TranSwitch Corporation Announces Fourth Quarter Results

TranSwitch Corporation Announces Fourth Quarter Results

    Business Editors

    SHELTON, Conn.--(BUSINESS WIRE)--Jan. 24, 2005--TranSwitch Corporation (NASDAQ: TXCC) announced today that it posted fourth quarter, 2004 net revenues of $8.4 million and a net loss of ($13.9) million, or ($0.14) per basic and diluted common share. For the year ended December 31, 2004, the Company posted net revenues of $33.7 million and a net loss of ($44.6) million, or ($0.47) per basic and diluted common share.
    During the quarter ended December 31, 2004, the Company reported a gross margin of $5.7 million. This margin was impacted by a cost of sales benefit totaling $0.6 million from the sale of previously reserved inventory.
    The net loss for the fourth quarter, 2004 includes the following non-cash items:

--	a loss of $1.7 million reflecting the write-off of the unamortized debt discount associated with the exchange of $11.5 million face value of the Company's Plus Cash NotesSM that were exchanged for approximately 8.9 million shares of common stock;
--	interest expense of approximately $1.3 million relating to the on-going amortization of the debt discount related to the Company's 5.45% Convertible Plus Cash NotesSM due September 30, 2007;
--	restructuring charges totaling approximately $0.8 million resulting from the Company's disengagement from Easics N.V., a wholly owned research and development subsidiary in Belgium, the deconsolidation of OptiX Networks, Inc. and asset impairments; and
--	other expense of approximately $0.7 million to reflect the change in the fair value of the derivative liability relating to the Company's 5.45% Convertible Plus Cash NotesSM due September 30, 2007.

    For comparison purposes, the net revenues, the gross margin and the net loss for the fourth quarter, 2003 were:

    -- the net revenues were $7.4 million;

    -- the gross margin was $5.7 million; and

    -- the net loss was ($11.2) million, or ($0.12) per basic and
    diluted common share.

    Results for the fourth quarter of 2003 included a non-cash gain of $2.6 million to reflect the change in the fair value of the derivative liability relating to the 5.45% Convertible Plus Cash Notes issued on September 30, 2003.
    "As we enter 2005, we have a positive expectation for the long-term prospects of the Company. This is based on the fact that today we have design-wins in the key platforms of most of the Tier-1 customers, we have a product portfolio in our sector that is second to none, and we have been successful in reducing our expenses systematically without compromising our competitive advantage in the wire-line market segment that we are targeting," stated Dr. Santanu Das, Chairman of the Board, Chief Executive Officer, and President of TranSwitch Corporation.
    "In Q4, we secured 62 design-wins worldwide at 29 customers. Although we continue to remain cautious about the revenue forecast for these new designs, we are encouraged by the fact that 20 of the design-wins this quarter came from several tier-one accounts in the telecommunications industry. Our EtherMap-3 product gained 14 design wins this quarter with 5 new customers, bringing the total to 131 design-wins with 75 customers. We gained 3 additional wins with our ET-12 and ET-48 products. In addition, during the fourth quarter, we continued to make progress with our Envoy family of products (a single chip solution for backplane switching and physical layer applications such as Ethernet uplinks, Ethernet Over VDSL, and Ethernet Over SONET) with 5 designs. Our PHAST family of products were designed into 16 applications."
    "In the fourth quarter, 2004 and the first quarter, 2005, we took several steps to meaningfully reduce our operating expenses. These steps included the very difficult decision of reducing our staff by approximately 18%. This is the fifth time we have restructured our staff since the downturn started in 2001," continued Dr. Das.
    "We believe that we are still in the middle of an inventory re-balancing as systems vendors reduce excess inventories. This adjustment continues to take some time and makes short-term visibility cloudy, even though we believe the end market is sound. Therefore, we are estimating that our first quarter, 2005 product revenues will be approximately $7.5 - $8.0 million, of which approximately $5.7 million was in opening backlog. Our first quarter, 2005 net loss is estimated to be in the range of ($0.10) to ($0.12) per basic and diluted common share. This net loss estimate for the first quarter, 2005 excludes any adjustment to the fair value of the derivative liability associated with our 5.45% Convertible Plus Cash NotesSM. The non-cash adjustment to fair value is based on several estimates, including our common stock price during the quarter ending March 31, 2005," concluded Dr. Das.
    Additional details on TranSwitch's fourth quarter results will be discussed during a conference call regarding this announcement on Monday, January 24, 2005 at 5:30 pm eastern time. To listen to the live call, investors can dial (719) 457-2734 and reference confirmation code: 4246352. The call will be recorded and a replay will be available two hours after the conclusion of the live broadcast through February 7, 2005. To access the replay, dial (719) 457-0820 and enter confirmation code: 4246352. Investors can also access an audio webcast via www.vcall.com by clicking on the TranSwitch Corporation conference call link. This audio webcast will also be available on a replay basis for 10 business days.

