Esmertec Announces Results for 2006, a Transition Year

Esmertec(TM) (SWX:ESMN), a focused provider of software and
services to communications device manufacturers and mobile telecom
operators, announced today its results for the financial year ended
December 31, 2006. The company's results are the outcome of two
entirely different half years. After a sharp decrease in revenues in
the first six months to USD 9.3 million, business returned back on
track in the second half of the year: revenues reached USD 15.5
million resulting in total revenues of USD 24.8 million for 2006,
compared to USD 39.2 million in 2005, in line with management's
guidance. Esmertec expects total revenues to be over USD 34 million
for the full year 2007.

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In USD millions, except as otherwise indicated FY H1 H2 FY
2005 2006* 2006 2006
Revenues 39.2 9.3 15.5 24.8
Gross profit 24.3 1.8 8.2 10.0
EBITA (LBITA) (5.9)(15.3) (6.3)(21.6)
Operating income (loss) (13.8)(34.5)(10.8)(45.3)
Net loss attributable to equity holders of
Esmertec AG (15.7)(34.5)(13.9)(48.4)
Basic loss per share, USD (1.22)(2.12)(0.85)(2.97)
Diluted loss per share, USD (1.22)(2.12)(0.85)(2.97)
Cash collections 17.4 13.4 14.5 27.9
Cash flow used in operating activities (15.7)(12.7) (7.5)(20.2)
Cash, cash equivalents, short term
investments, marketable securities 55.0 29.1 13.2 13.2
Shipments in the period, millions of units 23.1 18.1 41.0 59.1
Subscribers added in the period, millions of
subscribers N/A 6.5 29.7 36.2
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During 2006, Esmertec's operational performance developed robustly
with growth of customers' device shipments with Esmertec software to
over 59 million in the year and the creation of a new Mobile Operator
segment with the acquisition of Cellicium in February 2006. Thanks to
new contracts and follow-on orders from existing customers, the
cumulated mobile subscriber base with access to Cellicium's USSD
browsing continued to grow over 70 million from 34 million at the
beginning of the year.

"2006 was a challenging year with two totally different faces.
While our financial performance mainly in the first half year was
disappointing, we have delivered sustainable improvements in our
operations," comments Jean-Claude Martinez, CEO of Esmertec. "We have
increased our efficiency by making Esmertec a more market driven
organization and by adjusting costs to better reflect our current
market expectations. Device shipments with Esmertec software
consistently grew throughout the year. Our new Mobile Operator segment
developed favourably. I am confident that measures initiated in 2006
with the market acceptance of our products and services will have
strong impact on financial results going forward."

Summary of 2006 results:

Revenues: For the reporting period ended December 31, 2006, total
revenues decreased by 36.8% compared to the previous year to USD 24.8
million. With total revenues of USD 15.5 million in the second half of
2006 performance was significantly better than in the first half with
total revenues of USD 9.3 million. The sharp decline in revenues in
the first half year of 2006 compared to 2005 resulted from a
combination of market and customer-specific factors in the Mobile &
Multimedia Device segment, which led to delays or reductions in
committed volume contracts. In addition, the Company was more cautious
in its credit evaluations and decided to defer revenues from customers
not able to demonstrate strong financial viability.

Gross Margin: Gross margin for the year 2006 was 40.6% of revenues
(H1: 18.9%; H2 53.5%) compared to 61.9% in the previous year.
Shortfalls in high-margin license revenues as well as first-half
losses on services in the Mobile & Multimedia Device segment affected
the gross margin negatively. In the service business, the gross margin
in both segments was positive in the second half of the year, with a
consolidated gross profit of USD 2.3 million compared to a loss of USD
2.0 million in the first half.

Operating expenses: Operating expenses, excluding restructuring,
amortization and impairment expense, stayed relatively stable at USD
31.0 million in 2006 compared to USD 30.2 million in 2005. If the
effects of bad debt expense are excluded, operating expenses increased
14.8% to USD 25.8 million mainly reflecting the acquisition of
Cellicium in February 2006 and the full impact of the ramp-up of the
Chinese operations in the second half of 2005. In the course of the
year, Esmertec introduced several cost and efficiency improvement
measures, resulting in restructuring charges of USD 2.7 million. These
measures took effect beginning in the third quarter of 2006. As a
result, operating expenses (excluding bad debt, amortization and
impairment expense) were USD 3.0 million lower in the second half of
2006 compared to the first half of 2006.

