Genesis Microchip Reports Third Quarter Fiscal 2005 Financial Results;

Genesis Microchip Reports Third Quarter Fiscal 2005 Financial Results; Record Flat Panel TV Controller Shipments

    Business Editors

    SAN JOSE, Calif.--(BUSINESS WIRE)--Jan. 26, 2005--Genesis Microchip Inc. (Nasdaq:GNSS), a world leader in the development of image processing technologies for flat-panel monitors, TVs and other consumer display products, today announced its financial results for the third quarter of its fiscal year 2005, which ended December 31, 2004.

    Financial results for the quarter ended December 31, 2004 were:

--	Total revenues were $48.3 million, compared with $50.1 million for the quarter ended September 30, 2004;
--	Prepared in accordance with generally accepted accounting principles or GAAP, the company's net loss was $1.0 million, or $0.03 per share, compared with a net loss of $0.3 million, or $0.01 per share reported in the quarter ended September 30, 2004;
--	On a non-GAAP (1) basis, net income was $3.2 million, or $0.09 per share, compared with net income of $2.1 million, or $0.06 per share in the quarter ended September 30, 2004.

    "The transition from analog CRT displays to digital flat-panel technologies in the PC monitor and television markets is placing a premium on image quality," said Elie Antoun, president and CEO of Genesis Microchip. "As the widely recognized enabler of the best image quality for flat-panel displays, I believe Genesis is well-positioned to take advantage of this transition.
    "In the December quarter, we shipped a record number of flat-panel TV controllers," continued Antoun. "We also shipped production volumes of our Cortez and Hudson integrated video controllers to our tier-one TV customers. In the LCD monitor space, our Phoenix product line continued its ramp into volume production.
    "Going forward, we intend to leverage the activity in the customer base surrounding Cortez and Hudson into continued design wins and production ramps in the March quarter and throughout the year," concluded Antoun.

    Other Financial Details

    Flat-panel TV controller shipments were a record 2.1 million units, an increase of 10% over the September 2004 quarter. Gross margins increased to 44.9% from 42.5% in the quarter ended September 30, 2004 due in part to improved product costs.
    GAAP-based operating expenses were $26.2 million, including $2.7 million for the amortization of acquired intangibles and $2.5 million for non-cash stock-based compensation expenses. Included in stock-based compensation is a non-cash charge of approximately $1.9 million principally resulting from the departure of former executive officers. Included in selling, general and administrative expenses are approximately $1 million of cash severance and other related costs associated with departure of certain employees, including former executive officers.
    The company recorded a higher than anticipated tax recovery of $3.0 million on a GAAP basis and $2.1 million on a non-GAAP basis, primarily related to the impact of foreign exchange rate fluctuations on its Canadian Dollar denominated tax attributes.

    Business Outlook

    The following are the company's financial targets for the quarter ending March 31, 2005:

    -- Revenues are expected to be in the range of $47 million to $52
    million.

    -- Overall gross margins are expected to be in the range of 41 to
    43 percent.

    -- GAAP-based operating expenses are expected to be in the range
    of $22 to $24 million. The company expects that non-GAAP
    operating expenses will be lower than GAAP-based operating
    expenses because of the exclusion of charges for stock-based
    compensation and acquired intangibles, which are estimated to
    be $3.2 million.

    -- The company's effective tax rate may continue to fluctuate in
    the short term due to the impact of foreign exchange
    fluctuations, research and development tax credits and other
    factors. Furthermore, if the company decides to implement
    certain provisions of the "American Jobs Creation Act of
    2004", the tax provision in the period such a decision is made
    could be affected. Therefore, it is difficult to provide an
    expected tax rate for the March 2005 quarter. The company
    expects that its long term effective tax rate will be
    approximately 20% on a non-GAAP basis.

    Earnings Conference Call

    Genesis Microchip will host a conference call, which is open to all interested investors, today at 5:30 p.m. (ET) to discuss its December quarter results. The dial-in number for the call is: (719) 457-2654. A replay of the conference call will be available through February 9, 2005, and it can be heard by dialing (719) 457-0820. The replay access code is: 5043339. A live, audio Web broadcast of the conference call also will be available at: http://www.gnss.com/webcast.phtml. A replay will also be available at the same website address until February 9, 2005.

    (1) Use of Non-GAAP, or Pro Forma, Financial Information

    Non-GAAP, or pro forma, net income differs from net income determined according to generally accepted accounting principles, or GAAP. A schedule reconciling these amounts is included in this news release. Differences between GAAP and non-GAAP or pro forma results for the three and nine months ended December 31, 2004 and December 31, 2003 include certain operating costs, such as the amortization of acquired intangible assets, stock-based compensation expenses, gain on the sale of investments and related income tax adjustments. Genesis Microchip's management presents these non-GAAP financial measures to allow investors to better evaluate ongoing business performance. Genesis Microchip's management also uses these non-GAAP financial measures internally to monitor performance of the business. However, Genesis Microchip cautions investors to consider these non-GAAP financial measures in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP.

