Gennum Corporation Reports Second Quarter 2007 Results


    BURLINGTON, ON, June 27 /CNW/ - Gennum Corporation (TSX: GND) today
reported financial results for the second quarter of fiscal 2007.($ millions except
     per share amounts)
                                   2007   % of Revenue   2006   % of Revenue
                                   ----   ------------   ----   ------------
    Second quarter
    Revenue                        35.7                  37.1
    Gross margin                   20.1         56.4     24.8         66.9
    Sales, marketing and
     administration expense        10.3         28.9      9.4         25.2
    R&D expense (gross)            11.2         31.4     11.5         31.1
    Asset impairment               (9.6)       (26.9)       -
    Net (loss) earnings            (7.0)       (19.6)     4.5         12.1
    Net (loss) earnings per
     share (basic)                (0.20)                 0.13"With the initial prioritization of Gennum's entire portfolio of
businesses and related technologies completed, we are focusing our energy and
resources on our world-class high-speed mixed signal product portfolio to
capture additional market share in video and data communications," said Dr.
Franz Fink, President and CEO of Gennum. "As a result, we are considering
various options for our Audio and Wireless Division and associated
Manufacturing Operations. Indeed, we are executing on our long-term strategy
to become a leading supplier of high-speed mixed signal products and we will
continue to undertake actions that will leverage Gennum's core technologies
for the future benefit of all stakeholders."

    Revenue

    Revenue in the second quarter of 2007 decreased 3.9% over the prior year.
However, excluding sales of end-of-life audio analogue products, revenue was
relatively flat. Video revenue was lower than expected in the second quarter,
but was more than offset by revenue increases in data communications.
Year-to-date revenue was down 1.5% or $1.1 million as compared to the prior
year; however, excluding audio analogue products, year-to-date revenue
increased 6.4%. Net earnings were impacted by non-cash charges related to the
write-down of headset inventory ($2.4 million before taxes) and the impairment
of manufacturing assets ($9.6 million before taxes).
    Revenue was lower in the second quarter and year-to-date compared to the
same periods in 2006 by $0.3 million as a result of foreign currency
fluctuations mainly due to the strengthening of the Canadian dollar. Foreign
exchange translation losses reduced pre-tax earnings by $1.6 million.
    Revenue generated from Gennum's video products portfolio totaled
$22.0 million in the second quarter of 2007, down 9% or $2.4 million compared
to the same quarter in the prior year. On a global basis, Gennum had a 30%
decline in revenue for standard-definition (SD) products compared to the prior
year. Global video revenue from high-definition (HD) products declined by 5%
compared to the same quarter in 2006.
    Data communications products achieved a fourth consecutive profitable
quarter as revenue rose 71% to a record-breaking $6.4 million in the second
quarter of 2007, compared to $3.7 million in 2006. Due to an increase in sales
across all of Gennum's data communications products, revenue of $11.5 million
for the first six months of 2007 increased by 69% compared to the same period
last year.
    Revenue from audio and wireless products declined by almost 20% to
$7.1 million in the second quarter of 2007 compared to the second quarter of
2006. The primary reason for the decline was the expected erosion of analogue
hearing product revenue as the end-of-life program entered its final phase in
the first quarter of 2007. Our digital signal processors, which now form the
basis for ongoing business in the audio and wireless segment, grew almost 20%
year to date over the prior year. The second quarter of 2007 saw revenue
increase by 12% for digital hearing components, modules and related systems.

    Gross Margin

    Gross margin as a percentage of revenue in the second quarter of 2007 was
56.4%, compared to 2006 second quarter gross margin of 66.9%. This decrease is
due primarily to an inventory provision for older generation headset materials
and finished goods in the Audio and Wireless Division. Excluding this
provision, gross margin for the quarter and year to date is 63.0% and 65.4%,
respectively. In addition, there were favorable margins in the prior year due
to the build out of analogue end-of-life products. The Company is focusing on
improving margins through actions to increase product yields and create a more
favorable sales mix.

    Asset Impairment and Inventory Write-down

    During the three months ended May 31, 2007, the Company took a non-cash
charge of $9.6 million ($6.3 million after taxes) related to the impairment of
the Company's manufacturing facilities in Burlington, Ontario. The impairment
charge was determined by comparing the carrying amount of the facilities to
their fair value. In addition, the Company wrote down the value of the headset
inventories of the Audio and Wireless Division by $2.4 million in the second
quarter of 2007. This provision was necessary as our efforts to sell older
generation products have not produced sufficient results. The impact of this
provision on consolidated gross margin as a percentage of revenue for the
quarter and year-to-date periods was a reduction of 6.6% and 3.4% of revenue,
respectively.

    Operating Expenses

    During the second quarter of 2007, sales, marketing and administration
expenditures increased $0.9 million to $10.3 million, compared to $9.4 million
in the second quarter of 2006. The increase is related to legal expenses and
higher salary costs offset by lower incentive compensation and consulting
costs related to Bill 198 compliance costs compared to the same quarter last
year.
    For the same reasons, sales, marketing and administration expenditures
year to date increased by $1.3 million to $19.4 million in 2007, compared to
$18.1 million in 2006. We are continuing to focus spending in areas that will
drive top-line growth.
    R&D spending in the second quarter of 2007 and year to date was slightly
lower compared to the same period in 2006. Lower incentive compensation
accruals were partially offset by higher salary costs.

    Net Earnings

    In the second quarter, net losses were $7.0 million, or $0.20 per share,
compared with net earnings of $4.5 million, or $0.12 per share in the second
quarter of 2006. The loss is mainly attributable to the asset impairment
charge of $9.6 million and the provision of $2.4 million for headset inventory
recorded in the quarter. Excluding these charges net of taxes, net earnings
would have been $0.9 million, or $0.03 per share; the lower earnings were
partially caused by lower gross margins and increased sales, marketing and
administration costs. Foreign exchange losses of $1.6 million in the current
quarter compared to a small foreign exchange gain in the same period last year
also reduced net earnings.

