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DALSA Reports Second Quarter 2006 Financial Results

Waterloo, Ontario, July 27, 2006 - DALSA Corporation (TSX:DSA), an international high performance semiconductor and electronics company, today reported revenue of $49.0 million in the second quarter of 2006 and net income of $4.0 million or $0.21 per share, diluted. The following table summarizes the key results for the second quarter of 2006 and compares them to the second quarter of 2005:


(In millions of dollars, except per share amounts) Q2, 2006 Q2, 2005 Increase/
Total Revenues $49.0 $44.1 11.1%
Total Net Income $4.0 $2.0 99.0%
Earnings Per Share (diluted) $0.21 $0.11 90.9%
Gross Margin % 48.0% 40.6% 7.4 p.p.*
Order Backlog at June 30 th $69.6 $59.2 17.6%
Cash Flow From Operations $2.9 ($3.2) $6.1

* percentage points

"I am very pleased with the Company's financial performance in the second quarter," commented Savvas Chamberlain, CEO of DALSA Corporation. "We increased revenues, improved gross margins, delivered good profitability, generated cash from operations, and ended the quarter with a solid backlog. The strength in our core operations allows us to continue to support key strategic initiatives, such as Digital Cinema, which we are confident will fuel the Company's future growth."

In the second quarter, Digital Imaging revenues were $27.2 million, up 3.7% from the second quarter of 2005. This increase is due to improving markets and stronger deliveries of image processing hardware and software. Gross margins increased 1.2 percentage points to 54.9%, which is a result of process improvements that have been implemented over the past year. Digital Imaging net income was $3.3 million. This is down 18.1% from the second quarter last year; however, the prior quarter had an unusually low tax rate due to a reduction of tax accruals related to investment tax credit claims. The backlog for Digital Imaging increased by $1.0 million to $29.9 million compared to the first quarter of 2006. Standard product backlog increased due to large orders for flat panel display inspection and a general increase in booking levels. The Application Specific Contracts (ASC) backlog decreased at the end of the quarter; however, this change is not uncommon due to the timing of the signing of large contracts. We are pursuing a strong list of new projects that are in the bid and proposal phase.

Please note that, as reported earlier in the quarter, we recently realigned our operations such that the Professional Imaging sensor components and CMOS integrated circuits (IC) components operations that were previously part of our Digital Imaging Business are now part of the Semiconductor Business, and are now reported as such. The comparative numbers presented herein are given on the same basis of organization and revenue recognition for both the current and earlier quarters. Further information on this change is contained in Management's Discussion and Analysis, which is available on our website.

Semiconductor Business revenues increased 21.5% to $21.2 million in the second quarter compared to the same quarter last year. A significant portion of the increase relates to higher shipments of integrated circuits (IC) products. MEMS revenues decreased slightly due to the timing of production releases of products to existing customers. At the same time, we started our production ramp for some of our new MEMS customers with gyroscopes and microphones for the consumer marketplace, which we expect will progressively add to our revenue stream in the coming quarters. Gross margins increased by 16.9 percentage points to 39.1% compared to the same quarter last year. The improvement is due to increased capacity utilization, selected price increases and favourable products mix in both wafer manufacturing and IC products. Net income in the Semiconductor Business increased from a loss of $0.8 million in the second quarter of 2005 to income of $2.1 million this quarter, again due to a higher level of IC product shipments and higher capacity utilization at our wafer processing facility in Bromont. The backlog increased to $39.7 million.
In the Digital Cinema Business revenue increased to $0.3 million in the quarter, up from $0.2 million in the same quarter last year. The increase is due to higher rental of standard definition and high definition equipment. In the quarter we incurred a loss of $1.4 million, which is an increase of $0.3 million over the same period in 2005 and in line with management expectations as we continue to establish the infrastructure to respond to anticipated revenue traction and demand for the Origin camera. We expect the level of losses to continue at a similar level through the balance of the year as 4K workflow and the use of the Origin camera gains market acceptance. We continue to make progress in getting the Origin camera into the hands of leading cinematographers and accelerating the establishment of the 4K workflow. Our goal this year is to land some significant and high profile new productions and to ensure that we have the equipment and support services in place such that we participate fully in the inevitable move from film to digital in the motion picture industry.

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 from operating activities was $2.9 million in the quarter, an increase of $6.1 million from the second quarter of last year. After property and equipment additions we had negative cash flow of $0.7 million for the current quarter and positive cash flow of $1.2 million for the first six months of the year, excluding the purchase of land. We expect our cash generation to improve through the balance of the year.

For further detail, please refer to the second quarter 2006 Financial Statements, accompanying notes, and Management's Discussion and Analysis at the DALSA website. The address is http://www.dalsa.com/public/corp/investor/2006/DSA_2006Q2_release.pdf

Investor Conference Call
A conference call to discuss the Company's Second 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/072706/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: 402-220-1547
Toll-Free Dial-In Number: 1-888-214-7746
Passcode: 2983550
Expiry: August 10, 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 2006-07-27

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