SRS Labs Ditches Chips

SANTA ANA, Calif. -- SRS Labs (NASDAQ:SRSL), a leading provider of innovative audio and voice technology solutions, announced today that it intends to sell its Hong Kong-based semiconductor business, Valence Technology Limited, in order to focus increased management attention and financial resources on what it believes to be a large and expanding market opportunity for its licensing business. As a result of the decision to sell its semiconductor business, beginning with the first quarter ending March 31, 2006, SRS will account for that business segment as a discontinued operation.

The company also announced that it has recorded a $3.3 million asset impairment charge related to SRS' investment in CHS/SRS LLC, a joint venture between the company and Coming Home Studios LLC. The original objective of this alliance, which was entered into in 2004, was to increase SRS' brand awareness among consumers of the company's surround sound technology. Unfortunately, the sales of the first three concert videos produced under the LLC were significantly lower than expected. As a result, SRS now believes that the investment is impaired.

According to Thomas C. K. Yuen, SRS' chairman and chief executive officer, the company has made the decision going forward to focus its resources and management attention on maximizing its core licensing business, which it believes represents the most significant revenue and gross margin opportunity for SRS. "Our licensing business has shown year-over-year growth from 2000 to 2004, and for the nine months ended September 30, 2005, revenues for the licensing business increased approximately 30 percent to $10.5 million from $8.1 million during the same period in 2004. Sales in the licensing business continued to be strong during the fourth quarter ended December 31, 2005.

"This licensing business with its broad customer base, including such leading electronics manufacturers as Sony NEC, Samsung, Toshiba, HP, LG and Panasonic and spanning across multiple consumer markets such as home entertainment, portable media devices, PCs, personal telecommunications, and automotive, has significant potential for further growth," Yuen said.

"Also, due to the high operating leverage of the business model of the licensing business with historical gross margins above 95 percent, we believe our increased focus and investment on this business will provide a sound basis for enhancing shareholder value. With the recent appointment of several new key executives, we believe we have a strong leadership team capable of achieving increased success in the marketplace."

SRS Labs Inc. (NASDAQ: SRSL)