Third-Quarter 2011 Results
Net revenue in the third quarter of 2011 was $22.1 million, up 45.6% from $15.2 million in the second quarter of 2011, exceeding guidance of $18 to $20 million. The sequential increase was due to 41.7% growth in sales of PC/notebook processors and to 92.5% growth in sales of surveillance products. The higher PC/notebook sales were largely due to the completion of the transition to a new, higher-performance product series. The higher sales of surveillance products were due to commercial orders from existing customers following successful trial installations, combined with sales to new customers for new trials.
Net revenue in the third quarter of 2011 decreased by 4.8% compared with $23.2 million in the third quarter of 2010. (Figures from 2010 have been restated to account for discontinued operations.) Revenues in the PC/notebook processor and surveillance businesses increased by a combined $5.0 million, which was more than offset by a decline of $6.1 million in sales of mobile and sensor products, mainly due to a decline in sensor pass-through sales but also due to a decline in mobile sales.
Cost of revenue in the third quarter of 2011 was $15.3 million, compared with $16.0 million in the third quarter of 2010. The gross margin in the third quarter of 2011 was 30.9%, remaining flat year over year, and down 2.3 percentage points from the second quarter of 2011. The sequential decrease in gross margin was due to a $0.5 million inventory reserve for PC/notebook and mobile products. Operating expenses in the third quarter of 2011 were $15.1 million, as compared to $14.8 million in the second quarter of 2011. The slight sequential increase was primarily due to higher levels of investment to grow the surveillance business.
The non-GAAP net loss attributable to Vimicro International Corporation, excluding $0.6 million in share-based compensation, was $4.7 million, or approximately $0.13 per ADS, compared to a loss of $5.6 million, or $0.15 in the prior quarter. The GAAP net loss attributable to Vimicro Corporation in the third quarter of 2011 was $5.3 million, as compared to $6.3 million in the prior quarter.
As of September 30, 2011, the Company had cash and cash equivalents of approximately $47.5 million, short-term time deposits of $6.3 million, and restricted cash of $4.7 million, and total current assets of approximately $106.7 million. As of September 30, 2011, Vimicro had working capital of approximately $80.7 million and no long-term debt on its balance sheet.
Dr. John Deng, Vimicro's Chairman and Chief Executive Officer, commented, "We are pleased to see strong sequential revenue growth in the third quarter revenue, exceeding our guidance. The sequential revenue growth in the third quarter was driven by strength in both our surveillance and PC/notebook businesses. At the same time, we held operating expenses nearly flat due to our cost-saving initiatives and controls. In the fourth quarter, we expect stability in our PC/notebook business and higher sales of our surveillance solutions. We are close to announcing a major restructuring that will refine our focus on our core PC/notebook and surveillance businesses with the goal of reaching breakeven in 2012."
Business Outlook
In the fourth quarter of 2011, revenues are expected to be approximately $22 million to $25 million.