Zoran ( ZRAN) swung to a profit in the third quarter despite slightly lower sales and a charge, as costs in its hardware operation fell sharply.

The digital equipment company earned $5 million, or 11 cents a share, in the quarter, compared with a loss of $2.6 million, or 6 cents a share, a year ago. The latest quarter included a $13.1 million expense related to the amortization of acquisition-related intangibles.

Excluding that expense and deferred stock-option costs, Zoran earned $18.1 million, or 39 cents a share, in the quarter. The Thomson First Call consensus estimate was for earnings of 15 cents a share, although it wasn't clear to which measure of profitability the estimate compared.

Zoran's revenue fell 2% to $117.5 million, reflecting a 5% increase in hardware revenue to $104.2 million and a 34% decline in software revenue to $13.3 million. The company's cost of hardware revenue fell 19% to $53.7 million in the quarter. Analysts were expecting top-line revenue of $114.8 million.

"Our diversification strategy is definitely working and our business model now holds a more balanced revenue base with 37.6% for DVD, 14.0% for DTV, 30.0% for mobile and 18.4% for imaging," it said.

For the fourth quarter, Zoran expects to post pro forma earnings of 14 cents to 17 cents a share on revenue of $104 million to $106 million. Analysts were forecasting earnings of 13 cents a share on sales of $111.7 million.

The stock was up 26 cents, or 2%, to $13.14 in the after-hours session.

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