    Financial Condition

    The cash and short-term investment balance at May 31, 2007 was
$41.0 million, a decrease of $6.4 million from the end of the 2006 fiscal
year, due mainly to the annual payouts for 2006 performance under the
Company's incentive compensation plans, payments associated with the
restructuring activities and the impact of a strengthening Canadian dollar and
lower operating earnings.
    Cash used in operating activities was $0.6 million for the quarter,
compared to cash generated of $5.5 million in the second quarter of 2006,
primarily as a result of lower operating earnings and the impact of the
strengthening Canadian dollar.
    Management believes the current balance in cash and short-term
investments, plus future cash flow from operations, will be sufficient to
finance organic growth and related investment and financing activities in the
foreseeable future.

    Other Developments

    As disclosed in early 2007 a detailed assessment and prioritization of
Gennum's entire portfolio of businesses and related technologies was
undertaken. As a result, the Company is now executing on its strategy to offer
a more comprehensive high speed mixed signal portfolio that addresses the
video and data communication markets. With this portfolio focus, the Company
is exploring various strategic options for the assets of the Audio and
Wireless Division and Manufacturing Operations. Gennum engaged Genuity Capital
Markets to assist in its review and consideration of strategic alternatives,
and is presently in discussions with several parties regarding potential
transactions. However, there can be no assurance that any third party
transaction will be completed. Management believes that by focusing the
Company's energy and resources on a world-class high speed mixed signal
product portfolio, it will be better positioned to secure and gain global
market share.
    Gennum took important steps in the second quarter to become more globally
aligned, attract and retain top talent and put a stronger emphasis on
leadership development by appointing Bruce Hannah as its Senior Vice-President
of Human Resources. Mr. Hannah will be responsible for directing our human
resources activities by helping to evolve Gennum's culture, strengthen global
teamwork and develop leadership talent throughout the organization. He brings
over 25 years of human resource, finance and operations experience to Gennum,
with various senior level management positions held at Canadian Broadcasting
Company, Quebecor World and EDS.

    Commercial Developments

    Video
    -----
    Gennum continues to augment its HD-SDI portfolio and unveiled an
integrated serializer that targets emerging prosumer products such as digital
camcorders, mixers and recorders. The GS1582, which will be available for sale
in June 2007, features several enhancements over Gennum's previous HD/SD-SDI
serializers including the industry's first integrated audio multiplexer.
    In the second quarter, Gennum announced that JVC Corporation, one of the
world's leading suppliers of advanced video products for consumer and
professional applications, selected Gennum's award winning VXP(TM) technology
to power JVC's new line of image processor chips. These processors will
initially be deployed in JVC's next generation 20-inch and 24-inch flat-panel
monitors, which feature advanced image refinement capabilities using the VXP
technology.
    Additionally, Gennum announced that GlobalStreams, HaiVision and Image
Video have chosen Gennum's VXP image processing solutions for their
next-generation video conference and broadcast applications.

    Data Communications
    -------------------
    In March, Gennum announced availability of its new line of multi-rate
Fibre Channel storage repeaters. These new offerings represent the Company's
first 8.5 Gb/s offerings and feature its ClearEdge(TM) technology, which
enables reliable 8.5 Gb/s communication over a variety of media. The new
products are expected to provide customers with a low cost, high performance
solution that exceeds the requirements of the emerging 8.5 Gb/s Fibre Channel
standard.
    Additionally, Gennum, Fujitsu and Intel jointly demonstrated 10Gbps
performance for optical networking solutions at this year's Interop conference
in Las Vegas. The demonstration utilizes Fujitsu's 10 Gb/s serial
interconnect, Intel's SFP+ modules and Gennum's CDR chip. The close
collaboration between the companies has resulted in showcasing a working
10 Gb/s Ethernet switch solution with SFP+ and the significant signal
integrity optimization achieved with the use of CDRs. SFP+ is an emerging
optical module form factor which increases port density and reduces overall
cost to networking applications such as data center and enterprise switches.
    Working with two leaders in the industry and the resulting improved
performance for networking applications, further underscores Gennum's
technical core competencies in high speed mixed signal. This positively
positions us to supply to the growing SFP+ module market.

    Audio and Wireless
    ------------------
    In the audio headsets market, we began shipping our newest model, the
nX6000(TM), which was unveiled in January 2007. The nX6000 has received
excellent reviews from leading consumer publications for its noise
cancellation capability and ease of use.

    Patent litigation
    -----------------
    As previously disclosed, we were the subject of a patent infringement
claim in the US courts. This claim related to a limited number of non-core
Gennum products. In May 2007, the court determined that, of the two patents
involved, our products do not infringe on one, and the relevant claims of the
other are invalid. We are waiting to see if the plaintiff will appeal. We
believe there is a relatively low risk of the decision being overturned on
appeal.
    In the ordinary course of business activities, the Company may become
involved in litigation or claims with customers, suppliers, former employees
and third parties.

