Zoran's Guidance Sends It Down - TheStreet

Updated from Oct. 23

Chipmaker

Zoran

(ZRAN)

was taking it on the chin today, with shares down 15.3% after the company said heavy price pressure in the DVD chip market had hurt its fourth-quarter outlook and issued guidance below the consensus estimate.

The stock was off $2.89, or 15.9%, to $15.28 in recent trading.

Zoran, a semiconductor company that sells into many consumer electronics markets, matched Wall Street expectations on sales and earnings in its third quarter, but its acquisition of Oak Technology, which makes television and digital imaging chips, forced it into the red.

Zoran reported revenue of $67.4 million for the third quarter of 2003, which excludes $3.9 million of software royalty revenue as required by merger accounting rules.

Including that revenue, the company would have posted sales of $71.3 million. That's up from $44.1 million a year earlier and virtually on target with analyst expectations of $71.4 million.

Zoran posted a loss of $54.5 million according to generally accepted accounting principles or $1.53 per share. The loss reflects expenses related to its acquisition of Oak Technology, including a charge of $50.1 million for one-time in-process research and development, $6.5 million for the amortization of intangible assets, and $2.4 million for acquisition-related deferred stock compensation.

For the same quarter last year, Zoran posted a profit of $4.7 million, or 17 cents a share.

Pro forma profit for the just-completed third quarter was 21 cents a diluted share, which was even with expectations.

During the third quarter, Zoran CEO Levy Gerzberg said, the company set revenue and unit volume records in its DVD, digital camera and digital TV businesses.

In a prepared statement, he said the company is on track to surpass 30% market share in DVD chips by the end of the year, though he noted that intense competition is causing significant price erosion and will impact its fourth quarter outlook.

He said Zoran expects to continue gaining market share in high-definition TV and the imaging business heading into 2004.

In the fourth quarter, Zoran guided to pro forma revenues of between $70 million and $72.5 million, including $3 million to $3.5 million in software royalties that for GAAP purposes will be reported as an adjustment to the net assets acquired from Oak Technology upon its acquisition.

GAAP revenue should range between $67 million and $69.5 million.

Pro forma EPS will be between 7 cents and 10 cents a share, excluding acquisition related costs.

Wall Street was looking for fourth-quarter sales of $78.4 million and earnings of 16 cents.

Zoran said its updated its annual outlook to reflect the acquisition of Oak Technology and its revised fourth-quarter forecast. It now expects pro forma sales in a range of $224 million to $226 million, and annual pro forma earnings per share of 50 cents to 54 cents.