SouFun Holdings Limited (SFUN)

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Saifun Semiconductors, Ltd. (SFUN)
Q1 2006 Earnings Conference Call
April 26, 2006, 8:30 a.m. EST

Executives

Dr. Boaz Eitan, Chairman and CEO
Igal Shany, Chief Financial Officer
Kobi Rozengarten, President
Todd Fromer, Investor Relations

Analysts

Tim Luke - Lehman Brothers
Daniel Gelbtuch - CIBC
Jeff Rosenberg - William Blair
Daniel Amir - W.R. Hambrecht
Ashok Kumar - Raymond James
Pranay Laharia - Deutsche Bank
Unidentified Analyst - Hapoalim

Presentation

Operator

Good morning ladies and gentlemen. My name is Sandra and I will be your conference facilitator today. At this time, I would like to welcome everyone to our Saifun First Quarter 2006 Earnings Conference Call. (Operator Instructions). Thank you; it is now my pleasure to turn the floor over to your host Mr. Todd Fromer. Sir, you may begin your conference.

Todd Fromer

Thank you operator. Good morning and good afternoon, this is Todd Fromer with KCSA Worldwide, Investor Relations Consultants of Saifun. At this point, you should have all received the first quarter 2006 earnings press release. If you have not received the release please refer to Saifun’s website at www.saifun.com.

With me on the call today, are Dr. Boaz Eitan, Chairman and Chief Executive Officer, Kobi Rozengarten, President and Igal Shany, Chief Financial Officer. Before we begin, I would like to mention the following regarding forward-looking statements. During the course of this conference call, the company may make forward-looking statements regarding future events. We wish to caution you that such statements reflect only the company’s current expectations and that actual events or results may differ materially. You are kindly referred to the risks factors and cautionary language contained in the company’s annual report on Form 20-F filed on April 11, 2006 with the US Securities and Exchange Commission. The company undertakes no obligation to update any projections or forward-looking statements in the future. It is now my pleasure to turn the call over to Dr. Boaz Eitan, Chairman and Chief Executive Officer of Saifun. Boaz, The floor is yours.

Dr. Boaz Eitan

Thank you Todd. Good day everyone and welcome to our first quarter call. And before I turn the call over to Kobi and Igal, who’ll post the view of financials and highlights, I would like to share the following.

The first quarter was a successful quarter from three perspectives. First of all, we met or exceed our financials goal. Second, we continue to make the Quad NROM, the 4-bit NROM, our main focus, both in development and new business opportunities. Our licensees with our help are moving closer to delivering 4-bit data products and third, our IP business model allows us to maximize profitability, we continue to have good revenue visibility and to manage our expenses properly. So, before Kobi elaborate on the developments of the first quarter, I would like to turn the call over to Igal, for review of the financial results.

Please Igal, go ahead.

Igal Shany

Thank you Boaz. Turning to our financial highlights, let me first explain that the figures given here on a non-GAAP basis, the adjustments between the GAAP and the non-GAAP figures exclude $9.6 million in non-cash revenues resulting from determination of our joint, former joint venture with Infineon, which we recognize in the first quarter of ’05. If you recall, in the fourth quarter of ’05, we concluded recognizing this non-cash revenues. Non-GAAP figures also exclude stock-based compensation expenses as well as the loss from our discontinuous product proliferation that we also concluded recognizing last year.

Revenues for the first quarter was, were $15.8 million an increase of 25% compared to $12.6 million in first quarter of ’05. Our revenues are made up of licensing and service revenues as follows.

Licensing revenues for the first quarter was $10.5 million, an increase of 13% compared to $9.3 million in the first quarter of ’05. Licensing revenues represented 67% of our total revenues this quarter. The majority of our licensing revenues this quarter were derived from Infineon, Spansion and Matsushita. Service revenues for the first quarter continued to grow and were $5.3 million, an increase of 59% compared to $3.3 million in the first quarter of ’05. Service revenues represented 33% of our total revenues this quarter. This quarter our top three service customers were Infineon, SMIC and Spansion.

Gross margin for the first quarter was 79%. Gross margin on our service revenues was 37%. When excluding service revenues for which cost of services was recorded in the previous quarters, our service margin this quarter was 32%. Operating expenses for the first quarter was $3.8 million or 24% of revenues which included 13% R&D and 11% SG&A. R&D together with cost of services in the first quarter was $5.4 million or 34% of revenues compared to $4 million or 32% in the first quarter of ’05. Operating income for the first quarter was $8.7 million or 55% of revenues compared to $6.6 million or 52% of revenues in the first quarter of ’05. The increase in operating income this quarter is the result of higher licensing revenues as well as increase in service revenues and service gross margin.

Net income for the first quarter was $10.7 million or 68% of revenues compared to $6.8 million or 54% of revenues in the first quarter of ’05. Our non-GAAP EPS for the first quarter was $0.33 per diluted share. Stock-based compensation for the first quarter which is included in the GAAP information was $1 billion. Additionally, we have recorded an income of $0.4 million due to the adoption of SFAS 123R and the inclusion of estimates for the future rates for compensation cost we would be recorded.

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