    OUTLOOK

    We see a slowdown in certain segments of the semiconductor industry.
According to the Semiconductor Industry Association (SIA), the outlook for the
global semiconductor market is slowing. The SIA lowered its forecast for 2007
chip sales growth from 10% to 1.8%.
    We believe the video market will be soft in the short term. However,
Gennum is seeing opportunities for its 3 Gb/s and HD-SDI products in North
America and Japan. With the requirements of the US-based Digital Transmission
Bill to be met by early 2009, the 2008 Olympics in Beijing and U.S.
presidential campaign, we expect to see continued demand for HD products.
Additionally, our key Japanese customers are well positioned to meet the needs
of offshore markets where the conversion to HD television is based on Japanese
standards. Key growth markets that have adopted or are considering the
Japanese standard include Brazil and other South American countries. Shipping
of HD products is expected to begin soon. Gennum will continue to strengthen
its HD-SDI and 3 Gb/s portfolio by introducing new innovative products for
video broadcast applications over the next few months.
    Gennum's image processing products have gained industry recognition as
the leading, high quality imaging solution. Additionally, our products have
gained traction in markets that demand superior HD image clarity. To ensure
alignment with the Company's growth and profitability targets, management is
reviewing the image processing portfolio to determine what actions can be
taken to improve return on investment and scalability.
    Gennum's healthy growth and revenue from its data communications product
line has the Company well positioned to capture additional global market
share. We expect continued strength in the 10 Gb/s market. Gennum's
collaboration with Intel and Fujitsu on SFP+ performance improvement for
networking applications further underscores the Company's technical core
competencies in high speed mixed signal. This positions us well to supply to
the emerging and growing SFP+ transceiver and XFP module markets.
    Good progress continues with the potential commercialization of our BST
technology. Gennum's fixed capacitor technology, mainly targeted for consumer
electronic devices, is in final prototyping stage with the Company's lead
customer. Gennum's variable BST capacitor technology met key milestones this
quarter. Prototypes were delivered to Gennum's lead customer, a leading mobile
device OEM, and the BST prototypes are being qualified. BST variable
capacitors are applicable for handheld devices such as cell phones and MP3
players.
    With the initial prioritization of Gennum's entire portfolio of
businesses and related technologies completed Gennum is exploring various
strategic options for its Audio and Wireless Division and Manufacturing
Operations. As part of this effort, Gennum has engaged Genuity Capital Markets
to assist in its review and consideration of strategic alternatives. We are
presently in discussions with several third parties regarding potential
transactions. However, there can be no assurance that any third party
transaction will be completed.
    We believe that by focusing our energy and resources on a world-class
high speed mixed signal product portfolio, Gennum will be better positioned to
secure and gain global market share. As a part of our fundamental business
processes, we will undertake actions that will strengthen our position. We are
confident these changes will strengthen the Company for the future benefit of
all stakeholders.

    Dividend

    Gennum's Board of Directors has declared a cash dividend of 3.5 cents per
share to be paid on July 11, 2007 to shareholders of record on July 25, 2007.
The dividend is considered an "eligible dividend" for tax purposes.

    -------------------------------------------------------------------------
    Management will hold a conference call to discuss second quarter results
    on Thursday, June 28, 2007 at 9:00 a.m. (ET). To access the call,
    participants should dial 1-800-731-5319. The conference call will also be
    Webcast live at www.gennum.com or www.newswire.ca/webcast and
    subsequently archived on the Gennum site. A rebroadcast of the call will
    be available until midnight on July 27, 2007. To access the rebroadcast,
    dial 416-640-1917 and enter the passcode 21233061 followed by the number
    sign.
    -------------------------------------------------------------------------

    About Gennum

    Gennum Corporation (TSX: GND) is a leading designer and manufacturer of
semiconductor solutions for the global video, data communications and audio
markets. A winner of a Technical Emmy(R) award for advances in high definition
(HD) broadcasting, Gennum's broad portfolio of products and technologies
include image processors, video timing and transport products, ICs for optical
transceivers, backplane interconnects and low power digital signal processing
(DSP) solutions. Gennum is headquartered in Burlington, Canada, and has global
design, research and development and sales offices in Canada, Japan and the
United Kingdom. www.gennum.com

    Emmy(R) is a registered trademark of the National Television Academy

    Disclaimer

    This document may contain forward-looking statements relating to our
goals, strategies, financial condition and results as well as the environment
in which we operate, investments, and litigation in which we are involved,
which may involve estimates, forecasts and projections. Forward-looking
statements may include words such as "plans", "intends", "anticipates",
"should", "estimates", "expects", "believes" and similar expressions. These
statements are not guarantees of future performance and involve risks and
uncertainties that are difficult to predict, and/or are beyond our control. A
number of important factors could cause actual outcomes and results to differ
materially from those expressed in these forward-looking statements. These
factors include those set forth in this report and other public filings.
Consequently, readers should not place any undue reliance on such
forward-looking statements. In addition, these forward-looking statements
relate to the date on which they are made. We disclaim any intention or
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.


    2007 SECOND QUARTER MANAGEMENT'S DISCUSSION AND ANALYSIS

    Caution about forward-looking statements

    This document may contain forward-looking statements relating to our
goals, strategies, financial condition and results as well as the environment
in which Gennum operates, investments, and litigation in which Gennum is
involved, which may involve estimates, forecasts and projections.
Forward-looking statements may include, but are not limited to, words such as
"plans", "become", "intends", "will", "anticipates", "should", "estimates",
"expects", "believes" and similar expressions. These statements are not
guarantees of future performance and involve risks and uncertainties that are
difficult to predict and/or are beyond our control. A number of important
factors could cause actual outcomes and results to differ materially from
those expressed in these forward-looking statements. These factors include our
ability to complete transactions involving our Audio and Wireless Division and
Manufacturing Operations, the level of market acceptance of our new products
and our ability to offset reductions in the sale of end-of-life analogue
products within our Audio and Wireless group, as well as those other factors
set forth in this report and other public filings. Consequently, readers
should not place any undue reliance on such forward-looking statements. In
addition, these forward-looking statements relate to the date on which they
are made. We disclaim any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.

    The following discussion and analysis is intended to provide readers with
an assessment of our performance for the second quarter of 2007 together with
the comparable period in the prior year, as well as our financial position and
future prospects. It should be read in conjunction with the Company's
unaudited consolidated financial statements for the second quarter of fiscal
2007 and 2006, and the fiscal 2006 and 2005 audited consolidated financial
statements and accompanying notes and MD&A contained in our 2006 annual
report, which have been prepared in accordance with Canadian generally
accepted accounting principles. Our public disclosure documents, including our
historical financial statements and our annual information form, can be viewed
at www.sedar.com.
    In this discussion and analysis, "Gennum", "the Company", "we", "our" and
similar references include Gennum Corporation and its subsidiaries. All
amounts are in Canadian dollars.

