As previously communicated, SwitchCore has for some time been engaged in discussions of increasing intensity with potential partners regarding a solution which would take advantage of the company's efforts in developing the new, third generation product Xpeedium3 (or X3), expand the company's line of products and strengthen the company's position on a highly competitive market. Xpeedium3 may generate revenue in 2008 but, considering that the sales cycle is long, a significant effect on sales can not be expected until 2009. Meanwhile, the sales of the X2 family has not developed in line with the expectations upon which the financing of the X3 effort was based. The first product family, Xpeedium, is still dominating the sales. On balance, this is such a strain on the company's cash flow that the present financing of the X3 project is insufficient. In the semiconductor industry, large volumes, or at least large market shares within a certain field, is needed to be able to generate the profitability and cash flow required to invest in new product development. The strategic work of the company in searching for cooperation partners has been based upon this. Thus, the work has focused on investigating the possibilities of selling the entire business or part thereof. During the first months of 2007, a significant number of contacts were established and some ten credible, potential alternatives were at hand. However, the further efforts made have yet to result in an actual option crystallizing. Discussions are continuing with a number of potential partners, with the aim of completing a transaction in two, three months. However, whether such a transaction may take place is uncertain. It is now imperative - in order to avoid a liquidity crisis - that the company implements significant cost cutting measures. In light of the company's cost structure, terminating the X3 project is considered to be the only viable option. The company intends to do so within a time frame of about three months. As a consequence hereof, the company will as soon as possible call for negotiations with the trade unions concerned in order to enable the company to effect the planned reorganisation and give notices of termination to employees. Sales of existing products and support services to existing costumers will be made a priority and are not intended to be affected. However, a divestment of this business might be considered as well. Meanwhile, other efforts to take advantage of the values accrued in the company continue. The intention is to try to dispose of intellectual property rights relating to future products as well as to change the business of the parent company, SwitchCore AB, in order to take advantage of financial assets, mainly the company's losses carried forward. In the latter respect, a completely new, profitable business might be transferred into the company by a third party. The company applies IFRS accounting and has significant development costs for the X3 project booked as an asset (MSEK 131). However, in light of the above, the board has concluded that this asset is to be written down to zero. Accordingly, the board has reasons to believe the company's equity is less than half of the share capital and has decided to prepare a special balance sheet according to the Swedish Company Act and have it reviewed by the auditor. The company does not expect the above-mentioned measures to affect the 2007 revenues from existing products. The 2007 revenue level is expected to remain low. However, inflow of orders and sales during the second quarter will exceed the corresponding figures for the first quarter due to a couple of large orders for Xpeedium products. As previously announced, the postponed annual general meeting of SwitchCore will take place on 14 June 2007. A notice convening the meeting is published in a separate press release today. Due to the decision to prepare a special balance sheet, the notice includes an agenda item pursuant to which the meeting shall decide whether or not the company shall be liquidated. The board's proposal is that the company shall not be liquidated but that the business shall be kept going as set forth above. The board also proposes to the annual general meeting that the purpose of the company be expanded by a change of the articles of association, whereby the above-mentioned change of the business of the parent company is made possible. Further, the board proposes that the annual general meeting approve a divestment of the entire existing business in case such an opportunity arises and is considered to be in the best interest of the company. The board of directors of SwitchCore AB (publ) Press conference In light of the above, SwitchCore invites to a press conference in the offices of the company, Emdalavägen 18, Lund, Sweden, today at 10.30 a.m. It is possible to attend the press conference on the phone: Tel: +46 8 672 8150 Code: SwitchCore For further information please contact: Per Andersson, Chairman of the Board of SwitchCore E-mail: per.andersson@switchcore.com Telephone: +46 708 89 13 62 Erwin Leichtle, CEO of SwitchCore E-mail: erwin.leichtle@switchcore.com Telephone: +46 703 38 93 00 About SwitchCore SwitchCore AB develops, markets and sells integrated network devices for data, voice and video communication based on the Ethernet standard. The core of SwitchCore's expertise is in its CXE technology, which allows for significantly higher network product capacity. Using SwitchCore's components, customers can develop network products that cost-efficiently manage and prioritize data, video and voice traffic for many demanding applications. Customers and partners are network equipment manufacturers and suppliers. SwitchCore's headquarters is in Lund, Sweden. The company is listed on the Nordic list of the Stockholm Stock Exchange. For more information visit www.switchcore.com
SwitchCore initiates process for significant cost cutting measures. Special balance sheet to be prepared
| Source: SwitchCore AB