Vimicro Announces Improved Third-Quarter 2012 Results and a Return to Positive GAAP Net Income

• Revenues increased 14.9% year over year to $21.7 million
• Surveillance revenues increased 45.4% year over year
• Gross margins increased more than six percentage points year over year to 38.0%
• Operating profit turned positive, at $1.5 million
• GAAP net income attributable to Vimicro turned positive, at $2.9 million, or $0.10 per diluted ADS

Third-Quarter 2012 Results

Net revenue in the third quarter of 2012 was $21.7 million, as compared to net revenue from continuing operations of $19.5 million in the second quarter and $18.9 million from continuing operations in the year-ago quarter. (Results for the third quarter of 2011 and the second and third quarters of 2012 have been adjusted for continuing operations to reflect the divestiture of certain business lines.) Third-quarter revenues were towards the upper end of the guidance range of $20 to $22 million. The 14.9% year-over-year revenue increase was due to higher sales in both product lines, reflecting successful execution of the Company's new focus.

Gross profit in the third quarter was $8.3 million, as compared with $6.0 million in the year-ago quarter.  The gross margin in the third quarter was 38.0%, as compared with 31.8% in the year-ago quarter and 36.5% in the second quarter, owing to a successful new product transition at key customers.

Operating expenses in the third quarter were $6.8 million, as compared to $11.3 million in the year-ago quarter.  Operating expenses decreased year-over-year and sequentially due to the success of the Company's divestiture of non-performing businesses and an increase in focus on its two business lines. The Company turned profitable on an operating basis, reporting operating income of $1.5 million, as compared to a loss of $5.3 million in the year-ago quarter.

Vimicro remained profitable on a non-GAAP basis in the third quarter, and non-GAAP net income from continuing operations attributable to Vimicro International Corporation was $2.9 million, or approximately $0.09 per ADS on diluted basis, as compared to a non-GAAP net loss from continuing operations attributable to Vimicro of $1.7 million, or $0.05 per ADS in the year-ago quarter.  The non-GAAP net income attributable to Vimicro International Corporation excludes $0.4 million of non-cash, share-based compensation.  In the third quarter, Vimicro turned profitable on a GAAP basis, reporting GAAP net income attributable to Vimicro of $2.9 million, or $0.10 per diluted ADS, as compared of a loss of $5.3 million, or $0.14 per diluted ADS year over year.

As of September 30, 2012, the Company had cash and cash equivalents of approximately $33.2 million and restricted cash of $5.2 million, totaling $38.4 million. Total current assets were approximately $91.8 million, and Vimicro had working capital of approximately $64.7 million, and $4.7 million of long-term bank loans on its balance sheet, as of September 30, 2012.

Dr. John Deng, Vimicro's Chairman and Chief Executive Officer, commented, "We are pleased to report such a strong quarter financially and particularly for our surveillance business, after several quarters during which the Company was transitioning to its current focus on image processing and surveillance.  Our reporting positive operating profit, continued non-GAAP profitability, and a return to positive GAAP net income in the third quarter shows that Vimicro's restructuring has been successfully completed. Our strong third-quarter results show the full benefits of the changes we made to increase our focus on our current product line.  Looking ahead, we believe the Company's turnaround will be reflected by the market as we keep delivering value to our shareholders."

Business Outlook

For the fourth quarter of 2012, Vimicro expects revenues of $20 to $23 million.

Recent Events

On November, 1, Vimicro announced that its subsidiary Vimicro Electronics Corporation had secured a major government purchase contract from the Jinzhong City Public Security Bureau of Shanxi province to provide Surveillance Video and Audio Coding (SVAC)-based security surveillance products and services, with Vimicro's portion valued at US $6.23 million.

On November 1, Vimicro announced that that the Company had received notification from the Nasdaq Stock Market of having regained compliance with the $1.00 minimum per-share closing bid-price requirement.

Third-Quarter Earnings Release and Conference Call Information

Vimicro plans to release third-quarter 2012 results on Wednesday, November 7 before the U.S. market opens.  The Company will also hold a conference call at 8:00 a.m. EST on Wednesday, November 7, 2012, to discuss financial results for the third quarter ended September 30, 2012.