    CORPORATE OVERVIEW AND BUSINESS STRATEGY

    As disclosed in early 2007, a detailed assessment and prioritization of
Gennum's entire portfolio of businesses and related technologies was
undertaken. As a result, the Company is now executing on its strategy to offer
more comprehensive high speed mixed signal products that address the video and
data communication markets. With this portfolio focus, the Company is
exploring various strategic options for the assets of the Audio and Wireless
Division and Manufacturing Operations. Gennum engaged Genuity Capital Markets
to assist in its review and consideration of strategic alternatives, and is
presently in discussions with several parties regarding potential
transactions. However, there can be no assurance that any third party
transaction will be completed. Management believes that by focusing the
Company's energy and resources on a world-class high speed mixed signal
product portfolio, it will be better positioned to secure and gain global
market share.
    On a year-to-date basis, growth of our high speed mixed signal product
lines which include video transport interfaces, data communications optical
transceivers and backplane products increased by 4% over the prior year.
Gennum's technology strength for data communication applications like data
center and enterprise switches was underscored as the Division achieved its
highest revenue levels and fourth consecutive profitable quarter. The market
for 10 Gigabits per second (Gb/s) optical transceivers continues to grow,
driving sales of 10 Gb/s CDR and 10 Gb/s TIA products. Additionally, Gennum's
video products for next-generation 3 Gb/s video broadcast equipment are
receiving positive customer response. This positions the Company to take
advantage of the global market for high speed 3 Gb/s solutions.
    Gennum took important steps in the second quarter to become more globally
aligned, attract and retain top talent and put a stronger emphasis on
leadership development by appointing Bruce Hannah as its Senior Vice-President
of Human Resources. Mr. Hannah will be responsible for directing our human
resources activities by helping to evolve Gennum's culture, strengthen global
teamwork and develop leadership talent throughout the organization. He brings
over 25 years of human resource, finance and operations experience to Gennum,
with various senior level management positions held at Canadian Broadcasting
Company, Quebecor World and EDS.

    Asset Impairment and Inventory Write-down

    During the three months ended May 31, 2007, the Company took a non-cash
charge of $9.6 million ($6.3 million after taxes) related to the impairment of
the Company's manufacturing facilities in Burlington, Ontario. The impairment
charge was determined by comparing the carrying amount of the manufacturing
facilities to their fair value. In addition, the Company wrote down the value
of the headset inventories of the Audio and Wireless Division by $2.4 million
in the second quarter of 2007. This provision was necessary as our efforts to
sell older generation products have not produced sufficient results. The
impact of this provision on consolidated gross margin as a percentage of
revenue for the quarter and year-to-date periods was a reduction of 6.6% and
3.4% of revenue, respectively.
    The asset impairment and inventory write-down affect the net book value
of the assets currently under strategic review and reflect management's
expectations of fair market value. However, any actual net realizable value
could differ from the current carrying value.RESULTS FROM OPERATIONS
    (in millions of dollars
    except earnings per share)

                         Three Months Ended May 31   Six Months Ended May 31
                           2007     2006  % change    2007     2006  % change
    -------------------------------------------------------------------------
    Revenue                35.7     37.1     (3.9)    70.6     71.6     (1.5)
    Gross margin           20.1     24.8    (19.0)    43.8     47.2     (7.1)
    Asset impairment       (9.6)       -      n/a     (9.6)       -      n/a
    (Loss) earnings from
     operations            (9.0)     6.3      n/a     (3.4)    10.9      n/a
    Net (loss) earnings    (7.0)     4.5      n/a     (2.7)     8.2      n/a
    Basic (Loss) earnings
     per share            (0.20)    0.13      n/a    (0.08)    0.23      n/a
    Cash & short tem
     investments           41.0     36.3     12.9     41.0     36.3     12.9
    -------------------------------------------------------------------------

    Revenue in the second quarter of 2007 decreased 3.9% over the prior year.
However, excluding sales of end-of-life audio analogue products, revenue was
relatively flat. Video revenue was lower than expected in the second quarter,
but was more than offset by revenue increases in data communications.
Year-to-date revenue was down 1.5% or $1.1 million as compared to the prior
year; however, excluding audio analogue products, year-to-date revenue
increased 6.4%. Net earnings were impacted by non-cash charges related to the
writedown of headset inventory ($2.4 million before taxes) and the impairment
of manufacturing facilities ($9.6 million before taxes).
    Revenue was lower in the second quarter and year-to-date compared to the
same periods in 2006 by $0.3 million as a result of foreign currency
fluctuations mainly due to the strengthening of the Canadian dollar. Foreign
exchange translation losses reduced pre-tax earnings by $1.6 million.

    Revenue
    (in millions of dollars)

                         Three Months Ended May 31   Six Months Ended May 31
                           2007     2006  % change    2007     2006  % change
    -------------------------------------------------------------------------
    Video                  22.0     24.4     (9.5)    44.7     46.1     (3.2)
    Audio & Wireless        7.1      8.8    (19.6)    14.0     18.2    (23.2)
    Data Communications     6.4      3.7     71.1     11.5      6.8     68.6
    Other                   0.2      0.2        -      0.4      0.5        -
    -------------------------------------------------------------------------
    Total Revenue          35.7     37.1     (3.9)    70.6     71.6     (1.5)
    -------------------------------------------------------------------------Video Products