The changes in expectations for revenues from existing products in
the Mobile & Multimedia Device segment and the changes in the Group
structure also led to a reassessment of the continuing value of
intangible assets. Consequently, impairment losses have been recorded
to the total amount of USD 17.7 million. Bad debt expense declined to
USD 5.2 million in 2006 compared to USD 7.7 million in 2005, but still
was significantly affected by the negative financial situation of
several customers, including one long-term customer which alone
represent 50% of the total 2006 bad debt expense. All bad debt expense
incurred in 2006 resulted from contracts signed in the years 2005 and
before, and nearly half of the expense related to accounts receivable
from long-term commitments not yet due for payment. At year end 2006,
accounts receivable representing amounts from long-term commitment
contracts not currently due has decreased to USD 21.8 million from USD
31.4 million at December 31, 2005.

Results: The LBITA was USD 21.6 million compared to a LBITA of USD
5.9 million in the previous year. Net loss attributable to equity
holders of Esmertec AG amounted to USD 48.4 million compared to a net
loss of USD 15.7 million in 2005. Diluted loss per share was USD 2.97
compared to a loss per share of USD 1.22 in 2005.

Cash flow: Cash collections from customers totalled USD 27.9
million in 2006 (USD 17.4 million in 2005), higher than revenues due
to collections on contracts executed and recognized in prior period.
As at December 31, 2006, cash, cash equivalents and short term
investments totaled USD 13.2 million, decreasing from USD 55.0 million
on December 31, 2005. This reduction reflects primarily the USD 14.4
million net cash outflow related to the acquisition of Cellicium, the
final USD 2.5 million payment for the acquisition of Coretek (China),
USD 1.6 million in investment in and loans to Javaground, and net cash
used in operations of USD 20.2 million.

Balance sheet: Accounts receivable decreased from USD 36.4 million
at the end of 2005 to USD 29.6 million at the end of 2006. Intangible
assets increased from USD 31.3 million at December 31, 2005 to USD
38.6 million at December 31, 2006, reflecting intangible assets
arising primarily from the acquisition of Cellicium (USD 23.6 million)
and capitalization of development costs (USD 4.5 million) offset by
the USD 17.7 million in impairments. Esmertec sold a majority stake in
Esmertec KK (Japan) to an investor group led by local management,
resulting in a gain on sale of USD 1.9 million; the remaining
investment is now recorded as a long-term investment. Shareholders'
equity decreased from USD 72.9 million at the end of 2005 to USD 27.9
million as at December 31, 2006.

Segment information

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In USD millions Mobile& Mobile
Esmertec Multimedia Operator Esmertec
Group Devices Segment Group
Segment
2005 2006 2006 2006
License revenue 29.7 8.1 4.4 12.5
Service revenue 9.5 7.3 5.0 12.3
EBITA/(LBITA) (5.9) (24.0) 2.4 (21.6)
Operating income (loss) (13.8) (46.2) 0.9 (45.3)
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Esmertec's historical activity has been based primarily on the
sale of the Jbed Java Virtual Machine and related products and
services. This is reflected in the Mobile and Multimedia Devices
Segment and is comparable in scope to the historical results for 2005.
The Mobile Operator Segment reflects principally the results of
Cellicium since its acquisition by Esmertec at the beginning of
February 2006.

Mobile & Multimedia Devices segment: increase in market share

In the Mobile & Multimedia Devices segment, revenue reached USD
15.4 million, a reduction of 60.9% compared to the previous year.
LBITA decreased to USD (24.0) from USD (5.9) in 2005. While the first
half-year was marked by a sharp drop of revenues, business activity
picked up again in the second half of the year, delivering sales
growth of 58.3% compared to the first half year. In 2006, 44% of
revenues were achieved in Asia, 40% in the Americas and 16% in Europe.

Esmertec's customers' product shipments increased by 152% to 59.1
million with a steady growth over the year. At the same time,
Esmertec's market share of total mobile phones shipped globally
increased continuously from an estimated 3.1% at the end of 2005 to
7.6% in the fourth quarter of 2006. As of December 31, 2006, the
company's software has been shipped in 99.8 million devices.

Mobile Operators segment: strong operating margins

The Mobile Operator segment maintained its fast growth pace.
Revenues reached USD 9.4 million with associated EBITA of USD 2.4
million.

The result reflects a healthy development with both existing
customers extending their capacities and new customers contributing to
the positive performance. As of December 31, 2006, 18 mobile operators
have deployed Cellicium's USSD browsing solution. The number of
subscribers with access to Cellicium's USSD platform has significantly
increased over the past 3 years, reaching 70.4 million subscribers as
of December 31, 2006. In total the Company won eight new USSD
customers in 2006.

