Zoran Corporation Reports Strong Second Quarter 2002 Results

Year-Over-Year DVD Unit Shipments increase 167 percent; Company Tracks to 40 percent Annual Growth

Santa Clara, Calif., July 18, 2002 -- Zoran Corporation (Nasdaq NM: ZRAN), a leading provider of digital solutions-on-a-chip for applications in the growing consumer electronics markets, today reported results for its second quarter ended June 30, 2002.

Revenues for the second quarter of 2002 increased 55 percent to $34.0 million compared with $21.9 million for the same quarter in 2001 and 9 percent compared to $31.1 million last quarter. Pro forma net income for the second quarter increased to $3.5 million, or $0.12 per diluted share compared to pro forma net income of $192,000, or $0.01 per diluted share for the same quarter last year, and $2.2 million, or $0.08 per diluted share for the first quarter of 2002.

Pro forma net income excludes acquisition-related costs included in operating expenses such as amortization of goodwill and other purchased intangibles. Based on generally accepted accounting principles (GAAP) which includes these acquisition-related costs, the company reported net income of $1.0 million, or $0.04 per diluted share, for the second quarter of 2002 compared to a net loss of $10.6 million, or $0.41 per share in the second quarter of 2001.

"Strong demand in the DVD market continues to drive Zoran's revenue growth as DVD unit shipments increased 167 percent year-over-year and 34 percent over last quarter," said Dr. Levy Gerzberg, Zoran's president and chief executive officer. "All indications are that the DVD market will reach approximately 50 million units this year which is encouraging as we head into the seasonally strong second half of 2002."

"Our COACH 5 camera processor is gaining momentum in the digital camera market and we are seeing a build of backlog for the second half of 2002. As we gain market share with new customers in Japan and Asia Pacific, we believe we remain on track to double our digital camera revenues over last year," continued Gerzberg.

Second Quarter Highlights

• Zoran's Vaddis IC's began shipping in a wide range of new DVD players from Nintaus Electronics
• Zoran and NEC Corporation announced a strategic partnership to develop DVD recorder technologies
• Zoran's Vaddis DVD solution began shipping in Toshiba's new DVD recorder.
• Zoran announced that its sixth generation Vaddis 6 is a complete advanced DVD system-on-a-chip (SOC) solution, which integrates the DVD front end and back end functions on a single chip. Sample quantities began shipping to major DVD player manufacturers
• Zoran demonstrated the industry's smallest 1.3 megapixel CMOS sensor image sensor at Digital Focus 2002 in New York

Future Outlook
The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially.

The company is currently expecting its third quarter 2002 revenues to increase by 25 to 28 percent from second quarter 2002 levels. Product gross margin is expected to range between 37 to 38 percent for the quarter with overall gross margin expected to range between 39.5 and 40 percent. Operating expenses, excluding any acquisition related costs, are expected to increase between 1 and 2 percent compared to second quarter levels. Pro forma earnings per share are expected to range between $0.22 and $0.24 on approximately 29.2 million common & equivalent shares.

For the year, the company is expecting revenue growth to increase to a level between 37 and 40 percent over 2001 with pro forma earnings ranging between $0.62 and $0.67.

Zoran will provide more commentary and guidance on its second quarter results and 2002 outlook during the earnings conference call.

Earnings Conference Call
Zoran Corporation has scheduled a conference call for 5:00 p.m. ET today to discuss second quarter results. To listen to the call, please call 212-896-6061 approximately five minutes prior to the start of the call. For those who are not available to listen to the live conference call, a replay will be available via telephone from approximately 7:00 p.m. ET on July 18 until 7:00 p.m. ET on July 22. The access number for the replay is 1-800-633-8284; confirmation number 20728967.

Additionally, the conference call will be broadcast live over the Internet and can be accessed by all interested parties through the investor relations section of Zoran's website at www.zoran.com . Please access the website at least fifteen minutes prior to the start of the call to register, download, and install any necessary audio software.

Company Profile
Zoran Corporation, based in Santa Clara, California, is a leading provider of digital solutions-on-a-chip for applications in the growing consumer electronics markets. With almost two decades of expertise developing and delivering digital compression technologies, Zoran has pioneered high-performance processing into various audio, video, and imaging technologies. Zoran's proficiency in integration delivers major benefits for OEM customers, including greater capabilities within each product generation, reduced system costs, and shorter time to market. Zoran is a leading supplier in the rapidly expanding DVD and digital camera markets and also offers products that address related digital audio and video applications. With headquarters in the U.S. and operations in Canada, China, Hong Kong, Israel, Japan, Korea and Taiwan, Zoran may be contacted on the World Wide Web at www.zoran.com or at 408-919-4111.

Forward Looking Statements
This press release includes a number of forward-looking statements that reflect the Company's current view with respect to future events and financial performance. These forward-looking statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements including risks associated with: rapidly evolving markets for the Company's products and uncertainty regarding the development of these markets; new product development, the ongoing introduction of new and enhanced products by the Company and its competitors and the transition from older products; intensive competition in markets in which the Company competes; the Company's reliance on independent foundries and contractors for its wafer supplies and product assembly and testing and its ability to ramp up manufacturing capacity to meet changing customer requirements; the effects of changes in revenue and product mix on the Company's gross margins; the Company's historic dependence on sales to a limited number of large customers and fluctuations in customer and product mix among those customers; the dependence on key Company personnel; the reliance on international sales and operations, particularly the Company's operations in Israel; and the effects of general business and changing economic conditions on the markets that the Company serves. Further information regarding these and other risks and uncertainties can be found in the Company's annual report on Form 10-K for the year ended December 31, 2001 and other filings that have been made with the SEC.

 

ZORAN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
	June 30, 2002		December 31, 2001
	-------------		-------------
ASSETS
Current assets:
Cash and short-term investments	$  123,264		$  110,105
Accounts receivable, net	36,291		33,367
Inventory	17,193		15,681
Prepaid expenses & other
current assets	4,795		5,130
	-------------		-------------
Total current assets	181,543		164,283
Property & equipment, net	6,457		7,159
Other investments	81,536		89,727
Goodwill and other intangibles	65,557		70,175
	-------------		-------------
	$  335,093		$  331,344
	-------------		-------------
	-------------		-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$  17,523		$  16,705
Accrued expenses and
other liabilities	16,479		16,801
	-------------		-------------
Total current liabilities	34,002		33,506
Stockholders' equity:
Common Stock	27		27
Additional paid-in capital	395,521		391,665
Warrants	717		717
Deferred stock-based compensation	(103)		(375)
Accumulated other comprehensive loss	(1,676)		(6)
Accumulated deficit	(93,395)		(94,190)
	-------------		-------------
Total stockholders' equity	301,091		297,838
	-------------		-------------
	$  335,093		$  331,344
	------------- -------------		------------- -------------