The weak financial report for the first quarter of 2011 published by Zoran Corp. (Nasdaq: ZRAN) highlights its need for the merger with Britain's CSR plc (LSE: CSR), which was announced in February. The problem is that Zoran's heavy losses jeopardize the planned merger, as "Reuters" reports that CSR is reviewing their significance. Zoran develops processors for consumer digital entertainment and imaging products.
Zoran slightly beat the analysts' revenue consensus, but missed the earnings per share estimates. First quarter revenue fell 6.2% to $84.9 million from $90.5 million for the corresponding quarter of 2010, and 14.4% from the preceding quarter.
The GAAP-based net loss widened to $30.4 million ($0.62 per share) for the first quarter from $4 million for the corresponding quarter, but it was less than the net loss of $32.9 million for the preceding quarter. The company attributed the losses to high R&D operating expenses of $35.3 million, as well as $32 million in marketing and administrative costs. The company also spent $1.8 million on restructuring during the quarter.
The Non-GAAP net loss rose to $21.3 million ($0.43 per share) for the first quarter from $1.4 million for the corresponding quarter, and from $15.3 million for the preceding quarter.
Zoran president and CEO Dr. Levy Gerzberg preferred to comment on good news. "During the first quarter we achieved a number of new design wins with new customers in DTV, including several tier-one manufacturers which was consistent with our goals and resulted in an expanded and more diversified customer base," he said.
Gerzberg added, "Cisco's recently announced decision to exit the video camcorder segment will negatively impact digital camera revenues in the second quarter and balance of the year. However, as a result of Zoran's leading market position and broad customer base, we believe that our other Coach customers will eventually fill a good portion of the market void, generating increased demand for our Coach processors. Combined with the aforementioned new customer, we expect digital camera revenues to grow significantly in the third quarter."
He said, "During the quarter and driven by the tragedy in Japan, we saw cautious order patterns from customers across all of our core markets. However, we are already seeing signs of recovery as optimism builds and while outlook for the second quarter is relatively flat, the third quarter is expected to show significant revenue growth."
Because of Zoran's exposure to Cisco Systems Inc. (Nasdaq: CSCO) and to Japan, the company estimates $80-85 million revenue in the second quarter, compared with the analysts' consensus of $97 million. The second quarter guidance is 14% less than the revenue for the corresponding quarter of 2010. The company predicts a GAAP-based net loss of $25-26.5 million, and a non-GAAP loss per share of $0.40-0.43, amounting to $20-21.5 million, compared with a loss of $4 million for the corresponding quarter. The analysts' consensus is a second quarter loss per share of $0.18.
Nonetheless, Zoran predicts substantial revenue growth in the third quarter and a non-GAAP net profit in the second half of the year.
Zoran is due to be acquired by CSR, a provider of wireless connectivity solutions, in a share-swap deal valued at $679 million at the time of the announcement. Gerzberg said that Zoran was committed to closing the deal, which is due in the second quarter. However, Zoran investors are apparently worried that the merger will not go ahead, as well as by the company's disappointing results.
Zoran's share price fell 9.9% on Monday and Tuesday, and fell 0.1% in early trading today to $8.62, giving a market cap of $426 million.
CSR's share price fell 3.5% in London today to ₤3.77, giving a market cap of ₤655 million. Zoran's share price for the deal is $11.50, compared with $13.03 when the merger deal was signed, giving a market cap of $599 million.
Published by Globes [online], Israel business news - www.globes-online.com - on May 11, 2011
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