 2009 and $10.5 million for the third quarter of 2008. The GAAP net loss for the third quarter of 2009 was ($1.5) million, or ($0.01) per basic and diluted common share as compared to a net loss of ($1.3) million, or ($0.01) per basic and diluted common share, during the second quarter of 2009 and a net loss of ($3.0) million, or ($0.02) per basic and diluted common share during the third quarter of 2008.

The GAAP gross margin for the third quarter was 54%. This is compared to the Company's GAAP gross margin of 59% for the second quarter of 2009, and 57% for the third quarter of 2008.

Total non-GAAP operating expenses for the third quarter of fiscal 2009 were $8.0 million, down from the second quarter of fiscal 2009 level of $8.1 million. Total GAAP operating expenses for the third quarter of fiscal 2009 were $8.8 million and included $0.4 million in amortization of purchase price intangibles, $0.3 million in stock-based compensation and $0.1 million in restructuring charges.

Non-GAAP operating income for the third quarter of fiscal 2009 was $0.2 million, compared to non-GAAP operating income of $0.5 million for the second quarter of fiscal 2009 and a non-GAAP operating loss of ($2.4) million for the third quarter of 2008. On a GAAP basis, the operating loss for the third quarter of fiscal 2009 was ($0.6) million, compared to an operating loss of ($0.3) million for the second quarter of fiscal 2009 and an operating loss of ($2.7) million for the third quarter of 2008.

Non-GAAP net loss for the third quarter was ($0.7) million, or ($0.00) per share compared with a non-GAAP net loss of ($0.5) million, or ($0.00) per share, for the second quarter of 2009 and a non-GAAP net loss of ($2.6) million, or ($0.02) per share, for the third quarter of 2008. The non-GAAP net loss excluded amortization of purchase price intangibles of $0.4 million, stock–based compensation of $0.3 million and restructuring charges of $0.1 million.

Further information about non-GAAP measures and a reconciliation to the GAAP results is provided after the financials attached to this release.

“For the second consecutive quarter, TranSwitch achieved sequential revenue growth and profitability from its operations on a non-GAAP basis,” stated Dr. Santanu Das, President and CEO of TranSwitch Corporation.

“As we entered 2009, our goal was to create a leaner, more efficient, growing, and profitable company. Our strategy was to manage our expenses at roughly $8 million per quarter and improve our top line by focusing on the higher growth Access and CPE markets. We have successfully delivered on that strategy,” continued Dr. Das.

“Our R&D focus is to invest in the Access and CPE markets as we believe we have significant advantages compared to our competition. We are an incumbent silicon provider in Access in Japan and in the CPE area in Korea. We also believe that with ‘Triple/Quad-Play’ driving future network growth, our industry-leading VoIP technologies combined with advanced security and routing features in our products give us a significant advantage,” added Dr. Das.

“Our industry is showing signs of improvement, and we expect our fourth quarter revenue to be modestly higher than the third quarter. Based on our current backlog and visibility, our revenue in the fourth quarter should be around $15.5 million. At this revenue level, we should again achieve a non-GAAP operating profit,” concluded Dr. Das.

Additional details on TranSwitch’s third quarter 2009 financial results will be discussed during a conference call regarding this announcement today at 5:30 pm Eastern time. To listen to the live call, investors can dial 785-830-7980 and reference confirmation code: 5084835. The call will be recorded and a replay will be available two hours after the conclusion of the live broadcast through November 7, 2009. To access the replay, dial 719-457-0820 and enter confirmation code: 5084835. Investors can also access an audio webcast which will be broadcast through Vcall’s Investor Calendar at www.investorcalendar.com or the Company’s website at www.transwitch.com. This audio webcast will also be available on a replay basis for 10 business days.

Reconciliation of Non-GAAP Financial Measures to Comparable U.S. GAAP Measures (Unaudited)

Pursuant to the requirements of Regulation G, the Company has provided a reconciliation of each non-GAAP financial measure used in this earnings release and related conference call or webcast to the most directly comparable financial measure prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The reconciliation for historic non-GAAP measures is provided herein on a quantitative basis and for non-GAAP measures that are forward-looking is provided herein on a qualitative basis.

The non-GAAP measures used in this earnings release and related conference call differ from GAAP in that they exclude expenses related to stock-based compensation, amortization of intangible assets, the effects of special charges such as asset impairments restructuring charges and benefits and gain on extinguishment of debt. The Company’s basis for these adjustments is described below. Management uses these non-GAAP measures for internal reporting and forecasting purposes. The Company has provided these non-GAAP financial measures in addition to GAAP financial results because it believes that these non-GAAP financial measures provide useful information to certain investors and financial analysts for comparison across accounting periods not influenced by certain non-cash items that are not used by management when evaluating the Company’s historical and prospective financial performance.

Management uses these non-GAAP financial measures when evaluating the Company’s operating performance and believes that such measures are useful to investors and financial analysts in assessing the Company’s operating performance due to the following factors:

• The Company believes that the presentation of non-GAAP measures that adjust for the impact of stock-based compensation expenses, amortization of intangible assets, the effects of special charges such as asset impairments and restructuring charges and benefits and gain on extinguishment of debt provides investors and financial analysts with a consistent basis for comparison across accounting periods and, therefore, are useful to investors and financial analysts in helping them to better understand the company’s operating results and underlying operational trends.

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