Although the historical revenue base comes from a major European
operator, growth in the Mobile Operator segment to date has originated
mainly from the fast developing markets in the Middle East and Africa,
and Asia. The Company also has signed its first contracts in Latin
America. In 2006, 55% of revenues were achieved in the Middle East and
Africa, 28% in Europe, 14% in the Americas and 3% in Asia.

Outlook

Esmertec's markets are experiencing a growing use of interactive
and mobile communication devices. Java technology is increasingly
being selected as the interactivity-enabling requirement for handset
manufacturers and home multimedia products. Esmertec is well
positioned to benefit from this fundamental growth driver. Esmertec's
USSD offering is experiencing increased interest in emerging markets
as well as in Europe.

Esmertec now concentrates on three fundamental strategic
priorities

-- Reinforce market presence and penetration: Esmertec plans to
further increase its market share by providing customers with
innovative and reliable products in both segments, with a
short time to market and excellent service.

-- Move up the value chain: Through the Cellicium acquisition
Esmertec moves closer to telecom operators by offering mobile
browsing solutions and applications. With this profile,
Esmertec is targeting to expand its product portfolio,
offering customers cost-saving and revenue-generating
products.

-- Develop service offering: Esmertec aims to develop and extend
its support and maintenance services to mobile industry
players. The company uses local competence centers to provide
customers with global expertise. Esmertec focuses on making
the service competence a profitable business unit.

For 2007, revenues are expected to increase at least 35% to be
over USD 34 million and cash flow from operations is expected to be
positive. Building on the turnaround measures implemented in the
second half of 2006, the Company intends to make improving
profitability its top priority.

Future Board Composition: evolution toward an industrial profile

In November 2006, three industry experts joined Esmertec's Board
of Directors. Following this first step toward a Board which is more
independent from the founding VC investors and with a more industrial
profile, Roland Manger and Bernd Pfister have decided that they will
support this transformation and not stand for re-election at the
Annual General Meeting of Shareholders, which will take place on April
19, 2007. Tony Reis, a board member since 2005, has also indicated
that he will not stand for re-election. Chase Bailey, a board member
since 2004, has indicated that he will resign from the Board of
Directors at the upcoming annual shareholders' meeting on April 19.
Thereafter, Esmertec's Board of Directors is expected to consist of
seven members.

This communication contains forward-looking statements based on
current expectations and assumptions of the company's management only,
and involve certain risks and uncertainties. The forward-looking
statements contained herein could be substantially impacted by risks
and influences that are not foreseeable at present, so that actual
results may vary materially from those anticipated, expected, or
projected. Esmertec disclaims any intention or obligation to update
and revise any forward-looking statements, whether as a result of new
information, future events or otherwise.

About Esmertec

Esmertec is a focused provider of software and services to
communications device manufacturers and mobile telecom operators. The
company provides software platforms that enable the deployment of
content and applications in devices and over servers. Customers
include mobile telecom operators and manufacturers of mobile handsets,
set-top boxes and interactive televisions. Esmertec's software and
service capabilities excel with its reliability as well as fast and
local execution. Founded in 1999, Esmertec is headquartered in
Zurich-Switzerland with subsidiaries in China, France, South Korea,
and the USA, and offices in Taiwan and the UK. Since 2005, Esmertec
has been listed on the SWX Swiss Exchange (ESMN). www.esmertec.com

Esmertec and Jbed are trademarks of Esmertec AG.

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(1)

For the For the
year year
ended ended
December December
31, 31, 2006
(in USD 000s, except for per share information) 2005(2)
----------------------------------------------------------------------

License revenue 29,721 12,508
Service revenue 9,471 12,252
-------- ---------
Total revenue 39,192 24,760

Cost of license revenue -5,211 -2,773
Cost of service revenue -9,725 -11,946
-------- ---------
Total cost of revenue -14,936 -14,719
-------- ---------
Gross profit 24,256 10,041

Research and development, net of capitalized costs -5,473 -6,964
Amortization of capitalized development costs -1,095 -1,794
Sales and marketing -7,607 -8,787
Bad debt expense -7,652 -5,206
General and administrative -9,440 -10,061
Amortization of intangible assets -4,408 -4,203
Impairment of intangible assets -2,369 -17,675
Restructuring expense 0 -2,689
Gain on sale of majority interest in Esmertec K.K. 0 1,866
Other income and expenses, net 2 165
-------- ---------
Income (loss) from operations -13,786 -45,307

Financial income 4,760 4,257
Financial expenses -7,624 -9,288
-------- ---------
Income (loss) before income taxes -16,650 -50,338