    Legal Notice Regarding Forward-Looking Statements

    This release contains forward-looking statements within the meaning of the "safe harbor" provisions of the federal securities laws, including, without limitation, statements by Elie Antoun, and statements in the Business Outlook section regarding the company's anticipated revenues, gross margins, operating expenses, tax rate in its fiscal quarter ending March 31, 2005 and long term effective tax rate. The forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. The risks and uncertainties include the growth rate of the LCD monitor and flat-panel TV markets; the company's ability to gain design wins with customers, make timely new product introductions, and ramp new designs into production volumes; changes in expected product mix and product pricing; customer order patterns, inventory levels and manufacturing schedules; availability of other components for LCD monitors and flat-panel TVs; actions of competitors; changes in product costs or manufacturing yields; foreign exchange fluctuations, research and development tax credits and other factors that impact tax rates; and other risk factors set forth in the company's SEC reports, including but not limited to its reports on Form 10-K for the fiscal year ended March 31, 2004 and Form 10-Q for the quarter ended September 30, 2004. Genesis Microchip assumes no obligation to update the forward-looking statements included in this release.

    About Genesis Microchip

    Genesis Microchip Inc. (Nasdaq:GNSS) is a leading provider of image processing systems enabling superior picture quality in flat-panel TVs and a variety of consumer and PC-display products. Featuring Genesis Display Perfection(TM) technologies and Emmy award-winning Faroudja(R) video technologies, Genesis system-on-a-chip solutions are used worldwide by display manufacturers to produce visibly better images across a broad array of devices including flat-panel displays, digital TVs, projectors and DVD players/recorders. The Genesis technology portfolio features analog and mixed signal system-on-a-chip design, DCDi(R) by Faroudja deinterlacing, TrueLife(TM) video enhancement, IntelliComb(TM) video decoding and includes over 135 patents. Founded in 1987, Genesis supports its leading brand-name customers with offices in the U.S., Canada, India, Taiwan, South Korea, China and Japan. For more information about Genesis Microchip Inc. or Genesis Display Perfection technologies, please visit www.gnss.com.
    Note to Editors: Genesis, Genesis Display Perfection, Faroudja, DCDi by Faroudja, TrueLife, and IntelliComb are trademarks or registered trademarks of Genesis Microchip Inc. All other trademarks are the property of their respective owners.

    Financial Statements attached:

    -- Consolidated statements of operations

    -- Non-GAAP consolidated statements of operations

    -- Non-GAAP financial reconciliation

    -- Consolidated balance sheets

GENESIS MICROCHIP INC. CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in thousands, except per share amounts) (unaudited)

Three months ended Nine months ended December 31, December 31, December 31, December 31, 2004 2003 2004 2003 ------------ ------------ ------------ ------------

Revenues $48,286 $56,498 $151,210 $158,548 Cost of revenues 26,609 34,146 87,116 94,013 ------------ ------------ ------------ ------------ Gross profit 21,677 22,352 64,094 64,535 ------------ ------------ ------------ ------------ 44.9% 39.6% 42.4% 40.7% ------------ ------------ ------------ ------------ Operating expenses: Research and development 7,520 6,694 23,072 20,360 Selling, general and administrative 12,568 9,308 34,114 28,218 Provision for costs associated with patent litigation 989 3,529 2,356 9,583 Amortization of acquired intangibles 2,654 2,654 7,962 7,962 Stock-based compensation 2,465 930 4,062 2,770 ------------ ------------ ------------ ------------ Total operating expenses 26,196 23,115 71,566 68,893 ------------ ------------ ------------ ------------ Loss from operations (4,519) (763) (7,472) (4,358) Interest income 534 314 1,253 786 Gain on sale of investment - 663 - 663 ------------ ------------ ------------ ------------ Income (loss) before income taxes (3,985) 214 (6,219) (2,909) Provision for (recovery of) income taxes (2,985) 35 (3,616) (643) ------------ ------------ ------------ ------------ Net income (loss) $(1,000) $179 $(2,603) $(2,266) ============ ============ ============ ============

Earnings (loss) per share: Basic $(0.03) $0.01 $(0.08) $(0.07) Diluted $(0.03) $0.01 $(0.08) $(0.07)

Weighted average number of common shares outstanding: Basic 33,151 31,948 32,969 31,655 Diluted 33,151 33,201 32,969 31,655

GENESIS MICROCHIP INC. NON-GAAP CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in thousands of dollars, except per share amounts) (unaudited)

Three months ended Nine months ended December 31, December 31, December 31, December 31, 2004 2003 2004 2003 ---------------------------------------------------

