TranSwitch Corporation Announces Fourth Quarter 2008 Financial Results

TranSwitch Corporation (NASDAQ: TXCC), a leading provider of semiconductor solutions for the converging voice, data and video network, today announced financial results for the fourth quarter ended December 31, 2008.

The summary of our results are as follows:

• The net revenues for the quarter were approximately $15.0 million, which is in line with prior guidance.
• The integration of Centillium was largely completed in the fourth quarter.
• The previously announced restructuring was completed in the fourth quarter per plan.
• The company improved its balance sheet by repurchasing $15 million in principal amount of its 5.45% convertible notes.

Net revenues for the fourth quarter of 2008 were approximately $15.0 million, which included approximately two months of revenue contribution from product lines acquired through the Centillium transaction. The GAAP net loss was ($5.7) million, or ($0.04) per basic and diluted common share. This compares with net revenues of approximately $10.5 million and a GAAP net loss of ($3.0) million, or ($0.02) per basic and diluted common share during the third quarter of 2008, and net revenues of approximately $7.2 million and a net loss of ($5.6) million, or ($0.04) per basic and diluted common share, during the fourth quarter of 2007.

For the twelve months ended December 31, 2008, the Company posted net revenues of approximately $41.9 million and a GAAP net loss of ($18.5) million, or ($0.13) per basic and diluted common share, compared with net revenues of approximately $32.6 million and a GAAP net loss of ($19.7) million, or ($0.15) per basic and diluted common share in 2007.

During the fourth quarter of 2008, TranSwitch reported a GAAP gross profit of $8.0 million, or a gross margin of 53% on total revenues. The non-GAAP gross profit for the fourth quarter was $8.7 million, or a gross margin of 58%.

Non-GAAP results were a net loss of ($3.7) million, or ($0.03) per share, for the fourth quarter of 2008, compared with a non-GAAP net loss of ($2.6) million, or ($0.02) per share, for the third quarter of 2008 and a non-GAAP net loss of ($4.3) million, or ($0.03) per share, for the fourth quarter of 2007. The non-GAAP results for the fourth quarter 2008 excluded restructuring expenses of $5.2 million, amortization of purchase price intangibles of $0.3 million, stock–based compensation of $0.5 million, the write off of the inventory value write-up due to purchase accounting of $0.7 million and benefits of $4.5 million related to a gain on debt repurchased and $0.2 million due to the reversal of accrued royalties. The non-GAAP results for the third quarter 2008 excluded amortization of purchase price intangibles of $0.1 million and $0.3 million in stock–based compensation. The non-GAAP results for the fourth quarter of 2007 excluded restructuring expenses of $0.8 million, amortization of purchase price intangibles of $0.1 million and $0.5 million in stock–based compensation. Further information about non-GAAP measures and a reconciliation to the GAAP results is provided after the financials attached to this release.

"In the fourth quarter, TranSwitch recorded revenues generally in line with our prior guidance despite the quarter being disrupted by unprecedented worldwide economic turmoil,” stated Dr. Santanu Das, President and CEO. "We also completed the acquisition of Centillium Communications in the fourth quarter.”

"Contemporaneously with this acquisition, we announced and completed a company-wide restructuring aimed at having operating expense levels for the combined company at roughly the same operating expense level of TranSwitch on a stand-alone basis prior to the transaction,” continued Dr. Das. "We are happy to report that the restructurings as well as the Centillium integration are now mostly behind us.”

"The Centillium acquisition represents one of the most significant accomplishments in the company’s history as we successfully integrated a company of comparable size, adding a growing revenue stream with practically no incremental operating expense,” stated Dr. Das.

"Additionally in the fourth quarter, we strengthened our balance sheet by purchasing $15 million principal amount of our 5.45% Convertible Notes due in 2010 at a considerable discount to par,” added Dr. Das.

"Obviously, we are very encouraged by our fourth quarter results. On the other hand, one cannot ignore the magnitude of the economic uncertainty around the world and its potential impact on our business. As a result, we project our first quarter 2009 revenues to be around $14.5 million. At this revenue level, our plan calls for achieving non-GAAP operating profitability. However, we expect to incur a large expense for the fabrication of a new product which had been planned for the fourth quarter of 2008. Including this unplanned expense, we estimate our first quarter 2009 GAAP net loss to be roughly ($0.01) per basic and diluted common share,” concluded Dr. Das.

Additional details on TranSwitch’s fourth quarter 2008 financial results will be discussed during a conference call regarding this announcement today at 5:30 pm Eastern time. To listen to the live call, investors can dial 719-325-4813 and reference confirmation code: 9723472. The call will be recorded and a replay will be available two hours after the conclusion of the live broadcast through February 20, 2008. To access the replay, dial 719-457-0820 and enter confirmation code: 9723472. 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 designs, develops and markets innovative semiconductors that provide core functionality and complete solutions for voice, data and video communications network equipment. As a leading supplier to telecom, datacom, cable television and wireless markets, TranSwitch customers include the major OEMs that serve the worldwide public network, the Internet, and corporate Wide Area Networks (WANs). TranSwitch devices are inherently flexible, with many incorporating embedded programmable microcontrollers to rapidly meet customers’ new requirements or evolving network standards by modifying a function via software instruction. TranSwitch implements global communications standards in its VLSI solutions and is committed to providing high-quality products and services. TranSwitch, Shelton, CT, is an ISO 9001:2000 registered company. For more information, visit 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 involve risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements, including without limitation the risk that TranSwitch’s and Centillium’s businesses will not be integrated successfully or will be delayed; the risk that the merger of the companies will involve unexpected costs or unexpected liabilities; uncertainties concerning the effect of the merger on relationships with customers, employees and suppliers of either company; and other risks associated with TranSwitch’s businesses such as the risks associated with acquiring new businesses; the risk 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.

TranSwitch expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any such statements to reflect any change in expectations or any change in events, conditions or circumstances on which any such statement is based.

TranSwitch is a registered trademark of TranSwitch Corporation.