Saifun Semiconductors Reports Fourth Quarter 2006 Results

Saifun Semiconductors Ltd. (Nasdaq: SFUN), a provider of intellectual property solutions for the non-volatile memory (NVM) market, today announced financial results for the fourth quarter ended December 31, 2006.

Financial Highlights -- GAAP: Fourth quarter 2006 compared with fourth quarter 2005 (including $374,000 non-cash revenues in the fourth quarter of 2005).

* Revenues for the quarter were $14.0 million, compared to $16.7 million

(including $374,000 non-cash revenues) in the previous year.

* Operating income for the quarter was $4.0 million, compared to $7.3

million in the previous year.

* Net income for the quarter was $6.3 million, or $0.20 per basic and

$0.20 per diluted share, compared to net income in the previous year of

$8.6 million or $0.16 per basic and $0.15 per diluted share

* Net income for the quarter included $1.6 million of stock-based

compensation compared to $1.8 million 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 $374,000 of non-cash revenues resulting from the termination of our former joint venture with Infineon Technologies AG recognized in the fourth quarter of 2005, excludes the $190,000 profit from discontinued product operations in the fourth quarter of 2005 and excludes stock-based compensation expenses. The Non-GAAP basic and diluted net earnings per ordinary share in 2005 gives effect to the conversion of all of our issued and outstanding preferred shares into ordinary shares at a ratio of 1:1 immediately prior to the completion of our initial public offering on November 8, 2005 as if the conversion occurred at the beginning of the year ended December 31, 2005.

Financial Highlights -- Non-GAAP(1): Fourth quarter 2006 compared with fourth quarter 2005.

* Revenues for the quarter were $14.0 million, compared to $16.3 million

in the previous year.

-- Licenses and royalties revenues for the quarter were $9.4 million

compared to $12.6 million in the previous year.

-- Service revenues for the quarter were $4.6 million, compared to $3.7

million in the previous year.

* Operating income for the quarter was $5.7 million or 41% of revenues,

compared to $8.7 million in the previous year.

* Net income for the quarter was $8.0 million, or $0.25 per basic and

$0.25 per diluted share, compared to net income in the previous year of

$9.9 million or $0.37 per basic and $0.34 per diluted share.

Financial Highlights -- GAAP: Fiscal year 2006 compared with fiscal year 2005 (including $19.2 million non-cash revenues).

* Revenues for the year were $62.8 million, compared to $78.6 million in

2005.

* Operating income was $26.1 million, compared to $48.0 million in 2005.

* Net income for the year was $35.0 million, or $1.14 per basic and

$1.08 per diluted share, compared to net income in 2005 of $44.5

million.

* Net income for the year ended December 31, 2006 included $4.6 million of

stock-based compensation (including $378,000 of income due to a

cumulative effect of a change in accounting principle relating to the

adoption of SFAS 123R) compared to $4.3 million in 2005.

Non-GAAP net income, where applicable, excludes the effect of $19.2 million of non-cash revenues resulting from the termination of our former joint venture with Infineon Technologies AG recognized in 2005, excludes the $5.3 million loss from discontinued product operations in 2005, and excludes stock-based compensation expenses and income. The Non-GAAP basic and diluted net earnings per ordinary share in 2005 gives effect to the conversion of all of our issued and outstanding preferred shares into ordinary shares at a ratio of 1:1 immediately prior to the completion of our initial public offering on November 8, 2005 as if the conversion occurred at the beginning of the year ended December 31, 2005.

Financial Highlights -- Non-GAAP(2): Full year 2006 compared with full year 2005.

* Revenues for the year were $62.8 million, compared to $59.4 million in

2005.

-- Licenses and royalties revenues were $41.0 million compared to $46.6

million in 2005.

-- Service revenues for the year were $21.8 million, compared to $12.8

million in 2005.

* Operating income was $31.1 million or 50% of revenues, compared to $33.1

million in 2005.

* Net income for the year was $39.6 million, or $1.29 per basic and $1.22

per diluted share, compared to net income in 2005 of $34.8 million or

$1.44 per basic and $1.33 per diluted share.

Full year 2006 and fourth quarter 2006 results include license fees and service revenues from Qimonda. As previously announced, Saifun does not expect to receive from Qimonda any license fees or service revenues, and expects to receive only limited amount of royalty revenues, as from the first quarter of 2007.

Additionally, Saifun announced that after nine years with Saifun, Kobi Rozengarten will resign as President effective July 15, 2007, but will remain as a member of the Board of Directors. Mr. Rozengarten's responsibilities will be assumed by Mr. Ramy Langer, VP of Business Development, Mr. Igal Shany, CFO and Mr. Eduardo Maayan, VP of Research & Development.

