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DALSA Reports Third Quarter 2006 Financial Results

Waterloo, Ontario, October 26, 2006 - DALSA Corporation (TSX:DSA), an international high performance semiconductor and electronics company, today reported revenue of $47.4 million in the third quarter of 2006 and net income of $3.3 million or $0.17 per share, diluted. Revenues for the first nine months of the year were $143.0 million, up 14.5% from $124.9 million in the same period in 2005 and net earnings were $9.9 million, or $0.52 per share, diluted, compared to $7.7 million, or $0.43 per share, diluted. The following table summarizes the key results for the third quarter of 2006 and compares them to the third quarter of 2005:


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

Q3, 2006

Q3 , 2005


Total Revenues $47.4 $43.9 7.9%
Total Net Income $3.3 $3.0 11.8%
Earnings Per Share (diluted) $0.17 $0.16 6.3%
Gross Margin % 43.5% 42.3% 1.2 p.p.*
Order Backlog at September 30th $60.9 $57.8 5.4%
Cash Flow From Operations $8.6 $11.6 ($3.0)

Year to Date Comparisons
(In millions of dollars, except per share amounts)

Nine months ended Sept. 30





Total Revenues $143.0 $124.9 14.5%
Total Net Income $9.9 $7.7 28.7%
Earnings Per Share (diluted) $0.52 $0.43 20.9%
Gross Margin % 44.3% 41.2% 3.1 p.p.*
Cash Flow From Operations $15.3 $13.2 16.0%

* percentage points

"I am pleased to report that DALSA is healthy and vibrant, with strong fundamentals, excellent technology, and a growing portfolio of new products from across the Company that are rapidly gaining market acceptance and are contributing positively to our financial performance," commented Savvas Chamberlain, CEO of DALSA Corporation. "In the third quarter we increased our revenues and earnings, year over year; generated significant cash from operations; delivered excellent earnings in our Digital Imaging business; and, we saw a continued and steady production ramp up in our new MEMS business."

"Despite slow revenue traction in our Digital Cinema Business, we have been successful in further establishing DALSA as the acknowledged image quality leader in a market that is making the inevitable transition to '4K digital' as the preferred image capture and archiving resolution format. Our goal now is to translate this strong position into commercial success. Our strategy is to get the Origin 4K camera into the hands of directors and cinematographers for upcoming projects and to further streamline the 4K workflow. In the third quarter, we made progress on both fronts. The Origin camera underwent its most extensive period yet of testing, evaluation, and workflow development by a number of high profile directors, cinematographers, and third party vendors who were very impressed with the imaging performance of the camera and who look forward to working with us on future projects."

In the third quarter, Digital Imaging revenues were $27.2 million, up 6.3% from the third quarter of 2005. This increase is due to increases in shipments and revenue in all areas of the business. In particular, sales of product into the semiconductor inspection market segment, specifically for FPD inspection, were above levels seen in the same quarter last year and have grown from the quarterly sales levels in the first half of 2006. Standard product gross margins were 52.2%, down 2.4 percentage points from the third quarter of 2005, but within the business model range. Digital Imaging net income was $4.1 million, or approximately 15% of revenue, up 14% from the third quarter last year. The backlog for Digital Imaging decreased by $2.0 million compared to the second quarter of 2006, but is up $4.9 million from the same period last year. Order activity increased in September and the backlog has continued to grow subsequent to the end of the quarter.

Semiconductor Business revenues increased 10.5% to $19.8 million in the third quarter compared to the same quarter last year. In the quarter, higher shipments of IC products, including image sensor chips, were offset by lower deliveries of semiconductor wafers. IC product revenue continues to be strong from the professional digital photography/broadcast market segment. The semiconductor wafer processing facility continues to transition from its traditional large CMOS customers to new MEMS and High Voltage CMOS products and customers. Management is pleased with the steady production ramp up that is taking place with our new MEMS business, augmented positively by continued strength in shipments of our historic MEMS business. Gross margins in the Semiconductor Business increased by 6.3 percentage points to 31.4%, as a larger portion of the revenues was from higher margin IC product shipments. Management expects margins to fluctuate slightly in the short term with product mix and volume but expects margins to improve over time with the move to more new MEMS and high voltage products and with continued successful cost reduction and efficiency improvement programs. Net income in the Semiconductor Business was $0.9 million, up from $0.3 million in the third quarter of 2005, due to a higher level of IC product shipments. This was offset somewhat by higher R&D costs at the wafer processing facility in Bromont as the Company invests in its new MEMS and High Voltage CMOS businesses.

Digital Cinema Business revenues were $0.4 million, approximately the same level as the third quarter last year. In the quarter the division incurred a loss of $1.7 million. The losses increased in the current quarter while the Company expands its work with several production companies for camera testing on feature productions and establishes the infrastructure to respond to anticipated demand for the Origin camera. We expect the level of losses to continue at a similar level through the balance of the year while 4K workflow and the use of the Origin camera gains traction.

Digital Cinema represents a significant business development opportunity for DALSA. Based on a consolidation of numerous public data sources relating to the film production industry, the amount spent world-wide on motion picture production equipment is in the order of US$2.5 billion per year. Based on published data from the BBC and UNESCO the total lifetime market for film scanning and preservation is US$25 billion to US$30 billion. The Company can afford and will continue to invest in this strategic initiative.

Cash provided by operations was $8.6 million in the third quarter, an increase of $5.7 million over the second quarter of this year. In the quarter, the Semiconductor Business contributed strongly to the company's cash flow generation. After property and equipment additions the Company had positive cash flow of $4.8 million for the current quarter and positive cash flow of $6.1 for the first nine months of the year excluding the purchase of land. In the three months ended September 30, 2006 net debt (cash less long term debt) decreased by $5.0 million to $14.9 million.

For further detail, please refer to the third quarter 2006 Financial Statements, accompanying notes, and Management's Discussion and Analysis at the DALSA website. The address is www.dalsa.com/public/corp/investor/2006/DSA_2006Q3_release.pdf.

Investor Conference Call
A conference call to discuss the Company's Third Quarter 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/102606/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 / International: 416-850-9150
North American Toll- Free: 1-866-809-4939

Replay Access information:
Local Dial-In Number: 416-915-1035
Toll-Free Dial-In Number: 1-866-245-6755
Passcode: 589453
Expiry: November 9, 2006

About DALSA Corporation
DALSA is an international high performance semiconductor and electronics company that 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; 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". The Company has its corporate offices in Waterloo, ON and over 1000 employees world-wide.

For more information, please contact:

Patrick Myles
Director, Corporate Communications
DALSA Corporation
Tel: (519) 886-6001 Ext. 2177
Fax: (519) 886-3972
E-mail: Investor@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 2005 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 of new information, future events or otherwise.

Published 2006-10-26

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