Saifun Semiconductors Reports Third Quarter 2006 Results

NETANYA, Israel -- October 25, 2006 -- Saifun Semiconductors Ltd. (NASDAQ: SFUN), a provider of intellectual property solutions for the non-volatile memory (NVM) market, today announced financial results for the third quarter ended September 30, 2006.

Financial Highlights - GAAP: Third quarter 2006 compared with third quarter 2005 (including $2.4 million non-cash revenues in the third quarter of 2005).

Revenues for the quarter were $15.7 million, compared to $17.9 million in the previous year.
Gross profit for the quarter was $12.3 million, compared to $14.9 million in the previous year.
Operating income for the quarter was $6.6 million, compared to $10.5 million in the previous year.
Net income for the quarter was $8.6 million, or $0.27 per basic and $0.26 per diluted share, compared to net income in the previous year of $10.8 million.
Net income for the quarter included $1.1 million of stock-based compensation compared to $626 thousand in the previous year.

Saifun reports its results of operations in accordance with GAAP and additionally, on a non-GAAP basis, referred to as Non-GAAP. Non-GAAP net income, where applicable, excludes the effect of $2.4 million of non-cash revenues resulting from the termination of our former joint venture with Infineon Technologies AG recognized in the third quarter of 2005, excludes the loss from discontinued product operations, and excludes stock-based compensation expenses.

Financial Highlights - Non-GAAP[1]: Third quarter 2006 compared with third quarter 2005.

Revenues for the quarter were $15.7 million, compared to $15.6 million, an increase of 1% compared to the previous year.
Licensing revenues for the quarter were $10.0 million compared to $13.0 million in the previous year.
Service revenues for the quarter were $5.7 million, compared to $2.6 million in the previous year.
Gross profit for the quarter was $12.7 million, unchanged from the previous year.
Operating income for the quarter was $7.7 million or 49% of revenues, compared to $8.8 million in the previous year.
Net income for the quarter was $9.7 million, or $0.31 per basic and $0.30 per diluted share, compared to net income in the previous year of $9.3 million.

Financial Highlights - GAAP: First nine months of 2006 compared with first nine months of 2005 (including $18.8 million non-cash revenues).

Revenues for the first nine months were $48.8 million, compared to $61.9 million in the previous year.
Gross profit for the first nine months was $38.4 million, compared to $53.7 million in the previous year.
Operating income for the first nine months was $22.1 million, compared to $40.8 million in the previous year.
Net income for the first nine months was $28.7 million, or $0.94 per basic and $0. 88 per diluted share, compared to net income in the previous year of $35.9 million.
Net income for the first nine months included $3.0 million of stock-based compensation (including $0.4 million of income due to a cumulative effect of a change in accounting principle relating to the adoption of SFAS 123R) compared to $2.5 million in the previous year.

Non-GAAP net income, where applicable, excludes the effect of $18.8 million of non-cash revenues resulting from the termination of our former joint venture with Infineon Technologies AG recognized in the first nine months of 2005, excludes the loss from discontinued product operations, and excludes stock-based compensation expenses and income.

Financial Highlights - Non-GAAP[2]: First nine months of 2006 compared with the first nine months of 2005.

Revenues for the first nine months were $48.8 million, compared to $43.1 million, an increase of 13% compared to the previous year.
Licensing revenues for the first nine months were $31.6 million compared to $34.0 million in the previous year.
Service revenues for the first nine months were $17.2 million, compared to $9.1 million in the previous year.
Gross profit for the first nine months was $39.5 million, compared to $35.3 million in the previous year.
Operating income for the first nine months was $25.4 million or 52% of revenues, compared to $24.4 million in the previous year.
Net income for the first nine months was $31.6 million, or $1.04 per basic and $0.97 per diluted share, compared to net income in the previous year of $25.0 million.

"In the third quarter, we made progress on several fronts," commented Kobi Rozengarten, President of Saifun Semiconductors. "This progress included further extending our agreements with Spansion with respect to licensing and design of Saifun's 4-bit per cell Quad NROM technology and with Tower Semiconductor. In addition, NEC Electronics joined the NROM community by signing an agreement to license our NROM technology for embedded flash memory products. These developments reflect the continued confidence of leading semiconductor companies in the value of NROM, and their desire to use our technology as the basis for future NVM product offerings.

In a recent development, the Company announced that Qimonda AG, a majority-owned subsidiary of Infineon Technologies AG, has decided to phase out current NROM-related activity. Qimonda, which has been a significant IP licensee and design services customer, will continue to license NROM on a limited basis, under an amended agreement. As a result of this change, Saifun does not expect to receive from Qimonda any license fees or services fees, and only limited royalties, after the fourth quarter of 2006. While this development has not impacted Saifun's results for the third quarter of 2006, the Company does expect it to impact its results beginning in the fourth quarter of 2006.

"While we regret Qimonda's recent decision, we believe that NROM brings tremendous value to the NVM equation and that Saifun is, and will remain, an important partner for flash memory manufacturers as the market continues to grow," concluded Rozengarten.

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About Saifun Semiconductors Ltd.

Saifun is a provider of intellectual property (IP) solutions for the non-volatile memory (NVM) market. The company's innovative Saifun NROM(R) technology allows semiconductor manufacturers to deliver high performance, reliable products at a lower cost per megabit, with greater storage capacity, using a single process for all NVM applications. Saifun licenses its IP to semiconductor manufacturers who use this technology to develop and manufacture a variety of stand-alone and embedded NVM products. These include Flash memory for the telecommunications, consumer electronic, networking and automotive markets. Among the companies currently licensing Saifun NROM technology are Qimonda AG, Macronix International, NEC Electronics, Semiconductor Manufacturing International Corporation, Sony Corporation, Spansion, and Tower Semiconductor.