Revenues $48,286 $56,498 $151,210 $158,548 Cost of revenues 26,609 34,146 87,116 94,013 --------------------------------------------------- Gross profit 21,677 22,352 64,094 64,535 --------------------------------------------------- 44.9% 39.6% 42.4% 40.7% --------------------------------------------------- Operating expenses: Research and development 7,520 6,694 23,072 20,360 Selling, general and administrative 12,568 9,308 34,114 28,218 Provision for costs associated with patent litigation 989 3,529 2,356 9,583 --------------------------------------------------- Total operating expenses 21,077 19,531 59,542 58,161 --------------------------------------------------- Income from operations 600 2,821 4,552 6,374 Interest income 534 314 1,253 786 --------------------------------------------------- Income before income taxes 1,134 3,135 5,805 7,160 Provision for (recovery of) income taxes (2,069) 639 (1,134) 1,440 --------------------------------------------------- Net income $3,203 $2,496 $6,939 $5,720 ===================================================

Earnings per share: Basic $0.10 $0.08 $0.21 $0.18 Diluted $0.09 $0.08 $0.20 $0.17

Weighted average number of common shares outstanding:

Basic 33,151 31,948 32,969 31,655 Diluted 34,581 33,201 34,201 32,849

GENESIS MICROCHIP INC. NON-GAAP FINANCIAL RECONCILIATION (amounts in thousands, except per share amounts) (unaudited)

This press release includes non-GAAP (referred to in prior quarters as pro forma) operating results that are not in accordance with generally accepted accounting principles, or GAAP. A reconciliation of the presentation of historical non-GAAP results to GAAP results is provided in the following table. As described in the tables, for the three and nine months ended December 31, 2004 and 2003, non-GAAP net income excludes charges related to the amortization of acquired intangible assets, stock-based compensation expense, gain on the sale of investments and related income tax adjustments.

Three months ended Nine months ended December 31, December 31, December 31, December 31, 2004 2003 2004 2003 ---------------------------------------------------

Loss from operations $(4,519) $(763) $(7,472) $(4,358) Adjustments Amortization of acquired intangibles 2,654 2,654 7,962 7,962 Stock-based compensation 2,465 930 4,062 2,770 --------------------------------------------------- Income from operations (Non- GAAP) 600 2,821 4,552 6,374 Net interest and other income 534 977 1,253 1,449 Gain on sale of investment - (663) - (663)

--------------------------------------------------- Income before tax (Non-GAAP) 1,134 3,135 5,805 7,160 ---------------------------------------------------

Provision for (recovery of) income taxes (2,985) 35 (3,616) (643) Tax effect of Non- GAAP adjustments 916 604 2,482 2,083 --------------------------------------------------- Provision for (recovery of) income taxes (Non- GAAP) (2,069) 639 (1,134) 1,440 ---------------------------------------------------

--------------------------------------------------- Net income (Non- GAAP) $3,203 $2,496 $6,939 $5,720 ===================================================

--------------------------------------------------- Net income (loss) $(1,000) $179 $(2,603) $(2,266) ===================================================

Diluted earnings (loss) per share: Non-GAAP $0.09 $0.08 $0.20 $0.17 GAAP $(0.03) $0.01 $(0.08) $(0.07)

GENESIS MICROCHIP INC. CONSOLIDATED BALANCE SHEETS (amounts in thousands of dollars) (unaudited)

ASSETS December 31, March 31, 2004 2004 -------------------------- Current assets: Cash and short term investments $131,319 $118,222 Accounts receivable trade 26,428 28,325 Inventory 16,438 18,503 Other 5,902 6,472 -------------------------- Total current assets 180,087 171,522 Capital assets 17,132 17,257 Acquired intangibles 19,659 26,731 Goodwill 189,997 189,152 Deferred income taxes 9,639 3,402 Other 3,581 2,662 -------------------------- Total assets $420,095 $410,726 ==========================

LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $7,647 $9,848 Accrued liabilities 13,728 11,503 Income taxes payable 5,216 2,520 -------------------------- Total current liabilities 26,591 23,871 -------------------------- Stockholders' equity: Capital stock 402,952 395,869 Cumulative other comprehensive loss (94) (94) Stock-based compensation (664) (2,833) Deficit (8,690) (6,087) -------------------------- Total stockholders' equity 393,504 386,855 -------------------------- Total liabilities and stockholders' equity $420,095 $410,726 ==========================

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CONTACT: Nagle & Ferri Investor Relations for Genesis Microchip Frank Nagle or Bob Ferri, 415-575-1999

KEYWORD: CALIFORNIA INDUSTRY KEYWORD: HARDWARE SOFTWARE COMPUTERS/ELECTRONICS EARNINGS CONFERENCE CALLS SOURCE: Genesis Microchip

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