    About TranSwitch Corporation:

    TranSwitch Corporation, headquartered in Shelton, CT, is a leading developer and global supplier of innovative high-speed VLSI semiconductor solutions - Connectivity Engines(TM) - to original equipment manufacturers who serve three end-markets: the Worldwide Public Network Infrastructure, the Internet Infrastructure, and corporate Wide Area Networks (WANs). Combining its in-depth understanding of applicable global communication standards and its world-class expertise in semiconductor design, TranSwitch Corporation implements communications standards in VLSI solutions which deliver high levels of performance. Committed to providing high-quality products and service, TranSwitch Corporation, Shelton, CT is an ISO 9001:2000 registered company. Detailed information on TranSwitch products, news announcements, seminars, service and support is available on TranSwitch's home page at the World Wide Website - http://www.transwitch.com.

    Forward-looking statements in this release, including statements regarding management's expectations for future financial results and the markets for TranSwitch's products, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that these forward-looking statements regarding TranSwitch, its operations and its financial results involve risks and uncertainties, including without limitation risks of downturns in economic conditions generally and in the telecommunications and data communications markets and the semiconductor industry specifically; risks in product development and market acceptance of and demand for TranSwitch's products and products developed by TranSwitch's customers; risks relating to TranSwitch's indebtedness; risks of failing to attract and retain key managerial and technical personnel; risks associated with foreign sales and high customer concentration; risks associated with competition and competitive pricing pressures; risks associated with investing in new businesses; risks of dependence on third-party VLSI fabrication facilities; risks related to intellectual property rights and litigation; risks in technology development and commercialization; and other risks detailed in TranSwitch's filings with the Securities and Exchange Commission. Actual results could differ materially from those currently expected or anticipated.

TranSwitch Corporation CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except for per share amounts) (unaudited)

Three Months Ended Year Ended December 31, December 31, 2004 2003 2004 2003 Net revenues: Product revenues $ 8,441 $ 7,259 $ 33,481 $ 22,970 Service revenues 6 171 206 850 ---------- -------- --------- ----------

Total net revenues 8,447 7,430 33,687 23,820 Cost of revenues: Cost of product revenues 2,719 1,588 9,609 6,086 Provision for excess and obsolete inventories -- -- 571 1,498 Cost of service revenues -- 107 160 333 ---------- -------- --------- ---------- Total cost of revenues 2,719 1,695 10,340 7,917 ---------- -------- --------- ----------

