DALSA Reports Second Quarter 2007 Financial Results

June 31, 2007

Source: Dalsa Digital Cinema

DALSA Corporation, an international leader in high performance digital imaging and semiconductors, today reported revenue of $47.7 million for the quarter ended June 30th, 2007, and net income of $20,000 or $0.00 per share, diluted.

"Although we saw a rebound in revenues in our Digital Imaging business, relative to the first quarter, our overall results were well below our expectations," commented Brian Doody, Chief Operating Officer of DALSA Corporation. "Our biggest challenge, by far, was the dramatic nine cent increase in the value of the Canadian dollar that occurred in the quarter. Despite our active hedging program, foreign exchange effects reduced our revenue by approximately two million dollars and negatively impacted our net earnings by approximately $0.10 per share."

"As I transition to my new role as CEO in September, the top priority of the management team is to ensure that our business remains vibrant and competitive, even if the Canadian dollar reaches parity, or more, with the US dollar. We are taking a number of steps to address this including looking at different options to streamline our core operations. I plan to provide more details during the third quarter."

In the second quarter, Digital Imaging revenues were $26.8 million, up almost 12% from the first quarter of 2007 but down slightly from the same period last year. Sales of products to semiconductor wafer inspection OEMs were particularly strong in the quarter; however, the division's sales growth was limited because of continued softness in the flat panel display inspection end market and due to the continued shortage of a key component for a custom product for semiconductor wafer inspection, as reported in the first quarter. Digital Imaging net income, although up from the first quarter, was below expectations and our model, decreasing by $0.9 million from the second quarter of 2006 to $2.3 million. This was largely due to foreign exchange effects and, to a lesser extent, a less favourable product mix. The Digital Imaging backlog decreased by $2.6 million relative to the end of the first quarter.

In our Semiconductor business, MEMS revenues grew 16% over the second quarter of 2006. We were particularly pleased to see the steady revenue ramp in this quarter for our newer MEMS customers, accompanied by increased demand through to the end of 2007 and beyond. Despite our strong MEMS growth, our overall Semiconductor business revenues decreased slightly from the first quarter of 2007 to $20.3 million. This was due to lower sales activity in our IC Group (the part of our Semiconductor business that produces image sensors and other integrated circuits) as well as decreased shipments of CMOS semiconductor wafers. Also, during the quarter we experienced some production constraints that pushed delivery of some MEMS orders to Q3. However, recent solutions and increased machine uptime and throughput since quarter end indicate marked progress at the foundry. We are confident that we will be able to deliver on time and satisfy our customers' increased demand. Net income decreased by $2.5 million, relative to the second quarter of 2006, to a net loss of $0.4 million in the current quarter. A combination of factors including a substantial foreign exchange loss contributed to this loss. The Semiconductor business backlog decreased by $4.5 million.

Digital Cinema revenue increased 64% to $0.6 million compared to the same period last year, fuelled primarily from increased rental of HD/SD equipment. Although rental revenues from the Origin camera remained small in the quarter, DALSA's profile and exposure in the cinematography rental market is increasing as coverage and attention on the camera increases. During the quarter, we launched a new and well received 4K camera "Evolution" as well as other camera related gear. We also saw the completion of two short films shot with the Origin camera and then post produced at 4K resolution at two leading post production facilities, Warner Brother Motion Picture Imaging and Pacific Title. We continue to work with leading directors and cinematographers interested in using the DALSA Origin 4K camera for future projects. We expect revenue to fluctuate quarter by quarter until our Origin 4K camera gains revenue traction. The division incurred a loss of $1.9 million, which is up $0.2 million compared to the first quarter of 2007 due primarily to foreign exchange losses and, to a lesser extent, increased R&D expenses.

Cash provided by operations was $1.8 million in the second quarter of 2007, a decrease of $1.1 million from the same quarter in 2006.

As reported in the second quarter of 2007, the Company entered into a conditional agreement to sell a portion of land it owns in Waterloo, Ontario. The transaction is expected to close in the third quarter of 2007. The proceeds will be approximately $11.6 million. The original cost of the land was approximately $2.9 million. There will also be some additional costs related to land development and the cost of selling the property.

For further detail, please refer to the second quarter 2007 Financial Statements

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