    Revenue generated from Gennum's video products portfolio totaled
$22.0 million in the second quarter of 2007, down 9% or $2.4 million compared
to the same quarter in the prior year. On a global basis, Gennum had a 30%
decline in revenue for standard-definition (SD) products compared to the prior
year. Global video revenue from high-definition (HD) products declined by 5%
compared to the same quarter in 2006. Portions of the video market correction
can be attributed to inventory adjustments being made by leading video OEMs.
Additionally, TNS Media Intelligence reported total broadcast television
advertising revenue was down 5.3% compared to the same period in the prior
year. It is believed that fluctuations in advertising revenue can
significantly impact equipment purchases.
    Video products revenue represented 62% of the total Gennum consolidated
revenue in the second quarter of 2007 (2006 - 66%). For the first half of
2007, video products represented 63% of the total Gennum consolidated revenue
(2006 - 64%). Revenue generated from the HD-SDI market represented 66% of the
total video revenue in the second quarter of 2007 (2006 - 63%).
    In the second quarter of 2007, 67% of video revenue came from US dollar
sales (2006-67%) while 27% came from sales in Japanese yen (2006-25%). For the
first half of 2007, 68% of video revenue came from US dollar sales (2006-65%)
while 26% came from sales in Japanese yen (2006-28%).
    On a geographical basis, North American demand for HD products decreased
8% compared to the second quarter of 2006; however, revenue increased 3%
compared to the first quarter of 2007. We believe the slight increase versus
the first quarter is attributed to studios becoming HD-ready and the
preliminary builds occurring for the 2008 Olympics and United States
presidential campaign.
    Europe had the largest decline in demand for HD products. Europe's push
for HD infrastructure was mainly driven to support the 2006 World Cup thus
causing higher demand last year. European revenue for HD products declined
almost 26% in the second quarter of 2007 compared to 2006.
    The Japan market continued to level out as HD sales to Japanese customers
were only 1% lower in the quarter versus the same period in 2006. In a
comparison to first quarter 2007, HD sales increased by 6% primarily as a
result of increased unit volume. Gennum expects future HD sales in the
Japanese domestic market to be based primarily on maintenance and upgrade
requirements. As well, we expect ongoing sales to Japanese OEM customers to
strengthen as they ramp exports of video products to support HD conversion in
foreign markets.
    Gennum continues to augment its HD-SDI portfolio and unveiled an
integrated serializer that targets emerging prosumer products such as digital
camcorders, mixers and recorders. The GS1582, which will be available for sale
in June 2007, features several enhancements over Gennum's previous HD/SD-SDI
serializers including the industry's first integrated audio multiplexer.
    Image processing components increased more than 40% in the second quarter
of 2007 compared to the prior year; however, this is generated from a small
revenue base. Image processing sales were primarily from Japan, the United
Kingdom and Asia Pacific countries, but remained flat in North America,
compared to same quarter in 2006. Design wins in high-end image processing
markets secured in 2005 and 2006 are beginning to generate revenue.
    In the second quarter, Gennum announced that JVC Corporation, one of the
world's leading suppliers of advanced video products for consumer and
professional applications, selected Gennum's award winning VXP(TM) technology
to power JVC's new line of image processor chips. These processors will
initially be deployed in JVC's next generation 20-inch and 24-inch flat-panel
monitors, which feature advanced image refinement capabilities using the VXP
technology.
    Additionally, Gennum announced that GlobalStreams, HaiVision and Image
Video have chosen Gennum's VXP image processing solutions for their
next-generation video conference and broadcast applications.
    To improve return on investment and achieve more significant scale,
management is reviewing the image processing portfolio to determine what
actions can be taken to achieve these goals and meet the Company's overall
growth and profitability targets.

    Data Communications

    Data communications products achieved a fourth consecutive profitable
quarter as revenue rose 71% to a record-breaking $6.4 million in the second
quarter of 2007, compared to $3.7 million in 2006. Due to an increase in sales
across all of Gennum's data communications products, revenue of $11.5 million
for the first six months of 2007 increased by 69% compared to the same period
last year. Data communications products revenue represented 18% of the total
Gennum consolidated revenue in the second quarter of 2007 (2006 - 10%). For
the first half of 2007, data communications represented 16% (2006 - 10%) of
the total Gennum consolidated revenue.
    In the second quarter of 2007, 80% of the data communications revenue
came from US dollar sales (2006 - 67%) while 20% came from sales in Japanese
yen (2006 - 33%). For the first half of 2007, 79% of data communications
revenue came from US dollar sales (2006 - 69%) while 21% came from sales in
Japanese yen (2006 - 31%).
    The market for 10 Gb/s optical transceivers continues to grow and
Gennum's revenue increase is primarily attributable to its sales of high-speed
10 Gb/s optical transceiver ICs. In the second quarter of 2007, revenue from
our 10 Gb/s CDRs, which are sold exclusively to the 10 Gb/s XFP optical
transceiver market, increased 64% versus 2006. Revenue from our 10 Gb/s TIAs,
which are sold to all 10 Gb/s optical transceiver types (including XFP),
increased 153% versus 2006. On a year to date basis, revenue from our 10Gb/s
CDRs and 10 Gb/s TIAs increased 56% and 161%, respectively, compared to the
same period in 2006.
    Sales were down slightly in our backplane product line compared to the
same quarter in the prior year. This was due to a lower demand for Gennum's
core SerDes router as a key customer switched to a lean manufacturing model.
However, this was partially offset by the introduction in the third quarter of
2006 of a new backplane equalizer product for use in Ethernet switch
equipment.
    In March, Gennum announced availability of its new line of multi-rate
Fibre Channel storage repeaters. These new offerings represent the Company's
first 8.5 Gb/s offerings and feature its ClearEdge technology, which enables
reliable 8.5 Gb/s communication over a variety of media. The new products are
expected to provide customers with a low cost, high performance solution that
exceeds the requirements of the emerging 8.5 Gb/s Fibre Channel standard.
    Additionally, Gennum, Fujitsu and Intel jointly demonstrated 10 Gb/s
performance for optical networking solutions at this year's Interop conference
in Las Vegas. The demonstration utilizes Fujitsu's 10 Gb/s serial
interconnect, Intel's SFP+ modules and Gennum's CDR chip. The close
collaboration between the companies has resulted in showcasing a working
10 Gb/s Ethernet switch solution with SFP+ and the significant signal
integrity optimization achieved with the use of CDRs. SFP+ is an emerging
optical module form factor which increases port density and reduces overall
cost to networking applications such as data center and enterprise switches.
    Working with two leaders in the industry and the resulting improved
performance for networking applications, further underscores Gennum's
technical core competencies in high speed mixed signal. This positively
positions us to supply to the growing SFP+ module market.

