Saifun Semiconductors Reports First Quarter 2006 Results

NETANYA, Israel, April 26 /PRNewswire-FirstCall/ -- Saifun Semiconductors Ltd. (NASDAQ: SFUN), a provider of intellectual property solutions for the non-volatile memory (NVM) market, today announced financial results for the first quarter ended March 31, 2006.

Financial Highlights - GAAP: First quarter 2006 compared with first quarter 2005 (including $9.6 million non-cash revenues).

- Revenues for the quarter were $15.8 million, compared to $22.2 million in the previous year.

- Gross profit for the quarter was $12.1 million, compared to $19.6 million in the previous year.

- Operating income for the quarter was $7.7 million, compared to $14.9 million in the previous year.

- Net income for the quarter was $10.0 million, or $0.34 per basic and $0.31 per diluted share, compared to net income in the previous year of $11.8 million.

- Net income for the quarter included $0.6 million of stock-based compensation (including $0.4 million of income due to a cumulative effect of a change in accounting principle relating to the adoption of SFAS 123R) compared to $1.4 million in the previous year.

Saifun reports its results of operation in accordance with GAAP and additionally on a non-GAAP basis, referred to as Non-GAAP. Non-GAAP information, where applicable, excludes the effect of $9.6 million non-cash revenues resulting from the termination of our former joint venture with Infineon Technologies AG recognized in the first quarter of 2005, excludes the loss from discontinued product operations, and excludes stock based compensation expenses and income.

Financial Highlights - Non-GAAP[1]: First quarter 2006 compared with first quarter 2005.

- Revenues for the quarter were $15.8 million, compared to $12.6 million, an increase of 25% compared to the previous year.

- Licensing revenues for the quarter were $10.5 million compared to $9.3 million, an increase of 13%.

- Service revenues for the quarter were $5.3 million, compared to $3.3 million in the previous year, an increase of 59%.

- Gross profit for the quarter was $12.5 million, compared to $10.2 million.

- Operating income for the quarter was $8.7 million or 55% of revenues, compared to $6.6 million or 52% of revenues in the previous year.

- Net income for the quarter was $10.7 million, or $0.36 per basic and $0.33 per diluted share, compared to net income in the previous year of $6.8 million.

[1] These non-GAAP measures should be considered in addition to, and not as a substitute for, the results prepared in accordance with GAAP. A reconciliation of GAAP statements of operations to Non-GAAP statements of operations is included in the financial statements portion of this release as well as on our website in the Investors section at www.saifun.com.

Saifun's management believes the Non-GAAP information is useful because it can enhance the understanding of the Company's ongoing economic performance and Saifun therefore uses internally the Non-GAAP information to evaluate and manage the Company's operations. Saifun has chosen to provide this information to investors to enable them to perform comparisons of operating results in a manner similar to how the Company analyzes its operating results.

Commenting on the results, Kobi Rozengarten, President of Saifun Semiconductors said, "We met or exceeded many of our goals for the quarter, which included achieving an operating profit margin of over 50% excluding stock-based compensation expense. We believe this illustrates the success and profitability of our business model which positions Saifun as an emerging leader in the NVM market.

"We continued to focus on helping our licensees accelerate product launches and deliver more products incorporating NROM to the market. This is reflected in the increase in service revenues as a percentage of total sales.

"Finally, our results this quarter were underscored by our ongoing commitment to take NROM technology to a new level. During the quarter, we taped out Quad NROM designs to two licensees who are working with us on data flash applications. This is another milestone in our initiative to foster broad adoption of NROM technology. We have multiple data flash projects underway with our partners and expect to see data flash products incorporating Quad NROM on the market by the end of 2006. The data flash market represents a sizeable opportunity for Saifun and our NROM technology. With a number of NROM-based data flash products currently in development by our licensees, we believe we are well positioned to capture a significant share of this market."

Lock-Up Agreements

The Company wishes to advise all shareholders that signed a lock-up agreement in connection with the Company's initial public offering that the lock-up agreement will be extended until May 15, 2006 and will not terminate on May 8, 2006 as was previously disclosed. This is because this earnings release has been issued within the 17-day period leading up to the expiration of the 180-day lock-up period as described in that agreement.

Conference Call

Saifun will host a conference call to discuss its financial results and other matters discussed in this press release at 8:30 a.m. EDT today, April 26, 2006. The call will be available live on the Internet at http://ir.saifun.com/phoenix.zhtml?c=183096&p=irol-irhome.

About Saifun Semiconductors Ltd.

