ELSTREE, England—(BUSINESS WIRE)—Aug. 2, 2006— ARC International (LSE: ARK), the world leader in configurable multimedia subsystems and CPU/DSP processor cores, today announced its unaudited financial results for the six months ended 30 June 2006.

Highlights from the First Half of 2006 (Compared to 1H 2005):

-- Good financial foundation

-- Revenue up 10% to GBP 6.0 million

-- Royalties up 32% to GBP 1.5 million

-- Bookings up 31% to a record GBP 8.3 million

-- Cash generated from operating activities was GBP 0.5 million; Net loss was GBP 1.7 million

-- Processor license agreements up 18%

-- 20 processor contracts closed in 1H 2006 bringing the total number of ARC(TM) licensees to 127

-- ARC(TM) Media Subsystems and the 600/700 family of cores contributed 95% of processor license revenues

-- Lower value legacy products no longer appreciably contributing to turnover

-- New ARC(TM) Video and ARC Sound Advanced Subsystems

-- Launched in February, ARC Video Subsystem already licensed by 6 companies

-- Introduced ARC Sound Advanced Subsystem; already licensed by 2 companies

Commenting on the company's performance, Carl Schlachte, president and chief executive officer, said, "During the first half of 2006, the company delivered a good financial performance by closing the highest number of contracts in the company's recent history and aggressively selling our newest configurable subsystems and processors. ARC has a strong foundation that will support the company's continued growth into the future.

"For the second half of 2006, ARC will focus on winning more tier 1 licensees while making strategic investments to boost our ongoing sales and marketing efforts in key regions. We are optimistic about the prospects for the company and confident about trading in the second half of this year."

Commenting on the financial results, Victor Young, chief financial officer, said, "We are seeing increased opportunities and new business fuelled by our multimedia subsystems, as evidenced by the increase in backlog and sales pipeline. Costs were slightly ahead of plan, due to higher sales commissions related to the increase in revenues in Asia, increase in professional fees, and other investments made in growing ARC's subsystem offerings. Bookings in Asia increased by approximately four times compared to the same period a year ago. We look for continued revenue growth in the second half of 2006."

Statement from the President and Chief Executive Officer

Overview

During the first half of 2006 ARC delivered a good financial performance and strengthened its position as the leader in configurable processor technology. The results were driven by twenty new processor license agreements for ARC's patented subsystems and cores that will be designed into a range of high-growth applications. ARC's licensee base now stands at 127 OEM and semiconductor companies -- many industry leaders. Our newest products continue to sell well and command higher per-agreement prices. Today the ARC(TM) 600 and 700 core families and ARC Media Subsystems contributed approximately 95 percent of total processor licence revenue, which completes the shift in revenue away from lower value legacy products that the management team set out to achieve starting in 2004.

In 2006 the configurable ARC Video and ARC Sound Advanced Subsystems were introduced and licensed by companies for chips going into next-generation consumer devices. ARC launched ConfigCon(TM), a worldwide developers conference series designed to educate the semiconductor industry on configurable processor technology and increase the adoption of our configurable solutions. The first event in Taiwan surpassed expectations, with almost 400 attendees and close to 20 companies participating in the event.

Licensee Adoption of Configurability

ARC's patented configurable subsystems and processors help companies developing semiconductor chips to gain a competitive advantage by enabling the creation of highly differentiated, lower cost products. These are reasons why industry analysts forecast that chips based upon configurable solutions will grow more than five times faster than chips using "fixed architecture" alternatives. ARC is leading this trend and helping accelerate the adoption of configurability globally. During the first six months of 2006, companies that announced they took licenses for an ARC configurable subsystem or core included:

-- Atmel Corporation -- has taken a license for the ARC Video Subsystem. It will be designed into Atmel's next generation products targeting consumer electronics multimedia applications.

-- BiTMICRO Networks -- has taken a license for the ARC 700 family of configurable cores. BiTMICRO will use ARC's configurable processors to develop low cost, next-generation system-on-chip (SoC) devices for their state-of-the-art E-Disk(TM) storage solutions.

-- RF Microdevices -- has signed a license agreement for the configurable ARC, 600 core family, which will power future products in RFMD's fast-growing product line of programmable RF radios.

-- SMSC -- has taken a license for the ARC 600 family of configurable processors for computing applications. The ARC 605 core is an optimal replacement for legacy 8-bit microcontrollers, while the ARC 610D and 625D cores are cost effective 32-bit CPUs/DSPs ideal for a wide range of general purpose embedded applications.

-- TTPCom -- has taken a license for a configurable ARC 700 core. TTPCom has combined the ARC 700-class processor with its proven baseband technology to develop a highly optimized SoC design for its 3G Cellular Baseband Engine (CBEmacro) product.

-- Undisclosed aerospace company -- has taken a license for the configurable ARC 725D core for use in a government satellite application. The ARC processor will enable the company's designers to create a chip that is ideally suited to the rigorous operating environment of space.

ARC's Configurable Multimedia Subsystems

ARC is the only company to provide configurable subsystems specifically designed to meet the requirements of multimedia applications. The ARC Media Subsystem family offers a range of audio, video, and imaging solutions as a single integrated, configurable platform. Each ARC Media Subsystem includes the necessary hardware, software, and development tools needed to complete an ARC-Based design and get to market quickly.

-- ARC Video Subsystem -- In February of 2006 the ARC Video Subsystem was introduced. Within less than five months, six companies took licenses for the product for chips that will be designed into a range of multimedia consumer devices. This is the fastest rate of adoption of any of ARC's standalone microprocessor offerings.

-- ARC Sound Advanced Subsystem -- In March 2006 ARC introduced the latest in its line of configurable multimedia subsystems: ARC Sound Advanced. Ideal for devices needing high definition audio capability, the ARC Sound Advanced Subsystem consumes low power and is programmable to enable licensees' differentiation to be added to the platform. Licensees include Oki Electric of Japan, which adopted the ARC Sound Advanced Subsystem for in-car audio applications.