DALSA Corporation (TSX:DSA), an international high performance semiconductor and electronics company, today reported third quarter revenues of $43.9 million and net income of $3.0 million, or $0.16 earnings per share, diluted. During the quarter the Company generated $11.6 million in cash from operations and increased its net cash position by $7.7 million. The following table summarizes the key results for the third quarter of 2005 and compares them to the same quarter last year:

 

* percentage points

"Despite lower than expected revenue in the quarter, the Company was profitable and generated cash in both legs of the business," said Savvas Chamberlain, CEO of DALSA Corporation. "Although Management continues to see softness in some of its end markets, which may slow our revenue growth in the near term, we anticipate that these sectors will return to their traditional growth rates and we will benefit from our strong market and technology position. In the interim, we are making the necessary adjustments to our cost structure to maintain our business model for both legs of the business while continuing to be cash flow positive from operations."

The Digital Imaging Business posted revenue in the third quarter of $31.6 million, up 27% from the third quarter of 2004. Revenues from the Company's DALSA Coreco division and a higher level of sales from Application Specific Contracts contributed to the increase. Revenue growth in the quarter was slower than expected due to the delay in the placement of a number of large orders by customers. The Company is experiencing softness in some Digital Imaging end markets, particularly in semiconductor inspection and flat panel display inspection, which is affecting sales growth. Net income in the Digital Imaging Business was $2.5 million in the third quarter, up 30% from the same period last year. Included in net income for the quarter is a loss from the Company's Digital Cinema initiative of $0.9 million, or 5 cents per share.

The Semiconductor Business posted revenue of $12.3 million in the third quarter, down 36% compared to the third quarter of 2004, which was a peak period for the broader semiconductor marketplace. Although Management was planning for lower shipments to two significant customers in the quarter, the deliveries were lower than expected as these customers continued to see softness in their end markets. Net income was $0.5 million, down 85% from the same quarter in 2004. The Semiconductor Business backlog increased during the third quarter due to a general increase in orders from existing customers as well as orders from new MEMS customers. The Company continues to provide new MEMS customers with sampling prototype and qualification products and expects the staggered launch of MEMS production to increase orders and revenue through 2006.

Overall gross margins in the quarter were 43.4%, down 2 percentage points from the third quarter of 2004 and within the Company's target range of 40% to 45%. In the Digital Imaging Business gross margins were 52.8%, up slightly from the same period last year. In the Semiconductor Business, gross margins decreased by 15.7 percentage points compared to the same quarter last year due to lower capacity utilization and product mix.

Adjustments to the Company's Cost Structure
To adjust the Company's cost structure to its present revenue level, while still satisfying the business model, the Company is reducing staffing levels by 7% to 9% from the start of the third quarter through attrition, layoffs and non-renewal of contracts. This includes a reduction in staffing levels of approximately 55 to 60 employees subsequent to the end of the third quarter. Management expects employee severance and termination benefits costs of approximately $700,000 in the fourth quarter of 2005 and annualized cost savings of about $3.0 million per year. A significant portion of the reduction in staffing levels occurred in the Semiconductor Business. The total number of employees at the location after the changes is expected to be approximately 360 down from a peak of about 440 employees at the beginning of the year.

Digital Cinema Update
The Company previously reported on its efforts to resolve a technical issue relating to an optical component within the Origin camera. Work on this issue progressed at a high priority within the Company during the quarter. The improvements, demonstrated to date on a limited number of sample cameras, allow the cameras to operate over a broader range of shooting conditions. Cameras are expected to be available for selected rental projects early in 2006.

During the time that the Company has spent resolving this technical issue the staff in Los Angeles has continued their work in other areas. The Company continues to earn revenue from the rental of other equipment at the DALSA Digital Cinema Center, including high definition digital camera equipment. Customers continue to use the Origin camera on several test shoots to evaluate the camera for potential revenue generating projects. This has included the preparation and review with customers of quotes for the rental of the camera and related equipment.

The industry continues to progress on establishing workflow required for the post-production of the images produced by the Origin camera, with recent announcements of new 4K workflow coming on-line. Recently, Origin footage was featured in the first international demonstration of real-time collaborative 4K digital workflow between San Diego and Japan in September.

Financial Goals
Due to continued softness in some of the Company's end markets, Management expects revenue in the fourth quarter to be in the range of $43.5 to 47.5 million, which is lower than the Company's previous goal of $53 to $58 million. Earnings are expected to be at a similar level as the third quarter of 2005, less employee severance and termination benefits costs.

For further detail, please refer to the Third Quarter 2005 Financial Statements, accompanying notes, and Management's Discussion and Analysis at the DALSA website. The address is http://www.dalsa.com/investor/2005/DSA_2005Q3_release.pdf.

Investor Conference Call
A conference call to discuss the results will be held this afternoon, Thursday October 27, at 5:00pm ET. The conference call, followed by the question and answer period, will be broadcast live and open to anyone interested in listening at http://events.onlinebroadcasting.com/dalsa/102705/index.php. The phone numbers for those who wish to participate in the question and answer period are as follows:

Live Conference Access information:
Local Access: 416-850-9150
Toll-Free Access: 1-866-809-4939

Instant Replay Access information:
Local Access: 402-220-7737
Toll-Free Access: 1-800-766-3394
Passcode: 1514480
Expiry Date: November 9, 2005

About DALSA Corporation
DALSA is an international high performance semiconductor and electronics company that designs, develops, manufactures, and markets digital imaging products and solutions, in addition to providing semiconductor products and services. DALSA's core competencies are in specialized integrated circuit and electronics technology, software, and highly engineered semiconductor wafer processing. Products and services include image sensor components; electronic digital cameras; vision processors; image processing software; and semiconductor wafer foundry services for use in MEMS, high-voltage semiconductors, image sensors and mixed-signal CMOS chips. DALSA is listed on the Toronto Stock Exchange under the symbol "DSA". The Company has its corporate offices in Waterloo, ON and approximately 1000 employees world-wide.

For more information, please contact:

Patrick Myles
Director, Corporate Communications
DALSA Corporation
Tel: (519) 886-6001 Ext. 2177
Fax: (519) 886-3972
E-mail: [email protected]
Internet: www.dalsa.com

This press release contains forward looking statements based on assumptions, uncertainties and management's best estimates of future events. Actual results may differ materially from those currently anticipated. Investors are cautioned that such forward-looking statements involve risks and uncertainties. Important factors that could cause actual results to differ materially from those expressed or implied by such forward looking statements are detailed from time to time in DALSA's periodic reports filed with the Ontario Securities Commission and other regulatory authorities. DALSA has no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.