To participate in the conference call, please dial one of the following numbers five to ten minutes prior to the scheduled conference call time: (866) 831-6234 or (617) 213-8854. The conference call ID number is 74982920.

If you are unable to participate in the call at this time, a replay will be available starting on Wednesday, November 7, 2012 at 11:00 p.m. EST, through 11:59 p.m. EST on Wednesday, November 14, 2012. To access the replay, dial (888) 286-8010 or (617) 801-6888. The conference call ID number is 94453713.

This conference call will also be broadcast live over the Internet and can be accessed by all interested parties by clicking on  http://www.media-server.com/m/acs/35bd35c0f4b49c7d96815fe020a68a2a.  Please access the link at least fifteen minutes prior to the start of the call to register, download, and install any necessary audio software.

About Vimicro International Corporation

Vimicro International Corporation is a leading multimedia semiconductor and solution provider that designs, develops and markets mixed-signal semiconductor products and system-level solutions that enable multimedia capabilities in a variety of products for PC/notebook, consumer electronics and surveillance markets. Vimicro is aggressively expanding business into the surveillance market with system-level solutions and semiconductor products to capitalize on China's domestic demand. Vimicro's ADSs, each of which represents four ordinary shares, are currently trading on the NASDAQ Global Market under the ticker symbol "VIMC."

Forward-Looking Statements

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "confident" and similar statements. Among other things, the quotations from management in this announcement, as well as Vimicro's expectations and forecasts, contain forward-looking statements. Vimicro may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission on forms 20-F and 6-K, etc., in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about Vimicro's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: the Company's ability to develop and sell new mobile multimedia products; the expected growth of the mobile multimedia market; the Company's ability to increase sales of notebook camera multimedia processors; the Company's ability to retain existing customers and acquire new customers and respond to competitive market conditions; the Company's ability to respond in a timely manner to the evolving multimedia market and changing consumer preferences and industry standards and to stay abreast of technological changes; the Company's ability to secure sufficient foundry capacity in a timely manner; the company's ability to effectively protect its intellectual property and the risk that it may infringe on the intellectual property of others; and cyclicality of the semiconductor industry. Further information regarding these and other risks is included in Vimicro's annual report on Form 20-F filed with the Securities and Exchange Commission. Vimicro does not undertake any obligation to update any forward-looking statement, except as required under applicable law. All information provided in this press release is as of the date hereof, and Vimicro undertakes no duty to update such information, except as required under applicable law.

Non-GAAP Measures

To supplement the consolidated financial statements presented in accordance with GAAP, Vimicro uses non-GAAP measures of non-GAAP income/(loss) from operations, non-GAAP net income/(loss) attributed to Vimicro International Corporation and non-GAAP diluted net income /(loss) from continuing operations per ADS, which are adjusted from the most directly comparable financial measures calculated and presented in accordance with GAAP to exclude amortization of share-based compensation expense. These non-GAAP financial measures are provided to enhance investors' overall understanding of the Company's financial performance as they exclude share-based expenses that are not expected to result in future cash payments. The non-GAAP measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. A limitation of using these non-GAAP financial measures is that these non-GAAP measures exclude share-based compensation charges that have been and will continue to be significant recurring expenses in our business for the foreseeable future. We compensate for these limitations by providing the relevant disclosure of our share-based compensation charges in our reconciliations to the GAAP measures. For more information on the non-GAAP financial measures, please see the tables captioned "Reconciliation of non- GAAP results of operations measures to the nearest comparable GAAP measures" set forth at the end of this release.

Vimicro believes that both management and investors benefit from referring to these non-GAAP measures in assessing the performance of Vimicro's liquidity and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management's internal comparisons to Vimicro's historical liquidity. Vimicro computes its non-GAAP financial measures using the same consistent method from quarter to quarter. The accompanying tables have more details on the GAAP financial measures that are most comparable to non-GAAP financial measures and the related reconciliations between financial measures.

Currency Translation

This announcement contains translations of certain RMB amounts into U.S. dollars. Unless otherwise noted, all translations from RMB to U.S. dollars are based on the applicable exchange rates quoted by the Bank of China, which was RMB 6.3410 to $1.00 on September 28, 2012.

- financial tables follow -

SOURCE Vimicro International Corporation

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