Vimicro Reports Fourth-Quarter and Full-Year 2010 and Preliminary First-Quarter 2011 Results

Revenue Growth of 44.0% in 2010 and 22.8% in the Fourth Quarter of 2010 from Continuing Operations

(PRNewswire) — Vimicro International Corporation (NASDAQ: VIMC) ("Vimicro"), a leading multimedia semiconductor and surveillance solution provider, today announced financial results for the three months and full year ended December 31, 2010 and preliminary results for the three months ended March 31, 2011.

(Logo: http://photos.prnewswire.com/prnh/20070528/CNM014LOGO )

Fourth-Quarter 2010 Results

In December 2010, the Company divested certain non-core IC business lines as part of its updated strategy to focus on core businesses such as multimedia semiconductors and surveillance solutions. The Company is reporting results for continuing operations, and results from prior periods have been revised to be comparable.

Total net revenue in the fourth quarter of 2010, including continuing and discontinued operations, was $28.4 million, which exceeded the high end of the guidance range of $26 to $28 million provided in the third-quarter earnings release. Combined revenues increased 19.5% year over year and 7.0% sequentially.

Net revenue in the fourth quarter of 2010 from continuing operations was $24.4 million, compared to $23.2 million in the third quarter of 2010 and $19.8 million in the fourth quarter of 2009. These figures exclude $4.0 million, $3.3 million, and $3.9 million of revenue from discontinued operations in the fourth and third quarters of 2010 and the fourth quarter of 2009, respectively. The 22.8% year-over-year revenue increase derived from growth in all business lines, particularly from PC/notebook multimedia processors and surveillance. Fourth-quarter net revenue was up 5.0% sequentially.

"Our fourth-quarter net revenues showed healthy year-over-year growth and were also up solidly on a sequential basis," commented Dr. John Deng, Vimicro's Chairman and Chief Executive Officer. "Surveillance revenues more than doubled in 2010, representing a strong year and validating our new product platform, and we were also encouraged by the Standardization Administration of China's release of the SVAC standard on December 31, 2010. In the fourth quarter, we also experienced solid growth in revenues from sales of PC and notebook multimedia processors, as we introduced several new image processors that strengthen our position in the PC imaging market. Mobile-phone revenue remained flattish but began to soften for TD-SCDMA products in the fourth quarter."

Cost of revenue in Q4 was $17.3 million, compared with $16.0 million in the third quarter. The gross margin in the fourth quarter was 29.0%, compared with 30.9% in the previous quarter, the decrease due to changes in product mix.

Operating expenses in the fourth quarter of 2010 were $13.3 million, which includes $0.9 million of share-compensation expense, as compared to $12.4 million in the third quarter. Operating expenses increased sequentially due to investments to grow the surveillance business.

Non-GAAP net income attributed to Vimicro International Corporation, excluding $0.9 million in share-based compensation, was a loss of $5.3 million, or approximately $0.15 per ADS. Fourth-quarter 2010 GAAP net loss was $8.3 million.

Full-Year 2010 Results

Including discontinued operations, net revenue in 2010 was $101.3 million, an increase of 38.9% versus 2009.

For the year ended December 31, 2010, net revenue from continuing operations was $90.8 million, up 44.0% from $63.0 million in 2009. The increase in sales was primarily attributable to higher sales across all product lines, particularly for PC/notebook multimedia processors and surveillance products. These figures exclude $10.5 million and $9.9 million in revenue from discontinued operations in 2010 and 2009, respectively.

Cost of revenue in 2010 was $61.9 million, compared with $42.4 million in the prior year. The gross margin in 2010 was 31.8%, compared with 32.7% in the previous year, due to changes in product mix.

Operating expenses in 2010 were $49.9 million, which includes $4.1 million of share-compensation expense, as compared to $40.1 million in the prior year. Operating expenses increased due to investments to grow the surveillance business.

The non-GAAP net loss attributable to Vimicro International Corporation, excluding $4.1 million, in share-based compensation was $14.5 million, or approximately $0.39 per ADS, compared to a loss of $9.8 million, or $0.27 per ADS, in 2009. The full-year 2010 GAAP net loss was $25.1 million.

As of December 31, 2010, the Company had cash and cash equivalents of approximately $69.5 million, short-term time deposits of $12.4 million, and total current assets of approximately $135.3 million. As of December 31, 2010, Vimicro had working capital of approximately $109.6 million and no long-term debt on its balance sheet.

Dr. Deng continued, "In 2010, we experienced revenue growth in all of our product lines. In December 2010, we announced a restructuring of our business to intensify our focus on our core businesses, such as the PC and surveillance business. We are especially encouraged by the final release of the SVAC standard, which will promote the growth of the domestic surveillance market and provide new revenue opportunities for us, and we expect continued strong growth in our surveillance business during the next few years. We expect our PC/notebook business to stabilize in the second half of the year, which will provide a solid foundation for growth in our surveillance solutions business."

Preliminary First-Quarter 2011 Results

In the first quarter of 2011, revenues from continuing operations are expected to be approximately $13.2 million. The sequential decline in revenues in the first quarter was due to a product transition to a higher-performance, lower-cost chip in our PC/notebook business and a decline in mobile handset demand from specific carriers, and a combination of seasonal factors, including the Chinese New Year holiday.

Business Outlook

For the second quarter of 2011, the Company expects revenues of $14 to 16 million, due to sequential growth in our PC/notebook multimedia processor and surveillance businesses.

Subsequent Events

On December 31, 2010, the Standardization Administration of China released the first, digital surveillance standard for Surveillance Video and Audio Coding (SVAC). This national standard for China was co-initiated and co-developed by Vimicro and the First Research Institute of Ministry of Public Security, along with contributions from more than 40 scientific research institutes, universities and security industry companies. SVAC is the first technology standard designed to solve the unique needs of the surveillance industry and has special significance for the establishment of China public security and criminal prevention systems.

On December 31, 2010, the Company announced the signing of an agreement for the divestiture of its analog integrated circuit, MP4, advanced multimedia and Bluetooth product lines, as well as land use rights as part of its updated strategy to focus on core businesses.

Financial Results Conference Call and Webcast

Vimicro will host a conference call on Thursday, June 30, 2011 at 5:00 p.m. Eastern Daylight Time to discuss the Company's fourth quarter and full-year 2010 and preliminary first-quarter 2011 results. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: +1 (800) 901-5217. International callers should dial +1 (617) 786-2964. When prompted by the operator, mention conference pass code 16070973.

If you are unable to participate in the call at this time, a replay will be available for 14 days starting on Thursday, June 30, 2011 , at 8:00 p.m. EDT . To access the replay, please dial +1 (888) 286-8010, international callers dial +1 (617) 801-6888, and enter the pass code 23932141.

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