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DALSA Reports Third Quarter 2007 Financial Results

Posted 10/31/2007

Waterloo, Ontario, - DALSA Corporation (TSX:DSA), an international leader in high performance digital imaging and semiconductors, today reported revenue of $39.8 million for the quarter ended September 30th, 2007, and a net loss of $0.8 million or $0.04 per share, diluted. The following table summarizes the key results for the third quarter of 2007 and compares them to the same quarter of 2006:

Quarterly Comparisons
(In millions of dollars, except per share amounts)

 

Q3, 2007

Q3, 2006

Increase/
(Decrease)

Total Revenues

$39.8

$47.4

(16.0%)

Total Net (Loss) Income

($0.8)

$3.3

(123.4%)

Earnings Per Share (diluted)

($0.04)

$0.17

(122.5%)

Gross Margin %

25.8%

43.1%

(17.3 p.p.) *

Order Backlog at September 30th

$63.5

$60.9

4.3%

Cash Flow From Operations

$2.5

$8.6

(71.2%)

“It was a challenging quarter due to foreign exchange effects and our restructuring actions, yet I continue to be encouraged by our future prospects,” commented Brian Doody, Chief Executive Officer of DALSA Corporation. “Despite weakness in some Digital Imaging end markets we maintain a leading market presence. Our new Genie camera products aimed at new high volume industrial segments are gaining significant traction, and we are starting to see some increased activity in the flat panel display capital equipment market, which may indicate a rebound for 2008. In our Semiconductor Business, our customers, whose products are gaining broad market acceptance in key end markets, are ordering from us in volume, and we are happy to meet their demand. Finally, we reached an important milestone in our Digital Cinema business by shooting our first feature length film, “Tempting Hyenas”. Perhaps the most encouraging aspect of this project is the commitment of one of the leading post production houses to embark on a full 4K digital intermediate. I expect that the increasing use of 4K post production as a mainstream capability among post production facilities will cause the demand for our camera to increase.”

“Although the negative impact to our business due to the continued rise of the Canadian dollar cannot be underestimated, the management team remains committed to ensuring that our business remains vibrant and competitive in light of this continued rise in value of the Canadian dollar. As we announced early in the quarter, we are putting initiatives in place that we believe will allow us to achieve net earnings in our Digital Imaging and Semiconductor businesses of 10% of sales. It may take us a few quarters to get there, but it is within our grasp during 2008.”

In the third quarter, Digital Imaging revenues were $22.6 million, down almost 17% from the third quarter of 2006. This drop is due primarily to customer delays in application specific contracts and foreign exchange effects. Digital Imaging’s net loss for the quarter was $0.9 million, excluding the net gain of $6.2 million from the land sale. Earnings were negatively impacted by restructuring costs that took place in the quarter; lower revenue that was not able to absorb fixed manufacturing costs; poor product mix; and the strengthening of the Canadian dollar. Backlog in Digital Imaging decreased relative to the second quarter of 2007 due to the revaluation of booked orders at the end of the quarter at the prevailing US to Canadian dollar spot exchange rate.  The company has noted a strengthening of bookings in certain of its Digital Imaging product lines subsequent to quarter end, and has established a ship-from-stock program, both of which are expected to drive improvements in revenue moving forward.

Revenues in our Semiconductor business were $16.7 million, down $3.1 million compared to the same period last year. Approximately $2 million of that shortfall is attributed to an equipment failure on the 150mm line in Bromont, which caused that line to be down for 39 days during the quarter. An additional $0.5 million is a result of foreign exchange effects on revenue. CMOS wafer processing continues to decline as we work with certain wafer customers to gradually transition them to more efficient processes within our facility or as they take last time buys.  The division had a net loss of $4.0 million. This loss was primarily due to the lower level of revenue, foreign exchange impact, and restructuring costs. Backlog increased at the Bromont foundry, but was dampened by foreign exchange effects, and total backlog for the Semiconductor unit was down from the previous quarter resulting from management’s decision to remove a single large order from backlog due to a customer’s default on contract obligations.  Management’s outlook is positive based in part on completion of a major long term supply agreement with a MEMS customer in addition to two significant custom image sensor development projects for large format image sensors. Towards the end of the quarter, bookings strengthened at the Foundry, and many of these resulting orders will be delivered in Q4.