Gross profit 5,728 5,735 23,347 15,903 Operating expenses: Research and development 9,159 10,680 46,030 42,510 Marketing and sales 3,211 2,788 12,543 10,964 General and administrative 1,528 1,535 6,697 5,630 Restructuring charge (benefit) and asset impairments 846 (526) 1,126 2,538 ---------- -------- --------- ---------- Total operating expenses 14,744 14,477 66,396 61,642 ---------- -------- --------- ---------- Operating loss (9,016) (8,742) (43,049) (45,739) Other (expense) income: Equity in net losses of affiliates -- (565) -- (1,933) Change in fair value of derivative liability (728) 2,619 12,124 2,619 Gain on exchange of 4.50% convertible notes -- -- -- 14,463 Loss on extinguishment of debt (1,746) -- (2,987) -- Other income, net -- -- 378 -- Impairment of investments in non-publicly traded companies -- (1,495) (123) (1,545) Interest income (expense): Interest income 686 495 2,394 2,805 Interest expense (3,103) (3,522) (12,895) (8,116) ---------- -------- --------- ---------- Interest expense, net (2,417) (3,027) (10,501) (5,311) ---------- -------- --------- ---------- Total other (expense) income, net (4,891) (2,468) (1,109) 8,293 ---------- -------- --------- ---------- Loss before income taxes, extraordinary loss and cumulative Effect of adoption of and changes in accounting principles (13,907) (11,210) (44,158) (37,446) Income tax expense (benefit) 26 (11) 189 246 ---------- -------- --------- ----------

Loss before extraordinary loss and cumulative effect of adoption of and changes in accounting principles (13,933) (11,199) (44,347) (37,692) Extraordinary loss upon consolidation of TeraOp (USA), Inc. -- -- -- (83) Cumulative effect on prior years of adoption of and retroactive application of FIN 46R and new depreciation method -- -- (277) (805) ---------- -------- --------- ---------- Net loss $(13,933) $(11,199) $(44,624) $(38,580) ---------- -------- --------- ---------- Basic and diluted loss per common share: Loss before extraordinary loss and cumulative effect of adoption of and changes in accounting principles (0.14) (0.12) $ (0.47) $ (0.42) Extraordinary loss upon consolidation of TeraOp (USA), Inc. -- -- -- -- Cumulative effect on prior years of adoption of and retroactive application of FIN 46R and new depreciation method -- -- -- (0.01) ---------- -------- --------- ----------

Net loss $ (0.14) $ (0.12) $ (0.47) $ (0.43) ---------- -------- --------- ----------

Basic and diluted average common shares outstanding 100,438 90,842 94,638 90,406

TranSwitch Corporation CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)

December 31, December 31, 2004 2003 (unaudited) ASSETS Current assets: Cash and short-term investments $102,504 $152,051 Accounts receivable, net 4,795 3,684 Inventories 2,933 2,838 Prepaid expenses and other current assets 2,243 2,912 ---------- --------- Total current assets 112,475 161,485

Long-term marketable securities 32,178 27,300 Property and equipment, net 3,590 10,262 Other assets 6,465 7,259 ---------- ---------

Total assets $154,708 $206,306 ---------- ---------

LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable, accrued expenses and other current liabilities $ 10,579 $ 12,186 Restructuring liabilities 1,093 1,454 4.50% Convertible Notes due 2005 24,442 -- ---------- --------- Total current liabilities 36,114 13,640

Restructuring liabilities - long-term 21,532 22,689 5.45% Convertible Plus Cash NotesSM due 2007, net of debt discount of $13,149 and $21,742, respectively 67,370 75,866 4.50% Convertible Notes due 2005 -- 24,442 Derivative liability 8,461 20,659 ---------- --------- Total liabilities 133,477 157,296 ---------- --------- Commitments and contingencies

Total stockholders' equity 21,231 49,010 ---------- ---------

Total liabilities and stockholders' equity $154,708 $206,306 ---------- ---------

--30--KL/ny*

CONTACT: TranSwitch Corporation Peter J. Tallian, 203-929-8810 ext. 2427 Fax, 203-926-9453 www.transwitch.com

KEYWORD: CONNECTICUT INDUSTRY KEYWORD: HARDWARE TELECOMMUNICATIONS NETWORKING INTERNET E-COMMERCE EARNINGS CONFERENCE CALLS SOURCE: TranSwitch Corporation

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