DALSA reports Q1 revenue rises 31%, recovery in digital imaging business

DALSA reported revenue from continuing operations of $49.9 million for the quarter ended March 31, 2010, and net income from continuing operations of $3.7 million. Asia-Pacific sees particularly strong growth.

PRESS RELEASE

DALSA (Waterloo, ON, Canada) reported revenue from continuing operations of $49.9 million for the quarter ended March 31, 2010, and net income from continuing operations of $3.7 million or $0.20 per share, diluted. The Company also declared a 20% increase to the quarterly dividend from $0.05 to $0.06 per share.

"In the first quarter of 2010 and continuing into the second quarter, we have seen a remarkable recovery take place in our Digital Imaging business," commented Brian Doody, CEO of DALSA. "In each of our geographic regions, improving economic conditions are having a positive effect on demand for our products. This is particularly true in the Asia/Pacific region where Q1 shipments were three times higher than this period last year. This helped drive record revenue, increased margins, and healthy profitability in the division and improved financial results overall. As we look out to the second quarter and into the second half of the year, we are particularly encouraged by the strength of the Digital Imaging backlog. Not only has the backlog increased significantly since the end of 2009, but it has also moved to a more traditional (and favourable) distribution in which the majority of orders are for delivery in the short term. This combination of factors is a strong indicator of continued strength in the Digital Imaging business."

"As we anticipated, the recovery in our Semiconductor business has been slower to materialize than in the Digital Imaging business. However, we expect to see an improvement in financial results beginning in the second half of 2010. This will be largely driven by a return to growth mode in our MEMS business. Since the end of December, our MEMS backlog has increased notably, which should translate into increasing MEMS revenue beginning in the second quarter. We are also anticipating a return of demand from our professional photography customers for image sensor chips later in the year as economic conditions continue to improve and demand for our customers' products increase. At the same time, we are seeing steady improvements in gross margin, which we expect will be further enhanced once we close our 100mm line in Bromont, a project that is on-track for completion in the second quarter. The closure of the 100mm line will allow us to provide more cost efficient processing on our 150mm line, and provide room for the 200mm MEMS expansion, which will help satisfy the demand we are seeing for MEMS wafer processing."

In the first quarter of 2010, Digital Imaging reported record revenue of $33.1 million, up over 70% from the first quarter of last year and up over 25% from the fourth quarter of 2009. The sharp increase was driven by very strong product demand in the Asia/Pacific region, particularly in end markets such as flat panel display inspection and machine vision/industrial. For the first time, sales in the Asia/Pacific region accounted for more than half of the revenue in our Digital Imaging business. Net income in the division was strong at $4.0 million, representing 12.1% of revenue. Gross margin was 50.2%, up 3.1 percentage points from the first quarter last year. The Digital Imaging business ended the quarter with a strong backlog of $34.2 million, up $5.1 million from the end of December.

In the Semiconductor Business, revenue was $16.8 million, which was within our expectations. As anticipated, we saw a temporary decrease in shipments to a particular MEMS customer as its end customer worked through excess inventory in the latter part of the fourth quarter of 2009 and into the first quarter of 2010. We expect MEMS revenue to rebound beginning in the second quarter as orders from this customer return and as we ramp up production for new customers throughout 2010. The division posted a net loss of $0.4 million, up from a loss of $0.5 million in the same quarter last year. The loss in the quarter is due to sharp changes in Euro-related foreign exchange. Gross margin increased 2.6 percentage points to 25.4% in the first quarter due to improved product mix, better yields, and improved coverage of fixed costs at our semiconductor wafer fabrication facility. The backlog in the Semiconductor business was $40.7 million at the end of the first quarter, down $9.7 million from the end of December. The decline is due to a combination of the negative impact of foreign exchange on the value of our Euro-denominated backlog and the continued shipments against large long term orders that were booked in late 2008 and early 2009 in the Professional Imaging part of the Semiconductor business. As these orders are fulfilled, we expect to book new long term orders.

The Company's cash position at the end of the first quarter was $12.1 million, up $3.6 million from the end of December 2009. Cash provided by operating activities was $6.2 million, compared to cash used in operating activities of $7.7 million in the same quarter last year. The improvement is due to higher profitability in the quarter.

Dividend

The Company's Board of Directors has declared a quarterly dividend of $0.06 per common share to all shareholders of record on May 14, 2010. The dividend is payable on May 28, 2010. The Company has designated the full amount of these dividends as "eligible dividends" for Canadian income tax purposes.

Commenting on the 20% increase to the quarterly dividend, Mr. Doody said, "We are pleased to increase the dividend this quarter to $0.06 per share. By doing so, we are confirming our confidence in the Company's operational performance and long term growth opportunities. At the same time, we are looking out for the best interests of all stakeholders in the Company."

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