Investors responded swiftly and harshly to the financial report for the third quarter of 2010 published by Zoran Corp. (Nasdaq: ZRAN) after the market closed yesterday. The share plummeted 21.2% to $5.96 in after-hours trading, giving a market cap of $300 million, after the share fell 2% during trading hours to $7.56.
It was not Zoran's third quarter results that sent the share tumbling; revenue was in line with expectations and the loss per share was less than expected. Investors were angered by the company's guidance for the fourth quarter. Even though the fourth quarter is normally the company's weakest quarter, the guidance is below the analysts' consensus.
Zoran expects $60-65 million revenue for the fourth quarter, a GAAP loss per share of $0.46-0.49, and a non-GAAP loss per share of $0.39-0.43. It also expects a negative cash flow from operations of $15 million. The analysts' consensus is a non-GAAP loss per share of $0.06 on $95.2 million revenue.
Zoran's guidance means that its 2010 revenue will be $346 million, 9% less than in 2009, and that its non-GAAP net loss will double to $26.7 million.
Zoran develops digital solutions for digital entertainment and digital imaging devices, such as DVDs, digital TVs, and digital cameras. The company attributes the weakness to consumers, and to some company customers who have decided to add new suppliers.
Zoran president and CEO Dr. Levy Gerzberg said, "We are carefully evaluating our current strategies against existing and potential growth opportunities. We are also in the process of working on restructuring alternatives with an emphasis on operating expenses to right size the business. Management remains committed to returning Zoran to a growing and profitable business with a sound financial model, and we are working to take whatever steps are necessary to achieve this objective."
Zoran posted $99.3 million revenue for the third quarter, 14% less than the $115.5 million for the corresponding quarter of 2009, but 6.3% more than the $93.4 million for the preceding quarter.
GAAP net loss was $4.1 million ($0.08 per share) for the third quarter, less than the net loss of $6.7 million for the preceding quarter, and compared with a GAAP net profit of $4.9 million for the corresponding quarter. Non-GAAP net loss was $810,000 ($0.02 per share) for the third quarter, a fifth of the $4 million net loss for the preceding quarter, and compared with a non-GAAP net profit of $8.7 million for the corresponding quarter.
Zoran had $371.1 million in cash and cash equivalents at the end of September, after acquiring silicon tuner developer Microtune Inc. (Nasdaq: TUNE) for $166 million during the quarter. The deal will be closed by the end of the year.
In response to Zoran's guidance, RBC Capital Markets analyst Mahesh Sanganeria cut his price target for the share to $7, while reiterating his "Sector perform" recommendation. He says that intense pricing pressure from Asian rivals has resulted in permanent reduction in Zoran's US market share, while growth drivers in other markets are several quarters away.
Published by Globes [online], Israel business news - www.globes-online.com - on October 26, 2010
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