    Audio and Wireless

    Revenue from audio and wireless products declined by almost 20% to
$7.1 million in the second quarter of 2007 compared to the second quarter of
2006. Revenue for the first six months of 2007 was 23% lower at $14.0 million
compared to the same period last year. The primary reason for the decline was
the expected erosion of analogue hearing product revenue as the end-of-life
program entered its final phase in the first quarter of 2007. Our digital
signal processors, which now form the basis for ongoing business in the audio
and wireless segment, grew almost 20% over the prior year. The second quarter
of 2007 saw revenue increase by 12% for digital hearing components, modules
and related systems.
    Year-to-date revenue from sales of digital components was higher compared
to the last year by almost 20% as a result of higher sales of our VOYAGEUR(TM)
and FOUNDATION(TM) products. This increase was partially offset by lower sales
of our PARAGON(TM) product, which we have been shipping since the beginning of
2002 and is in the mature phase of the product life cycle. We expect that
future digital revenue will come primarily from VOYAGEUR and VOYAGEUR-based
products. Additionally, we are continuing to work with lead customers on the
development of the ultra-low power wireless FALCON(TM) platform.
    In the audio headsets market, we began shipping our newest model, the
nX6000(TM), which was unveiled in January 2007. The nX6000 has received
excellent reviews from leading consumer publications for its noise
cancellation capability and ease of use. Additional US carrier penetration and
OEM support is required for this product to gain more market momentum.
    Audio and wireless products revenue represented 20% of total Gennum
consolidated revenue in the second quarter of 2007 (2006 - 24%). Year-to-date
2007 revenue represented 20% (2006 - 25%) of total Gennum consolidated
revenue.
    In the second quarter of 2007, 64% of Audio and Wireless revenue came
from US dollar sales (2006 - 48%) while 9% came from sales in Japanese yen
(2006 - 7%). For the first half of 2007, 61% of Audio and Wireless revenue
came from US dollar sales (2006 - 43%) while 12% came from sales in Japanese
yen (2006 - 6%).

    Other

    Other revenue consists primarily of legacy user specific integrated
circuits products outside of our core markets.Gross margin
    (in millions of dollars)

                         Three Months Ended May 31   Six Months Ended May 31
                           2007     2006  % change    2007     2006  % change
    -------------------------------------------------------------------------
    Gross Margin           20.1     24.8     (18.9)   43.8     47.2     (7.2)

    Percentage of
     revenue               56.4     66.9              62.1     65.9
    -------------------------------------------------------------------------

    Gross margin as a percentage of revenue in the second quarter of 2007 was
56.4%, compared to 2006 second quarter gross margin of 66.9%. This decrease is
due primarily to an inventory provision for older generation headset materials
and finished goods in the Audio and Wireless Division. Excluding this
provision, gross margin for the quarter and year to date is 63.0% and 65.4%,
respectively. In addition, there were favorable margins in the prior year due
to the build out of analogue end-of-life products. The Company is focusing on
improving margins through actions to increase product yields and create a more
favorable sales mix.

    Sales, marketing and administration expenditures
    (in millions of dollars)

                         Three Months Ended May 31   Six Months Ended May 31
                           2007     2006  % change    2007     2006  % change
    -------------------------------------------------------------------------
    Sales, marketing and
     administration
     expense               10.3      9.4      10.0    19.4     18.1      7.2

    Percentage of
     revenue               28.9     25.2              27.5     25.3
    -------------------------------------------------------------------------

    During the second quarter of 2007, sales, marketing and administration
expenditures increased $0.9 million to $10.3 million, compared to $9.4 million
in the second quarter of 2006. The increase is related to legal expenses and
higher salary costs offset by lower incentive compensation and consulting
costs related to Bill 198 compliance costs compared to the same quarter last
year.
    For the same reasons, sales, marketing and administration expenditures
year to date increased by $1.3 million to $19.4 million in 2007, compared to
$18.1 million in 2006. We are continuing to focus spending in areas that will
drive top-line growth.

    Research and development (R&D) expenditures
    (in millions of dollars)

                         Three Months Ended May 31   Six Months Ended May 31
                           2007     2006  % change    2007     2006  % change
    -------------------------------------------------------------------------
    R&D expense (gross)    11.2     11.5      (2.7)   22.3     22.6     (1.6)

    Percentage of
     revenue               31.4     31.1              31.6     31.6
    -------------------------------------------------------------------------

    R&D spending in the second quarter of 2007 and year to date was slightly
lower compared to the same period in 2006. Lower incentive compensation
accruals were partially offset by higher salary costs.

    Asset impairment
    (in millions of dollars)

                         Three Months Ended May 31   Six Months Ended May 31
                           2007     2006  % change    2007     2006  % change
    -------------------------------------------------------------------------
    Asset impairmemt        9.6        -       n/a     9.6        -      n/a

    Percentage of
     revenue               26.9        -              13.6        -
    -------------------------------------------------------------------------

    During the second quarter of 2007, the Company took a non-cash asset
impairment charge of $9.6 million ($6.3 million after taxes) on its
manufacturing facilities. Production levels in the facilities, which primarily
produce legacy video products and assembles hybrids for the audio and wireless
segment, had fallen significantly thus increasing the level of
underutilization in the facility. As part of its normal accounting procedures,
the Company also assessed the carrying value of the manufacturing facilities
was less than the undiscounted estimated future cash flows from such
operations, and determined that an impairment charge was appropriate. The
impairment charge was determined by comparing the carrying amount of the
manufacturing facilities to independent quoted market prices.

    Other income (expense)
    (in millions of dollars)

                         Three Months Ended May 31   Six Months Ended May 31
                           2007     2006  % change    2007     2006  % change
    -------------------------------------------------------------------------
    Other income
     (expense)             (1.6)    (0.2)      n/a    (1.2)     0.3      n/a

    Percentage of
     revenue                n/a      n/a               n/a      0.4
    -------------------------------------------------------------------------

    Other expense in the second quarter was primarily related to a
$1.6 million foreign exchange loss (2006- $0.1 million foreign exchange gain).
This loss is a result of a translation loss of $1.6 million (2006 -
translation loss of $0.9 million partially offset by a $0.8 million hedging
gain).

    Income taxes
    (in millions of dollars)

                         Three Months Ended May 31   Six Months Ended May 31
                           2007     2006  % change    2007     2006  % change
    -------------------------------------------------------------------------
    Income taxes           (3.2)     1.9       n/a    (0.9)     3.6      n/a
    -------------------------------------------------------------------------

    Income tax recoveries for the six months ended May 31, 2007 represented
24.6% of losses before taxes, compared to income taxes of 30.7% of earnings
before taxes for the same period in 2006. The effective tax recovery rate in
the first half of 2007 was below the statutory tax rate of 34.1% due primarily
to permanent differences such as stock option amortization.