Saifun is a provider of intellectual property (IP) solutions for the non-volatile memory (NVM) market. The company's innovative Saifun NROM(R) technology allows semiconductor manufacturers to deliver high performance, reliable products at a lower cost per megabit, with greater storage capacity, using a single process for all NVM applications. Saifun licenses its IP to semiconductor manufacturers who use this technology to develop and manufacture a variety of stand-alone and embedded NVM products. These include Flash memory for the telecommunications, consumer electronic, networking and automotive markets. The companies currently licensing Saifun NROM technology are Infineon Technologies, Macronix International, Matsushita, SMIC, Sony Corporation, Spansion and Tower Semiconductors.

Safe Harbor Statement

Information provided in this press release may contain statements relating to current expectations, estimates, forecasts and projections about future events that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to the company's plans, objectives and expectations for future operations and are based upon management's current estimates and projections of future results or trends. Actual future results may differ materially from those projected as a result of certain risks and uncertainties. For a discussion of such risks and uncertainties, see "Risk Factors" as described in the Company's final prospectus filed on November 10, 2005 with the U.S. Securities and Exchange Commission in connection with the company's initial public offering. These forward-looking statements are made only as of the date hereof, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

The above reconciled Non-GAAP statements are based upon our unaudited and audited consolidated statements of operations for the periods shown, giving effect to the adjustments above. This presentation is not in accordance with, or an alternative for, U.S. generally accepted accounting principles (GAAP). The reconciled Non-GAAP financial information presented herein should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. However, Saifun believes that the Non-GAAP information, giving effect to the adjustments shown above, provides meaningful information and therefore uses it to supplement its GAAP reporting and internally in evaluating operations, managing and benchmarking performance. Saifun has chosen to provide this Non -GAAP supplemental information to investors, analysts and other interested parties to enable them to perform additional analyses of operating results.

                             SAIFUN SEMICONDUCTORS LTD.
                                CONSOLIDATED  STATEMENTS  OF  OPERATIONS
              All  data  in  thousands  of  U.S.  dollars,  except  share  and  per  share  data

                                                                          Three  months  ended                Year  ended
                                                                            March  27,      March  31,      December  31,
                                                                                2005                2006                      2005
                                                                                      Unaudited
        Revenues:
        Licenses                                                  $  18,881        $  10,502                $  65,790
        Services                                                        3,333              5,290                    12,811
                                                                              22,214            15,792                    78,601
        Cost  of  revenues:
        Services  (1)                                                2,634              3,678                    12,048

        Gross  Profit                                              19,580            12,114                    66,553

        Operating  expenses:
        Research  and  development  (1)                1,520              2,317                      7,427
        Marketing  and  selling  (1)                      1,430                  883                      4,889
        General  and  administrative  (1)            1,737              1,225                      6,216
        Total  operating  expenses                        4,687              4,425                    18,532

        Operating  income                                      14,893              7,689                    48,021

        Financial  income,  net                                  155              1,977                      1,749

        Income  from  continuing  operations    15,048              9,666                    49,770

        Loss  from  discontinued
        operations  (1)                                          (3,224)                -                        (5,263)

        Income  before  cumulative  effect
        of  change  in  accounting  principle    11,824              9,666                    44,507

        Cumulative  effect  of  a  change  in
        accounting  principle  (2)                            -                      378                          -

        Net  Income                                              $  11,824        $  10,044                $  44,507

        Net  earnings  per  share  from
          continuing  operations
        Basic                                                              $  -              $  0.33                    $  0.46
        No.  of  shares  -  basic                            17,640            29,601                    19,581
        Diluted                                                          $  -              $  0.30                    $  0.36
        No.  of  shares  -  diluted                        17,640            32,329                    26,447

        Net  earnings  per  share
        Basic                                                              $  -              $  0.34                    $  0.17
        No.  of  shares  -  basic                            17,640            29,601                    29,453
        Diluted                                                          $  -              $  0.31                    $  0.16
        No.  of  shares  -  diluted                        17,640            32,329                    31,947



        (1)  Expenses  include  stock-based  compensation  related  to  options  granted
                to  employees  and  others  as  follows:

                                                                                      Three  months  ended        Year  ended
                                                                                    March  27,      March  31,    December  31,
                                                                                        2005                2006                2005
                                                                                                Unaudited
        Cost  of  revenues                                              $  154              $  367              $  834
        Research  and  development                                    31                  191                  330
        Marketing  and  selling                                        162                  165                  667
        General  and  administrative                              974                  292              2,410
        Loss  from  discontinued  operations                  35                      -                    54
                                                                                  $  1,356          $  1,015          $  4,295

 


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