Catalyst Semiconductor, Inc. (NASDAQ:CATS), a developer and marketer of programmable and analog mixed signal products used in telecommunications, networking systems, computation, automotive, industrial and consumer markets, today reported financial results for its fiscal second quarter ended October 31, 2004.

For the fiscal second quarter ended October 31, 2004, Catalyst had net income of $1.0 million, or $0.05 per diluted share, on revenues of $15.6 million. This compares with net income of $426,000, or $0.02 per diluted share, on revenues of $16.0 million in the quarter ended October 31, 2003. In the quarter ended July 31, 2004, Catalyst reported net income of $2.2 million, or $0.12 per diluted share, on revenues of $16.7 million. The basic share count in the quarter just ended was nearly 11 percent higher than last year because of a secondary offering completed in July.

Revenues from analog/mixed signal products were $545,000, or 3.5% of revenues, in the quarter ended October 31, 2004, compared with $239,000, or 1.5% of revenues, in the quarter ended October 31, 2003 and $766,000, or 4.6% of revenues, in the quarter ended July 31, 2004.

Gross margin for the quarter ended October 31, 2004 was 40.8%, compared to 31.2% for the quarter ended October 31, 2003 and 51.9% for the quarter ended July 31, 2004. Second quarter margins were impacted by an increasingly competitive pricing environment and the depletion of the less expensive inventory purchased in previous quarters.

Catalyst recorded an income tax provision of $216,000, or 18% of income before income taxes during the quarter ended October 31, 2004. This compares to an income tax provision of $75,000 in the quarter ended October 31, 2003 and a tax provision of $1.3 million, or 37% on income before taxes in the quarter ended July 31, 2004. The tax provision recorded for the current quarter adjusts year to date tax rate to 32% based upon certain changes in the tax laws and other factors.

Research & Development increased $282,000, or 17%, from the quarter ended October 31, 2003 and decreased $211,000, or 10%, from the quarter ended July 31, 2004. The decrease from the prior quarter is due to a reduction in charges for developmental masks. Sales, General & Administrative expenses increased $468,000, or 16%, from the quarter ended October 31, 2003 and increased $234,000, or 7%, from the quarter ended July 31, 2004. The increase is principally attributable to an increase of $244,000 in consulting and outside accountant expenses due to our efforts to document our internal control systems to bring us into full compliance with the Sarbanes-Oxley Act of 2002. Current estimates anticipate such compliance- related expenses to continue at a similar level for the remainder of this fiscal year.

As of October 31, 2004, Catalyst had cash, cash equivalents and short-term investments of $42.9 million, a decrease of $2.9 million compared to the previous quarter, of which $2.8 million was spent on capital purchases, principally $2.1 million associated with the purchase of the new building for the company's subsidiary in Bucharest, Romania.

Management Comments & Outlook

"While we were pleased to record our 12th consecutive profitable quarter, this was a challenging quarter for us because of the weaker demand for our memory products and the resulting price pressure. The combination of the market conditions with the shipment of higher priced inventories purchased this calendar year when fab capacities were tightening and wafer costs increased, pushed our gross margin to 40.8%, down from our near record gross margin of 51.9% in the previous fiscal quarter. We expect that these challenging market conditions could continue through the current quarter.

"We are encouraged by the traction we have achieved and the continuing demand for our new analog/mixed signal products. During the most recent quarter, new product revenues were reduced by one customer's request to exchange some analog/mixed signal product for a more recent design. In addition, due to increased lead times from our fabs, production has not ramped fast enough for our new products to match the demand from our customers," said Gelu Voicu, president and chief executive officer.

Investor Conference Call

Catalyst will conduct a conference call regarding the second fiscal quarter results beginning at 2:00 p.m. (Pacific Time) today. The call will be available to all investors and media via the company's Web site www.catalyst-semiconductor.com, at www.fulldisclosure.com, or by dialing (800) 865-4425 (domestic only). International callers can dial (973) 935-2100. A replay of the call will be aired from approximately 4:00 p.m. today until midnight (Pacific) on December 10, 2004 at the company's Web site or by dialing (877) 519-4471 (domestic) or (973) 341-3080 (international), entering reservation number 5423558 and following operator instructions.

About Catalyst Semiconductor

Founded in 1985, Catalyst Semiconductor, Inc. is headquartered in Sunnyvale, California. The Company designs and markets a broad range of programmable products including Serial and Parallel EEPROMs with I2C, SPI and Microwire interfaces, Flash Memories, NVRAM, Digitally Programmable Potentiometers, Microcontroller Supervisory circuits and other programmable Analog/Mixed Signal products. Catalyst products are used in telecommunications, networking systems, computation, automotive, industrial and consumer markets. Typical applications include optical networks, modems, wireless LANs, network cards, PC BIOS, DIMM modules, cellular telephones, digital satellite box receivers, set-top boxes and Internet routers. Catalyst's Quality Management System is ISO 9001 certified. For additional information about Catalyst Semiconductor, visit our web site at www.catalyst-semiconductor.com

Forward-Looking Statements

Certain statements in this press release, including statements regarding future market conditions, demand for our products, increasing inventories to satisfy customer demand, and continuing expenses, are forward looking statements that are subject to risks and uncertainties. These risks and uncertainties, which could cause Catalyst's results to differ materially from the forward-looking statements and include, without limitation: declining market acceptance and demand for Catalyst's new products; increased costs of regulatory compliance; increased competition in the markets for Catalyst's products leading to decreased average selling prices; the continued growth of the markets for Catalyst's products; potential errors, latent defects, design flaws or other problems with any of Catalyst's products; volatility in supply and demand for Catalyst's products which would adversely affect revenues and market prices; price and availability of foundry services, assembly and test subcontract capacity which are required to meet Catalyst's financial targets and/or meet backlog requirements; timing, future development, cost and market acceptance of Catalyst's new products and the other risks detailed from time to time in Catalyst's Securities and Exchange Commission filings and reports, including, but not limited to, Catalyst's annual report filed on form 10-K and quarterly reports filed on form 10-Q. Catalyst disclaims any obligation to update information contained in any forward looking statement.