    Net (loss) earnings
    (in millions of dollars except earnings per share)

                         Three Months Ended May 31   Six Months Ended May 31
                           2007     2006  % change    2007     2006  % change
    -------------------------------------------------------------------------
    Net (loss) earnings    (7.0)     4.5       n/a    (2.7)     8.2      n/a

    Net (loss) earnings
     as % of revenue      (19.6)    12.1       n/a    (3.9)    11.4      n/a

    Basic earnings per
     share                (0.20)    0.13       n/a   (0.08)    0.23      n/a
    -------------------------------------------------------------------------In the second quarter, net losses were $7.0 million, or $0.20 per share,
compared with net earnings of $4.5 million, or $0.12 per share in the second
quarter of 2006. The loss is mainly attributable to the asset impairment
charge of $9.6 million and the provision of $2.4 million for headset inventory
recorded in the quarter. Excluding these charges net of taxes, net earnings
would have been $0.9 million, or $0.03 per share; the lower earnings were
partially caused by lower gross margins and increased sales, marketing and
administration costs. Foreign exchange losses of $1.6 million in the current
quarter compared to a small foreign exchange gain in the same period last year
also reduced net earnings.
    Within the business segments, the Audio and Wireless operating loss
increased to $13.2 million from $2.0 million in the second quarter of 2006.
The loss in the current quarter was mainly due to the asset impairment
attributed to the Audio and Wireless Division of $6.5 million, an inventory
provision of $2.4 million, legal expenses and lower overall gross margins. The
operating loss in this segment before the impairment charge and inventory
write-down, was approximately $4.3 million.
    The Video Division's operating earnings decreased $5.5 million from
$8.7 million to $3.2 million. This is mainly due to the asset impairment of
$3.0  million, slower than anticipated sales for SD products globally and HD
products in Europe and higher costs in sales, marketing and administration in
the quarter. The operating earnings in this segment before the impairment
charge was approximately $6.2 million.
    The Data Communications Division reported operating earnings of
$1.0 million compared to a loss of $0.5 million in the second quarter of 2006
as a result of record sales.Quarterly Results
    (in millions of dollars except earnings per share)

    -------------------------------------------------------------------------
                         Second         First        Fourth         Third
                         Quarter       Quarter       Quarter       Quarter
                       2007   2006   2007   2006   2006   2005   2006   2005
    -------------------------------------------------------------------------

    Revenue            35.7   37.1   34.9   34.5   37.0   37.4   38.7   36.0

    Asset impairment   (9.6)     -      -      -      -      -      -      -

    Restructuring
     charge               -      -      -      -   (2.0)     -      -      -

    Net (loss)
     earnings          (7.0)   4.5    4.3    3.7    2.8    5.3    6.3    4.9

    Net (loss)
     earnings per
     share
      - basic         (0.20)  0.13   0.12   0.10   0.08   0.15   0.18   0.14
      - diluted       (0.19)  0.12   0.12   0.10   0.08   0.15   0.18   0.14
    -------------------------------------------------------------------------Our revenue and net earnings performance fluctuate on a quarterly basis
due to a wide variety of factors. Sales can vary significantly each quarter,
depending on the timing of purchasing decisions by customers.
    In addition, expenditures to fabricate new computer-simulated circuit
designs into silicon form, legal expenditures on the continuing patent
litigation and foreign exchange gains or losses can also vary significantly
each quarter.

    FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

    Cash and short-term investments

    The cash and short-term investment balance at May 31, 2007 was
$41.0 million, a decrease of $6.4 million from the end of the 2006 fiscal
year, due mainly to the annual payouts for 2006 performance under the
Company's incentive compensation plans, payments associated with the
restructuring activities and the impact of a strengthening Canadian dollar and
lower operating earnings.
    Cash used in operating activities was $0.6 million for the quarter,
compared to cash generated of $5.5 million in the second quarter of 2006,
primarily as a result of lower operating earnings and the impact of the
strengthening Canadian dollar.
    Management believes the current balance in cash and short-term
investments, plus future cash flow from operations, will be sufficient to
finance organic growth and related investment and financing activities in the
foreseeable future.

    Accounts receivable

    At May 31, 2007, the accounts receivable balance was $21.5 million, which
is down $1.3 million compared to the end of the 2006 fiscal year. The decrease
is mainly due to the strengthening of the Canadian dollar. There were no
material write-offs during the quarter.

    Inventories

    Inventories of $28.7 million at May 31, 2007 represent a decrease of
8.8%, compared to the end of the 2006 fiscal year. The decrease of
$2.8 million came primarily from an inventory provision for older generation
headset materials and finished goods in the Audio and Wireless Division.

    Long-term investment

    As a result of the new accounting standards adopted in 2007, our
investment in Nanoscience is recorded on the balance sheet at its market value
of $2.5 million. A $0.7 million loss was recorded to the opening balance of
"accumulated other comprehensive loss" (note 7 of the financial statements) to
reflect the adjustment of the investment at December 1, 2006. There was a gain
on the investment of $0.1 million recorded to other comprehensive income in
the first half of the year to reflect an upward movement in market value. The
shares of Nanoscience are traded on the AIM exchange in London, England in
British pounds and are therefore subject to foreign exchange fluctuations.

    Accounts payable and accrued liabilities

    Accounts payable and accrued liabilities at May 31, 2007 were
$8.2 million, which represents a decrease of 54% or $9.8 million compared to
year-end. This reduction resulted primarily from the annual payments under the
Company's incentive compensation plans and lower severance accruals as the
majority of the severance accruals related to the restructuring action taken
in 2006 were paid in the first half of 2007.

    Total assets

    Total assets as at May 31, 2007 were $153.7 million, a decrease of
$16.7 million from 2006 year end, resulting primarily from the capital asset
impairment of $9.6 million and the $6.4 million reduction in cash and
short-term investments.

    Capital expenditures

    Capital additions were $2.2 million in the first half of 2007 compared to
$2.4 million in the same period in 2006. Capital additions in 2007 consisted
primarily of R&D items (68%) and manufacturing equipment (14%). R&D spending
is supporting the continued investment in product development.

    Dividends

    Total dividends of $1.3 million, or $0.035 per share, were paid in the
second quarter of 2007 (2006 - $1.3 million, or $0.035 per share).

