Vimicro Reports First-Quarter 2011 Results and Announces Conference Call to Discuss Second-Quarter 2011 Results

BEIJING, July 29, 2011 /PRNewswire-Asia-FirstCall/ -- Vimicro International Corporation (NASDAQ: VIMC) ("Vimicro"), a leading multimedia semiconductor and surveillance solution provider, today announced financial results for the first quarter of 2011 ended March 31, 2011. The Company also announced that it will release its second-quarter 2011 financial results on Monday, August 8, after the market close and will hold a conference call to discuss the results at 5:00 p.m. EDT.

First-Quarter 2011 Results

Net revenue in the first quarter of 2011 was $13.0 million, compared to $18.9 million in the first quarter of 2010 and $24.4 million in the fourth quarter of 2010. (Figures from prior periods have been restated to account for discontinued operations following the divestiture of non-core IC businesses in December 2010.) The 30.9% year-over-year revenue decrease was due to a product transition to a higher-performance, lower-cost chip in our PC/notebook business, a decline in mobile multimedia processor demand from specific carriers, and a combination of seasonal factors, including the Chinese New Year holiday, offset by a significant increase in surveillance revenue. In the mobile multimedia processor business, we experienced a sharp sequential and year-over-year revenue decline, which was mainly due to lower orders received from our carrier customers and technology trends favoring the integration of multimedia functions into the baseband processor, rather than using a separate multimedia-processor chip.

Cost of revenue in the first quarter was $8.9 million, compared with $12.4 million in the first quarter of 2010. The gross margin in the first quarter was 31.7%, compared with 34.2% in the year-ago quarter, the decrease owing to differences in product mix.

Operating expenses in the first quarter of 2011 were $13.4 million, as compared to $11.8 million in the first quarter of 2010. Operating expenses increased year-over-year due to higher levels of investment in the surveillance business.

The non-GAAP net loss attributable to Vimicro International Corporation, excluding $0.9 million in share-based compensation, was $5.0 million, or approximately $0.14 per ADS, compared to a loss of $4.0 million, or $0.07 per ADS from continuing operations in the year-ago quarter. The GAAP net loss in the first quarter was $7.9 million, as compared to $6.4 million a year ago.

As of March 31, 2011, the Company had cash and cash equivalents of approximately $64.0 million, short-term time deposits of $12.5 million, and total current assets of approximately $125.5 million. As of March 31, 2011, Vimicro had working capital of approximately $100.6 million and no long-term debt on its balance sheet.

Dr. John Deng, Vimicro's Chairman and Chief Executive Officer, commented, "In the first quarter of 2011, our revenues declined due to seasonal, product, and customer issues. We were pleased that surveillance revenues increased year-over-year, validating our updated strategy and this new product platform. Despite the lower revenue level, we continued to make substantial investments in research and development and in our sales and marketing team in order to ensure the success of our emerging surveillance business. We believe the first quarter will represent the revenue low-water mark for the year, and we expect higher revenues in the second quarter due to stabilization in our PC and notebook business, combined with higher revenues from surveillance, which we expect to increase throughout the remainder of the year."

Business Outlook

In the second quarter of 2011, revenues are expected to be approximately $14 to $16 million. The sequential increase in revenues in the second quarter is expected to be driven by growth in the PC/notebook processor and the surveillance business.

Second-Quarter Earnings Release and Conference Call Information

The Company today also announced it plans to release its second-quarter 2011 results on Monday, August 8 after the market close. The Company will also hold a conference call at 5:00 p.m. EDT on Monday, August 8, 2011, to discuss results for its second quarter ended June 30, 2011.

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) 599-9816. International callers should dial +1 (617) 847-8705. When prompted by the operator, mention conference pass code 65367263.

If you are unable to participate in the call at this time, a replay will be available for 14 days starting on Monday, August 8, 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 27075169.

About Vimicro International Corporation

Vimicro International Corporation is a leading multimedia semiconductor and solution provider that designs, develops and markets mixed-signal semiconductor products and system-level solutions that enable multimedia capabilities in a variety of products for the consumer electronics and communications markets. Vimicro is also expanding business into the surveillance market with system-level solutions and semiconductor products. Vimicro's ADSs, each of which represents four ordinary shares, are currently trading on the NASDAQ Global Market under the ticker symbol "VIMC."

Forward-Looking Statements

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "confident" and similar statements. Among other things, the quotations from management in this announcement, as well as Vimicro's expectations and forecasts, contain forward-looking statements. Vimicro may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission on forms 20-F and 6-K, etc., in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about Vimicro's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: the company's ability to develop and sell new mobile multimedia products; the expected growth of the mobile multimedia market; the company's ability to increase sales of notebook camera multimedia processors; the company's ability to retain existing customers and acquire new customers and respond to competitive market conditions; the company's ability to respond in a timely manner to the evolving multimedia market and changing consumer preferences and industry standards and to stay abreast of technological changes; the company's ability to secure sufficient foundry capacity in a timely manner; the company's ability to effectively protect its intellectual property and the risk that it may infringe on the intellectual property of others; and cyclicality of the semiconductor industry. Further information regarding these and other risks is included in Vimicro's annual report on Form 20-F filed with the Securities and Exchange Commission. Vimicro does not undertake any obligation to update any forward-looking statement, except as required under applicable law. All information provided in this press release is as of the date hereof, and Vimicro undertakes no duty to update such information, except as required under applicable law.

Non-GAAP Measures

To supplement the consolidated financial statements presented in accordance with GAAP, Vimicro uses non-GAAP measures of non-GAAP (loss)/income from operations, non-GAAP net (loss)/income attributed to Vimicro International Corporation and non-GAAP diluted net (loss)/income per ADS, which are adjusted from the most directly comparable financial measures calculated and presented in accordance with GAAP to exclude amortization of share-based compensation expenses, inventory reserves related to divested assets and discontinued operations. These non-GAAP financial measures are provided to enhance investors' overall understanding of the company's financial performance as they exclude share-based expenses that are not expected to result in future cash payments. The non-GAAP measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. A limitation of using these non-GAAP financial measures is that these non-GAAP measures exclude share-based compensation charges that have been and will continue to be significant recurring expenses in our business for the foreseeable future. We compensate for these limitations by providing the relevant disclosure of our share-based compensation charges in our reconciliations to the GAAP measures. For more information on the non-GAAP financial measures, please see the tables captioned "Reconciliation of non-GAAP results of operations measures to the nearest comparable GAAP measures" set forth at the end of this release.

Vimicro believes that both management and investors benefit from referring to these non-GAAP measures in assessing the performance of Vimicro's liquidity and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management's internal comparisons to Vimicro's historical liquidity. Vimicro computes its non-GAAP financial measures using the same consistent method from quarter to quarter. The accompanying tables have more details on the GAAP financial measures that are most comparable to non-GAAP financial measures and the related reconciliations between financial measures.

Currency Translation

This announcement contains translations of certain RMB amounts into U.S. dollars. Unless otherwise noted, all translations from RMB to U.S. dollars are based on the applicable exchange rates quoted by the Bank of China as of March 31, 2011, which was RMB 6.5564 to $1.00.

- Financial tables follow -