Income taxes -268 969
-------- ---------
Net income (loss) -16,918 -49,369

Attributable to:
Equity holders of the parent company -15,690 -48,433
Minority interest -1,228 -936
-------- ---------
-16,918 -49,369
======== =========

Average number of shares (thousands) 12,911 16,319
======== =========
Basic and diluted earnings (loss) per share in USD -1.22 -2.97
======== =========
(1) This unaudited financial information is prepared in accordance
with International Financial Reporting Standards.
(2) Certain amounts in 2005 have been reclassified to conform to
current year presentation.
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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS(1)
At December 31,
-----------------
(in USD 000s) 2005(2) 2006
----------------------------------------------------------------------

ASSETS
Current assets
Cash and cash equivalents 35,771 3,142
Short-term investments 19,195 10,055
Trade accounts receivable 36,434 29,606
Income tax refund receivable - 513
Other receivables 639 1,350
Inventory 3,935 2,053
Prepaid expenses and accrued income 1,257 1,330
-------- --------
Total current assets 97,231 48,049
-------- --------
Non-current assets
Furniture and equipment 971 1,253
Intangible assets 31,295 38,611
Long-term investments and other financial assets 607 4,719
Deferred tax assets 3,207 0
-------- --------
Total non-current assets 36,080 44,583
-------- --------
Total assets 133,311 92,632
======== ========

LIABILITIES AND EQUITY
Current liabilities
Bank overdrafts 3,176 -
Interest-bearing loans and borrowings 121 27
Trade accounts payable 1,587 812
Income (withholding) tax payable 2,783 1,867
Other payables 7,190 10,621
Accrued expenses 10,723 10,083
Deferred revenue 1,824 1,126
-------- --------
Total current liabilities 27,404 24,536
-------- --------
Non-current liabilities
Interest-bearing loans and borrowings 27,935 31,932
Other long-term liabilities - 5,032
Pension liabilities 925 1,055
Deferred revenue 366 105
Deferred tax liabilities 3,746 2,121
-------- --------
Total non-current liabilities 32,972 40,245
-------- --------
Total liabilities 60,376 64,781
-------- --------

Shareholders' equity
Share capital 1,231 1,348
Share premium 114,737 123,338
Treasury shares -1 -1
Cumulative translation adjustment 888 -3,414
Accumulated losses -44,987 -93,420
-------- --------
Total equity attributable to equity holders of
the parent company 71,868 27,851
Minority interest 1,067 0
Total equity 72,935 27,851
-------- --------
Total liabilities and equity 133,311 92,632
======== ========
(1) This unaudited financial information is prepared in accordance
with International Financial Reporting Standards.
(2) Certain amounts in 2005 have been reclassified to conform to
current year presentation.
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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(1)
For the year
ended December
31,
(in USD 000s) 2005 2006
----------------------------------------------------------------------

Net income / (loss) -16,918 -49,369
Adjustments for:
Depreciation, amortization and impairment loss 8,144 24,182
(Gain) loss on sale of businesses - -1,692
(Gain) on disposal of intangible assets - -200
Stock option expense 1,105 483
Increase in provision for bad debts 7,652 5,206
Other adjustments 2,814 2,317
-------- --------

2,797 -19,073
Net changes in working capital items -18,501 -1,149
-------- --------
Net cash used in operating activities -15,704 -20,222
-------- --------

Capital expenditure for fixed assets -687 -696
Capital expenditure for intangible assets -443 -303
Capitalized development cost -5,364 -4,532
(Purchase) sale of short-term investments -19,125 13,638
Investment in and advances to Javaground - -1,641
Acquisition of businesses (Coretek, Cellicium) -3,462 -14,423
Other -60 110
-------- --------
Net cash used in investing activities -29,141 -7,847
-------- --------

Proceeds from borrowings 5,882 -
Repayment of borrowings -5,999 -3,252
Repayment of payables relating to acquisitions - -2,500
Proceeds from minorities 85 -
Proceeds from issue of share capital 63,978 548
Interest paid -1,299 -1,171
-------- --------

Net cash provided by (used in) financing
activities 62,647 -6,375
-------- --------

Net increase (decrease) in cash and cash
equivalents 17,802 -34,444
Cash and cash equivalents at beginning of period 19,817 35,771
Effect of exchange rate fluctuations on cash and
cash equivalents -1,848 1,815
-------- --------

Cash and cash equivalents at end of period* 35,771 3,142
======== ========

*excluding short-term investment in amount of: 19,195 10,055
======== ========
(1) This unaudited financial information is prepared in accordance
with International Financial Reporting Standards.
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