Vimicro Reports Third-Quarter 2011 Results

BEIJING, November 8, 2011 /PRNewswire-Asia-FirstCall/ -- Vimicro International Corporation (NASDAQ: VIMC) ("Vimicro"), a leading multimedia semiconductor and IP-based surveillance solution provider, today announced financial results for the third quarter ended September 30, 2011.

Third-Quarter 2011 Results

Net revenue in the third quarter of 2011 was $22.1 million, up 45.6% from $15.2 million in the second quarter of 2011, exceeding guidance of $18 to $20 million. The sequential increase was due to 41.7% growth in sales of PC/notebook processors and to 92.5% growth in sales of surveillance products. The higher PC/notebook sales were largely due to the completion of the transition to a new, higher-performance product series. The higher sales of surveillance products were due to commercial orders from existing customers following successful trial installations, combined with sales to new customers for new trials.

Net revenue in the third quarter of 2011 decreased by 4.8% compared with $23.2 million in the third quarter of 2010. (Figures from 2010 have been restated to account for discontinued operations.) Revenues in the PC/notebook processor and surveillance businesses increased by a combined $5.0 million, which was more than offset by a decline of $6.1 million in sales of mobile and sensor products, mainly due to a decline in sensor pass-through sales but also due to a decline in mobile sales.

Cost of revenue in the third quarter of 2011 was $15.3 million, compared with $16.0 million in the third quarter of 2010. The gross margin in the third quarter of 2011 was 30.9%, remaining flat year over year, and down 2.3 percentage points from the second quarter of 2011. The sequential decrease in gross margin was due to a $0.5 million inventory reserve for PC/notebook and mobile products. Operating expenses in the third quarter of 2011 were $15.1 million, as compared to $14.8 million in the second quarter of 2011. The slight sequential increase was primarily due to higher levels of investment to grow the surveillance business.

The non-GAAP net loss attributable to Vimicro International Corporation, excluding $0.6 million in share-based compensation, was $4.7 million, or approximately $0.13 per ADS, compared to a loss of $5.6 million, or $0.15 in the prior quarter. The GAAP net loss attributable to Vimicro Corporation in the third quarter of 2011 was $5.3 million, as compared to $6.3 million in the prior quarter.

As of September 30, 2011, the Company had cash and cash equivalents of approximately $47.5 million, short-term time deposits of $6.3 million, and restricted cash of $4.7 million, and total current assets of approximately $106.7 million. As of September 30, 2011, Vimicro had working capital of approximately $80.7 million and no long-term debt on its balance sheet.

Dr. John Deng, Vimicro's Chairman and Chief Executive Officer, commented, "We are pleased to see strong sequential revenue growth in the third quarter revenue, exceeding our guidance. The sequential revenue growth in the third quarter was driven by strength in both our surveillance and PC/notebook businesses. At the same time, we held operating expenses nearly flat due to our cost-saving initiatives and controls. In the fourth quarter, we expect stability in our PC/notebook business and higher sales of our surveillance solutions. We are close to announcing a major restructuring that will refine our focus on our core PC/notebook and surveillance businesses with the goal of reaching breakeven in 2012."

Business Outlook

In the fourth quarter of 2011, revenues are expected to be approximately $22 million to $25 million.

Financial Results Conference Call and Webcast

The Company will host a conference call at 6:00 p.m. EST on Monday, November 7, 2011, to discuss results for its third quarter ended September 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 (866) 543-6408. International callers should dial +1 (617) 213-8899. When prompted by the operator, mention conference pass code 35570821.

If you are unable to participate in the call at this time, a replay will be available for a week starting on Monday, November 7, 2011, at 9:00 p.m. EST. To access the replay, please dial +1 (888) 286-8010, international callers dial +1 (617) 801-6888, and enter the pass code 83495996.

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 September 30, 2011, which was RMB 6.3549 to $1.00.

- Financial Tables Follow -