"2006 was a year of progress for Saifun, NROM technology and the NVM market as a whole," commented Dr. Boaz Eitan, Chairman and CEO of Saifun. "While the year was not without challenge, we believe that our accomplishments in 2006 have set the stage for execution of our long-term business objectives. NROM accounts for a growing percentage of sales at many of our licensees, and we expect this to continue as our partners incorporate NROM into a growing number of products and applications.

"While we were disappointed with Qimonda's fourth quarter decision to ramp down flash memory production, we remain encouraged by the opportunities that exist with our other licensees, as well as with new potential licensees. We believe that both Spansion and SMIC are progressing with their respective data flash introductions, the success of which will lead to further opportunities in the future."

Dr. Eitan concluded, "As noted, Kobi Rozengarten asked to be relieved of his duties as President of the Company. After building an impressive career of over 20 years in senior management positions at global semiconductor companies, including nine years with Saifun, Kobi has decided to pursue other opportunities and spend more time with his family. I would like to take this opportunity to thank Kobi on behalf of the entire Saifun family for the leading role he has played in the company over the past nine years and I am pleased that he will continue to contribute to the Company as a member of its board."

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.

Safe Harbor Statement

Information provided in this press release may contain statements relating to current expectations, estimates, forecasts and projections about future events that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to the company's plans, objectives and expectations for future operations and are based upon management's current estimates and projections of future results or trends. Actual future results may differ materially from those projected as a result of certain risks and uncertainties. For a discussion of such risks and uncertainties, see "Risk Factors" in the Company's Annual Report on Form 20-F filed on April 11, 2006 with the U.S. Securities and Exchange Commission. These forward-looking statements are made only as of the date hereof, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

(1) These non-GAAP measures should be considered in addition to, and not

as a substitute for, the results prepared in accordance with GAAP. A

reconciliation of GAAP statements of operations to Non-GAAP statements

of operations is included in the financial statements portion of this

release as well as on our website in the Investors section at

http://www.saifun.com.

Saifun's management believes the Non-GAAP information is useful

because it can enhance the understanding of the Company's ongoing

economic performance and Saifun therefore uses internally the Non-GAAP

information to evaluate and manage the Company's operations. Saifun

has chosen to provide this information to investors to enable them to

perform comparisons of operating results in a manner similar to how

the Company analyzes its operating results.

(2) These non-GAAP measures should be considered in addition to, and not

as a substitute for, the results prepared in accordance with GAAP. A

reconciliation of GAAP statements of operations to Non-GAAP statements

of operations is included in the financial statements portion of this

release as well as on our website in the Investors section at

http://www.saifun.com.

Saifun's management believes the Non-GAAP information is useful

because it can enhance the understanding of the Company's ongoing

economic performance and Saifun therefore uses internally the Non-GAAP

information to evaluate and manage the Company's operations. Saifun

has chosen to provide this information to investors to enable them to

perform comparisons of operating results in a manner similar to how

the Company analyzes its operating results.

SAIFUN SEMICONDUCTORS LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

All data in thousands of U.S. dollars,

except per share data

Three months ended Year ended

December December December December

31, 2005 31, 2006 31, 2005 31, 2006

Unaudited

Revenues:

Licenses and royalties $13,006 $9,382 $65,790 $40,983

Services 3,684 4,574 12,811 21,794

16,690 13,956 78,601 62,777

Cost of revenues:

Services(1) 3,823 4,398 12,048 14,863

12,867 9,558 66,553 47,914

Operating expenses:

Research and development, net(1) 1,946 3,153 7,427 12,818

Marketing and selling(1) 968 647 4,889 2,927

General and administrative(1) 2,696 1,721 6,216 6,048

Total operating expenses 5,610 5,521 18,532 21,793

Operating income 7,257 4,037 48,021 26,121

Financial income, net 1,168 2,878 1,749 9,777

Income from continuing operations

before income taxes 8,425 6,915 49,770 35,898

Income taxes - 588 - 1,281

Income from continuing operations

after income taxes 8,425 6,327 49,770 34,617

Income (loss) from discontinued

operations(1) 190 - (5,263) -

Income before cumulative effect of

change in accounting principle 8,615 6,327 44,507 34,617

Cumulative effect of a change in

accounting principle(2) - - - 378

Net Income $8,615 $6,327 $44,507 $34,995

Net earnings per share from

continuing operations

Basic $0.16 $0.20 $0.46 $1.13

No. of shares - basic 29,453 31,394 19,581 30,761

Diluted $0.14 $0.20 $0.36 $1.07

No. of shares - diluted 31,947 31,678 26,447 32,455

Net earnings per share

Basic $0.16 $0.20 $0.17 $1.14

No. of shares - basic 29,453 31,394 29,453 30,761

Diluted $0.15 $0.20 $0.16 $1.08

No. of shares - diluted 31,947 31,678 31,947 32,455

(1) Expenses include stock-based compensation related to options granted

to employees and others as follows:

Three months ended Year ended

December December December December

31, 2005 31, 2006 31, 2005 31, 2006

Unaudited

Cost of revenues $371 $586 $834 $1,716

Research and development, net 88 359 330 1,036

Marketing and selling 186 242 667 732

General and administrative 1,182 436 2,410 1,477

Loss from discontinued operations - - 54 -

$1,827 $1,623 $4,295 $4,961

(2) On January 1, 2006, the Company adopted FASB 123(R), "Share-Based

Payment." Accordingly, the Company recorded a cumulative effect of

change in accounting principle relating to estimated forfeitures for

the compensation cost that was recognized in the financial statements

under the provisions of FASB 123 for the years ended December 26, 2004

and December 31, 2005.

SAIFUN SEMICONDUCTORS LTD.

Reconciliation of GAAP to Non-GAAP Consolidated Statements of Operations

All data in thousands of U.S. dollars, except share and per share data

Three months ended

December 31, 2005

Non-GAAP

Reported entries Non-GAAP

Unaudited

Revenues:

Licenses and royalties $13,006 $(374)(1) $12,632

Services 3,684 - 3,684

16,690 (374) 16,316

Cost of revenues:

Services 3,823 (371)(2) 3,452

12,867 (3) 12,864

Operating expenses:

Research and development, net 1,946 (88)(2) 1,858

Marketing and selling 968 (186)(2) 782

General and administrative 2,696 (1,182)(2) 1,514

Total operating expenses 5,610 (1,456) 4,154

Operating income 7,257 1,453 8,710

Financial income (expenses), net 1,168 - 1,168

Income from continuing operations

before income taxes 8,425 1,453 9,878

Income taxes - - -

Income from continuing operations

after income taxes 8,425 1,453 9,878

Income (loss) from discontinued

operations 190 (190)(4) -

Income before cumulative effect of

change in accounting principle 8,615 1,263 9,878

Cumulative effect of a change in

accounting principle - - -

Net Income $8,615 $1,263 $9,878

Net earnings per share from

continuing operations

Basic $0.16 $0.37

No. of shares - basic 29,453 26,571

Diluted $0.14 $0.34

No. of shares - diluted 31,947 28,770

Net earnings per share

Basic $0.16 $0.37

No. of shares - basic 29,453 26,571

Diluted $0.15 $0.34

No. of shares - diluted 31,947 28,770

Three months ended

December 31, 2006

Non-GAAP

Reported entries Non-GAAP

Unaudited

Revenues:

Licenses and royalties $9,382 $- $9,382

Services 4,574 - 4,574

13,956 - 13,956

Cost of revenues:

Services 4,398 (586)(2) 3,812

9,558 586 10,144

Operating expenses:

Research and development, net 3,153 (359)(2) 2,794

Marketing and selling 647 (242)(2) 405

General and administrative 1,721 (436)(2) 1,285

Total operating expenses 5,521 (1,037) 4,484

Operating income 4,037 1,623 5,660

Financial income (expenses), net 2,878 - 2,878

Income from continuing operations

before income taxes 6,915 1,623 8,538

Income taxes 588 - 588

Income from continuing operations

after income taxes 6,327 1,623 7,950

Income (loss) from discontinued

operations - - -

Income before cumulative effect of

change in accounting principle 6,327 1,623 7,950

Cumulative effect of a change in

accounting principle - - -

Net Income $6,327 $1,623 $7,950

Net earnings per share from

continuing operations

Basic $0.20 $0.25

No. of shares - basic 31,394 31,394

Diluted $0.20 $0.25

No. of shares - diluted 31,678 31,678

Net earnings per share

Basic $0.20 $0.25

No. of shares - basic 31,394 31,394

Diluted $0.20 $0.25

No. of shares - diluted 31,678 31,678

Year ended

December 31, 2005

Non-GAAP

Reported entries Non-GAAP

Unaudited

Revenues:

Licenses and royalties $65,790 $(19,182)(1) $46,608

Services 12,811 - 12,811

78,601 (19,182) 59,419

Cost of revenues:

Services 12,048 (834)(2) 11,214

66,553 (18,348) 48,205

Operating expenses:

Research and development, net 7,427 (330)(2) 7,097

Marketing and selling 4,889 (667)(2) 4,222

General and administrative 6,216 (2,410)(2) 3,806

Total operating expenses 18,532 (3,407) 15,125

Operating income 48,021 (14,941) 33,080

Financial income (expenses), net 1,749 - 1,749

Income from continuing operations

before income taxes 49,770 (14,941) 34,829

Income taxes - - -

Income from continuing operations

after income taxes 49,770 (14,941) 34,829

Income (loss) from discontinued

operations (5,263) 5,263 (4) -

Income before cumulative effect of

change in accounting principle 44,507 (9,678) 34,829

Cumulative effect of a change in

accounting principle - - -

Net Income $44,507 $(9,678) $34,829

Net earnings per share from

continuing operations

Basic $0.46 $1.44

No. of shares - basic 19,581 24,154

Diluted $0.36 $1.33

No. of shares - diluted 26,447 26,241

Net earnings per share

Basic $0.17 $1.44

No. of shares - basic 29,453 24,154

Diluted $0.16 $1.33

No. of shares - diluted 31,947 26,241

Year ended

December 31, 2006

Non-GAAP

Reported entries Non-GAAP

Unaudited

Revenues:

Licenses and royalties $40,983 $- $40,983

Services 21,794 - 21,794

62,777 - 62,777

Cost of revenues:

Services 14,863 (1,716)(2) 13,147

47,914 1,716 49,630

Operating expenses:

Research and development, net 12,818 (1,036)(2) 11,782

Marketing and selling 2,927 (732)(2) 2,195

General and administrative 6,048 (1,477)(2) 4,571

Total operating expenses 21,793 (3,245) 18,548

Operating income 26,121 4,961 31,082

Financial income (expenses), net 9,777 - 9,777

Income from continuing operations

before income taxes 35,898 4,961 40,859

Income taxes 1,281 - 1,281

Income from continuing operations

after income taxes 34,617 4,961 39,578

Income (loss) from discontinued

operations - - -

Income before cumulative effect of

change in accounting principle 34,617 4,961 39,578

Cumulative effect of a change in

accounting principle 378 (378)(3) -

Net Income $34,995 $4,583 $39,578

Net earnings per share from

continuing operations

Basic $1.13 $1.29

No. of shares - basic 30,761 30,761

Diluted $1.07 $1.22

No. of shares - diluted 32,455 32,455

Net earnings per share

Basic $1.14 $1.29

No. of shares - basic 30,761 30,761

Diluted $1.08 $1.22

No. of shares - diluted 32,455 32,455

Notes:

(1) Non-cash revenues resulting from the termination of our former joint

venture with Infineon Technologies.

(2) Stock-based compensation related to options granted to employees and

others.

(3) Cumulative effect of change in accounting principle relating to

estimated forfeitures for the compensation cost that was recognized in

the financial statements under the provisions of FASB 123 for the

years ended December 26, 2004 and December 31, 2005.

(4) Income (loss) from the discontinued product operations.

(5) Non GAAP basic and diluted earnings per share for the three months

ended December 31, 2005 and for the year ended December 31, 2005 gives

effect to the automatic conversion of all of our issued and

outstanding preferred shares into ordinary shares at a ratio of 1:1

immediately prior to the completion of our initial public offering on

November 8, 2005 as if the conversion occurred at the beginning of the

fiscal year ended December 31, 2005.

SAIFUN SEMICONDUCTORS LTD.

CONSOLIDATED BALANCE SHEETS

All data in thousands of U.S. dollars

December December

31, 2005 31, 2006

Cash and cash equivalents $100,327 $52,919

Short-term investments - 2,016

Marketable securities 75,501 115,657

Trade receivables 2,663 9,483

Loans to employees 613 44

Other accounts receivable and prepaid expenses 2,181 1,693

Total assets attributed to discontinued

operations 212 -

Total current assets 181,497 181,812

Marketable securities 5,995 60,507

Property and equipment, net 2,668 3,403

Loans to employees 1,097 92

Severance pay fund 2,122 3,605

Lease deposits 289 759

Other assets 70 -

Total long term assets 12,241 68,366

Total assets $193,738 $250,178

Current liabilities

Trade payables $1,165 $1,138

Accrued expenses and other liabilities 9,913 9,019

Deferred revenues 3,786 -

Total liabilities attributed to discontinued

operations 146 -

Total current liabilities 15,010 10,157

Accrued severance pay 2,655 3,734

Share capital 120 125

Additional paid-in capital 211,706 236,958

Accumulated other comprehensive income 38 -

Accumulated deficit (35,791) (796)

Total shareholders' equity 176,073 236,287

Total liabilities and shareholders' equity $193,738 $250,178

SAIFUN SEMICONDUCTORS LTD.

SUMMARY OF CONSOLIDATED STATEMENTS OF CASH FLOWS

All data in thousands of U.S. dollars

Year ended

December 31, December 31,

2005 2006

Net cash provided by operating activities $14,116 $31,838

Net cash used in investing activities (66,068) (97,322)

Net cash provided by financing activities 125,051 18,076

Increase (decrease) in cash and cash

equivalents 73,099 (47,408)

Cash and cash equivalents at beginning of year 27,228 100,327

Cash and cash equivalents at end of year $100,327 $52,919

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