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TANDBERG Reports Fourth Quarter 2005 Results


Revenue of 82.9 MUSD and Operating Profit of 18.2 MUSD in 4Q05

OSLO and NEW YORK, February 2, 2006 -- TANDBERG® (OSLO: TAA.OL), a global leader in visual communication, today announced financial results for the fourth quarter ended December 31, 2005.

Overview of 4Q05:
• Revenue of 82.9 MUSD with volume of 8,478 units
• Operating profit of 18.2 MUSD and pre-tax profit of 19.7 MUSD
• Gross margin of 67.3% and strong cash flow
• Management change, new CEO
• Slow infrastructure sales across all theatres

Fourth quarter revenues were 82.9 MUSD compared with 88.9 MUSD in the same quarter last year and 91.2 MUSD in 3Q05. Operating profit was 18.2 MUSD compared with 22.4 MUSD in the same quarter last year and 23.6 MUSD in 3Q05. The Company generated a net cash outflow of 22.6 MUSD after repurchasing own shares amounting to 34.6 MUSD, ending the quarter with a cash balance of 202.8 MUSD. Earnings per share (after tax) were 0.115 USD in 4Q05 compared with 0.119 USD in the same quarter last year and 0.144 USD in 3Q05.

For the year, revenue totaled 345.2 MUSD in 2005 compared with 305.0 MUSD in 2004. Operating profit was 85.4 MUSD for 2005 and 76.8 MUSD for 2004.

4Q05 gross margin was 67.3%, compared with 66.7% in the same quarter last year and 67.5% in 3Q05.

Selling, general & administrative (SG&A) expenses for 4Q05 totaled 35.1 MUSD, compared with 34.8 MUSD in the same quarter last year and 35.6 MUSD in 3Q05. SG&A expenses as a percentage of sales were 42.3% in 4Q05, compared with 39.1% in the same quarter last year and 39.0% in 3Q05.

The Company continues to generate a sound cash flow, ending the quarter with a cash balance of 202.8 MUSD and an equity ratio of 74.4% as of December 31, 2005. This compares to a cash balance of 224.9 MUSD and an equity ratio of 76.2% as of September 30, 2005.

Discussing the fourth quarter results, Fredrik Halvorsen, Chief Executive Officer, stated, “TANDBERG’s performance in the fourth quarter was weak. Poor internal execution with an imbalance in pipeline management between the short term and the long term was the main reason for the shortfall. Other contributing factors include, customer migration to complete IP solutions requiring a longer decision-process, lower than expected network sales across all theatres, a possible confusion around High Definition delaying customer purchase decisions, and business disruption caused by the change of CEO.

Observations for the first 30 days of the quarter include an enthusiastically received and highly educational global sales kick-off event, solid organizational buy-in for change, a positive build-up of the pipeline and the search has been completed for several new key hires.

The Company fundamentals remain solid, driven by an efficient business model and technology leadership. Gross margin was 67.3% in 4Q05 versus 66.7% in the same quarter last year and 67.5% in 3Q05.

The Company has continued to execute well in technology innovation, alliances, verticals, and acquisitions to expand the marketplace. In October, TANDBERG introduced the MXP Profile series, a collection of endpoints with flat-panel displays that enhance the multimedia experience for video users. In January, TANDBERG announced that the streaming and the 3G mobile video technologies acquired in 2005 have already been integrated into the TANDBERG total solution and will be shipping in February. Also shipping In February is High Definition capability across the total solution. In addition, TANDBERG’s integration with IBM Lotus Sametime® was launched at LotuSphere in January and is the first such integration to ship. TANDBERG also announced a new category of video systems for public spaces, such as airports and reception areas, in another move to expand the market for visual communication. “

In 4Q05, TANDBERG sold 8,478 units compared with 8,371 in 3Q05, a 1.3% increase, and 8,330 units in the same quarter last year, a 1.8 % increase. In 2005, 32,618 units were sold compared with 27,532 in 2004, an 18.5% increase. 4Q05 revenue from OEM sources comprised 1.8% of total revenue.

Revenue in the Americas theatre during 4Q05 totaled 44.8 MUSD, including revenue from OEM sources, compared with 45.7 MUSD the same quarter last year and 54.8 MUSD in 3Q05. Enterprise sales had strong growth in the fourth quarter in the Northeast and Southeast regions, while Midwest was weak. Latin America showed positive development.

Strengthening its sales organization, the enterprise market was divided into eastern and western territories. New hires in the Americas theatre include the Vice President of Enterprise Sales, West, and a Vice President of Federal Sales. The theatre increased services revenue growth through improved attach rates and renewal program initiatives.

Going forward, the Americas theatre will increase focus on infrastructure sales, taking advantage of strong interest from customers in the streaming content server and new software functionality for the MPS, both recently launched. Additional priorities include recalibrating the partner program to improve competency and loyalty, long-term pipeline generation and lowering DSOs.

Revenue in EMEA during 4Q05 totaled 29.5 MUSD, compared with 31.6 MUSD in the same quarter last year and 28.0 MUSD in 3Q05. Southern Europe continued to lead sales, especially in Spain and Italy. Business in the UK and Scandinavia remained a challenge.