In the Digital Cinema Business, we completed our first feature-length film, “Tempting Hyenas,” directed by LeVar Burton and lensed by Director of Photography Kris Krosskove. Post production house, Post Logic, provided on-set supervision during principle photography and is embarking on a full 4K digital intermediate for the project. Other projects included a commercial for Motorola starring David Beckham that will appear in theatres and on television. Revenues from the quarter were $0.5 million, up slightly from the same period last year, and included a small amount of revenue from the rental of the Origin camera and accessories. We believe the adoption rate for 4K capture is increasing, which will eventually lead to increased demand for the Origin camera and revenue traction. We remain committed to achieving success in this new business initiative.

During Q3, we closed a transaction originally announced in May to sell approximately 37 acres of land in Waterloo to Research in Motion. The cash proceeds of the transaction were approximately $11.6 million and the pre-tax gain was $7.5 million, or $0.32 per share (fully diluted) after tax.

Cash provided by operations was $2.5 million in the quarter. The Company’s cash and marketable securities increased significantly to $11.3 million due to the proceeds from the land sale.

At the end of August, we announced that we had received approval from the Toronto Stock Exchange to acquire for cancellation, by way of normal course issuer bid (the "Bid"), up to 951,334 Common Shares of the Company or approximately 5% of the issued and outstanding shares. The Bid commenced on August 23, 2007 and will expire on August 22, 2008. In August and September 2007 we repurchased and cancelled 26,011 shares at a weighted average purchase price of $10.25.

For further detail, please refer to the third quarter 2007 Financial Statements, accompanying notes, and Management’s Discussion and Analysis at the DALSA website.

Investor Conference Call
A conference call to discuss the company’s third quarter 2007 financial results will be held this afternoon at 5:00pm ET. The conference call, followed by the question and answer period, will be broadcast live and open to anyone interested in listening at http://events.onlinebroadcasting.com/dalsa/103107/index.php. The phone numbers for those who wish to participate in the question and answer period are as follows:

Live Conference Access Information:
Local Access: 416-641-6107

Toll-Free Access: 866-226-1799

Instant Replay Access information:
Local Access: 416-695-5800
Toll-Free Access: 800-408-3053
Passcode: 3238994
Expiry Date: November 6, 2007

About DALSA Corporation

DALSA is an international leader in high performance digital imaging and semiconductors with approximately 1000 employees world-wide. Established in 1980, the company designs, develops, manufactures, and markets digital imaging products and solutions, in addition to providing semiconductor products and services. DALSA's core competencies are in specialized integrated circuit and electronics technology, software, and highly engineered semiconductor wafer processing. Products and services include image sensor components (CCD and CMOS); electronic digital cameras; vision processors; image processing software; and semiconductor wafer foundry services for use in MEMS, high-voltage semiconductors, image sensors and mixed-signal CMOS chips. DALSA is listed on the Toronto Stock Exchange under the symbol “DSA” and has its corporate offices in Waterloo, Ontario, Canada.

For more information, please contact:

Patrick Myles
Director, Corporate Communications
DALSA Corporation
Tel: (519) 886-6001 Ext. 2177
Fax: (519) 886-3972
E-mail: patrick.myles@dalsa.com
Internet: www.dalsa.com

Some of the statements in this presentation, including those relating to the company’s strategies and other statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, or similar expressions, are forward-looking statements within the meaning of securities law. Actual results may differ materially from those currently anticipated. Investors are cautioned that such forward-looking statements involve risks and uncertainties. Important factors that could cause actual results to differ materially from those expressed or implied by such forward looking statements are detailed from time to time in DALSA’s periodic reports filed with the Ontario Securities Commission and other regulatory authorities. Investors should read review the Business Risks and Prospects sections of the DALSA 2006 annual Management’s Discussion and Analysis (“MD&A”) to understand the assumptions, risks and uncertainties inherent in forward looking information or statements. DALSA has no intention or obligation to update or revise any forward-looking statements, whether as a result

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