The EMEA theatre has an improved management structure and team in place, organized around five regions that include Northern Europe, UK and Ireland, Southern Europe, Central Europe and Emerging Markets. In 4Q the theatre experienced strong service sales, with several encompassing long-term contracts signed by large global organizations. The region saw major wins with new IP system integration partners.

In 1Q, the EMEA theatre will focus on total solution sales and introduce initiatives to increase network infrastructure sales. The theatre will intensify its efforts in building a sales pipeline through an increased number of sales people and improved organizational effectiveness. The service delivery model will also be improved and scaled through a new technical assistance center. Another improvement for the quarter will be a focus on building the competence level within channel partners for the converged market (IP) to increase the volume sold as integrated communication solutions.

Revenue in APAC during 4Q05 totaled 8.6 MUSD, compared with 11.7 MUSD in the same quarter last year and 8.4 MUSD in 3Q05. Southeast Asia and Australia markets performed well in 4Q, with the Japanese and Chinese markets lagging.

Asia Pacific now has the necessary infrastructure and team in place. The Theatre experienced sequential services growth for the quarter, and had key wins in a large Chinese public security bureau and in the largest carrier in Japan.

To improve 1Q results, month-over-month cost and margin developments will be closely measured. In addition, partner coverage will be improved, reviewed and a feedback process put in place. Targeted marketing and sales programs will also be developed.

Profile Series: Launched in October, the 6000 MXP Profile and 3000 MXP Profile systems are for medium-to-large groups. The 6000 MXP Profile offers a sleek 50- or 43-inch plasma flat-panel display, while the 3000 MXP Profile has either a 43- or 32-inch LCD flat-panel display.

New Solutions for video “anytime, anywhere and for anyone”:

• Video anytime: TANDBERG’s Content Server converts any video system into a broadcast studio for streaming and archiving video calls. Users can easily create live and on-demand content from the office, home or the road.

• Video anywhere: TANDBERG’s 3G Gateway allows 3G mobile phone users with video-enabled handsets to place video calls to any IP- and ISDN-based video endpoints.

• Video for anyone: TANDBERG’s Compass MXP and Utility MXP endpoints are specifically designed for immediate face-to-face information access in public spaces, such as information desks at airports and hotels, or emergency environments.

TANDBERG Compass MXP, Utility MXP and 3G Gateway are available now. TANDBERG Content Server will be available the second half of February 2006.

Key Enhancements to the Total Solution:

• The TANDBERG Media Processing System (MPS), a scalable multipoint conferencing unit, can now also function as the market’s highest-capacity gateway.

• High Definition capability is available for users with detail-intensive applications and high bandwidth.
These upgrades, announced January 30, will ship within the quarter.

Integration with Alliances:

• IBM Lotus Sametime®: A user-friendly tool for increasing face-to-face collaboration, TANDBERG integrates with Sametime to enable users of the popular IBM collaboration environment to search for video systems and launch ad hoc video calls from any video unit managed by the TANDBERG Management Suite (TMS). The integration with Sametime will begin shipping in mid-February, and joins TANDBERG integration with Lotus Notes for scheduling video calls, which has been shipping for over a year.

• Microsoft® Office Communicator: Video users can now create and control multipoint conferences from Microsoft Office Communicator. This follows the July 2005 launch which introduced the ability to launch TANDBERG video calls with Microsoft Office Communicator. TANDBERG’s integration also allows PC-based video to utilize Communicator as a software video codec and connect with TANDBERG’s end-to-end solution.

• Nortel: TANDBERG endpoints are now certified to support Nortel SIP.

These integrations will ship within the quarter.

TANDBERG management has set short-term priorities and will be ready to act on prevailing business momentum in the first half of 2006. Management views the long-term industry prospects as positive and unchanged.

On April 20th the 1st quarter results will be released together with key strategic initiatives. There will not be a mid-quarter update in 1Q06.

Today at 11:00 a.m. Eastern Time or 5:00 PM Central European Time, Fredrik Halvorsen, Chief Executive Officer, and Terje Rogne, Senior Vice President of Operations, will host a live webcast/conference call from Oslo, Norway. Additionally, a PowerPoint presentation will accompany the webcast/conference call. To access the webcast, please visit:

For those who prefer to dial-in, the conference call can be accessed at +1.617.614.3454 for international callers or 1.800.510.9723 for U.S. callers. The audience passcode for the call is TANDBERG. Please allow extra time prior to the call to visit the site and download the streaming media software required for the Internet broadcast. An online archive of the broadcast will be available within one business day.

With effect from 1 January 2005, TANDBERG has applied IFRS in the consolidated accounts. The impact of the change of accounting standards along with comparative information regarding TANDBERG’s financial reporting in 2004 in accordance with IFRS, were presented in the “Transition to IFRS” document released on April 6, 2005. Accordingly, 2004 financial information included in this document is different from previous reports.

The financial information within this press release and attached preliminary quarterly financial tables have been prepared in accordance with IFRS and are consistent with current IFRS and interpretations issued by the International Accounting Standards Board (IASB). These standards are subject to ongoing amendment by the IASB and subsequent endorsement by the European Commission and are therefore subject to possible changes. As a result, information contained within this release will require updating for any subsequent amendment to IFRS required for first time adoption or those new standards that the Group may decide to adopt early.


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