    Derivative financial instruments

    Effective December 1, 2006, the Company adopted new accounting policies
that affected derivative and other financial instruments. See below under
Changes in Significant Accounting Policies and Note 1 to the unaudited
consolidated financial statements for the second quarter for a discussion on
the changes.
    As at May 31, 2007, we had entered into foreign exchange forward
contracts to sell an aggregate amount of US $15.0 million and Japanese yen
1,258 million. These contracts mature at the latest on March 26, 2008, at
exchange rates varying between Canadian $1.0712 and Canadian $1.1545 against
the US dollar, and between Canadian $0.00889 and Canadian $0.00993 against the
Japanese yen. Management estimates that a gain of $1.3 million would be
realized if the contracts were terminated on May 31, 2007. In accordance with
new accounting standards effective this year, these forward contracts are
considered cash flow hedges and therefore this gain of $0.9 million, net of
tax, has been included in other comprehensive income. This loss is expected to
be reclassified to net income over the next twelve months as the forward
contracts mature.
    Realized losses on foreign exchange forward and spot contracts were
$0.1 million during the quarter (Q2 2006 - gains of $0.8 million).CONTRACTUAL OBLIGATIONS

    (in thousands of dollars)
    -------------------------------------------------------------------------
                                                  Payments Due by Period
                                                  ----------------------
                                               Less than       1-3        4+
                                         Total    1 year     years     years

    Operating leases                    11,309     2,783     7,095     1,431
    Purchase obligations(1)              3,453     3,437        16         -
    License fee obligations and other    1,922       753       984       185
    -------------------------------------------------------------------------
    Total contractual obligations       16,684     6,973     8,095     1,616
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1)  Agreements to purchase goods or services that are enforceable and
         legally binding and that specify all significant terms, including
         fixed or minimum quantities to be purchased; fixed or variable price
         provisions; and the approximate timing of the transactions. The
         purchase obligations relate primarily to inventory, product
         development, and general operating costs.RELATED PARTY TRANSACTIONS

    In the normal course of business, we may enter into transactions with
related parties. These transactions occur under market terms consistent with
the terms of transactions with unrelated arms-length third parties. The
Company did not enter into any related party transactions during the quarter.

    Patent litigation

    As previously disclosed, we were the subject of a patent infringement
claim in the US courts. This claim related to a limited number of non-core
Gennum products. In May 2007, the court determined that, of the two patents
involved, our products do not infringe on one, and the relevant claims of the
other are invalid. We are waiting to see if the plaintiff will appeal. We
believe there is a relatively low risk of the decision being overturned on
appeal.
    In the ordinary course of business activities, the Company may become
involved in litigation or claims with customers, suppliers, former employees
and third parties.

    NEW ACCOUNTING POLICIES AND CRITICAL ESTIMATES

    A summary of significant accounting policies is presented in Note 1 to
our 2006 consolidated financial statements. Certain of our accounting policies
are critical to understanding the results of operations and financial
condition of Gennum. These critical accounting policies require us to make
certain judgements and estimates, some of which may relate to matters that are
uncertain. For a description of the judgements and estimates involved in the
application of critical accounting policies and assumptions made, refer to our
2006 Annual Report. The accounting policies used in the preparation of these
Consolidated Financial Statements are consistent with those used in the
Company's November 30, 2006 audited Consolidated Financial Statements, except
as described below.

    Changes in Significant Accounting Policies

    Effective December 1, 2006, the Company adopted the Canadian Institute of
Chartered Accountants (CICA) Handbook Section 3855, Financial Instruments -
Recognition and Measurement; Section 3865, Hedges; Section 1530, Comprehensive
Income and Section 3861, Financial Instruments - Disclosure and Presentation.
The adoption of the new standards resulted in changes in accounting for
financial instruments and hedges as well as the recognition of certain
transition adjustments that have been recorded in opening accumulated other
comprehensive loss. The comparative Consolidated Financial Statements have not
been restated, except for the presentation of translation gains or losses on
self-sustaining foreign operations. For a description of the principal changes
in accounting for financial instruments and hedges due to the adoption of the
accounting standards and for further details on changes in significant
accounting policies, see Note 1 to the unaudited Consolidated Financial
Statements for the quarter ended May 31, 2007.
    The Company follows the guidance in the Canadian Institute of Chartered
Accountants (CICA) Handbook Section 3063, "Impairment of Long-Lived Assets".
When events or circumstances warrant a review, the Company evaluates the
carrying value of long-lived and intangible assets for potential impairment.
The carrying value of such assets are considered impaired when the anticipated
net recoverable amount of the asset, represented by the anticipated
undiscounted cash flows directly attributable to the asset, is less than its
carrying value. In that event, the carrying value of the asset is adjusted to
fair value and an impairment loss is recorded.

    Changes in Critical Estimates

    During the first quarter, the Company re-evaluated the estimated useful
lives of its buildings and determined that the estimated useful lives should
be increased to thirty years from twenty years. The impact of this change was
applied on a prospective basis commencing with the first quarter of 2007. The
impact of this change of accounting estimate resulted in a decrease in
depreciation expense of $0.3 million in the first half of fiscal 2007.
    As previously discussed, the Company determined that the carrying value
of the manufacturing building and related production and computer equipment
was less than the undiscounted future cash flows of such assets. The impact
was a non-cash asset impairment charge of $9.6 million in the quarter based on
independent quoted market prices.

    CONTROLS AND PROCEDURES

    There have been no changes in the Company's internal control over
financial reporting during the first half of 2007 that have materially
affected, or are reasonably likely to materially affect, its internal control
over financial reporting.

    Common shares outstanding

    At May 31, 2007, there were 35,810,286 common shares of Gennum
outstanding, compared with 35,784,636 shares at November 30, 2006 At June 27,
2007, there were 35,810,286 common shares outstanding.

    RISKS AND UNCERTAINTIES

    We are subject to a number of risks and uncertainties that could
significantly affect our financial condition and performance. As we grow,
continue our commitment to R&D, and enter into new markets, these risks
increase. At the same time, by diversifying revenue streams across additional
product areas, we believe we can mitigate the risk associated with any
difficulties encountered in any one product line or market. A comprehensive
planning process exists to identify risks and minimize them wherever possible.
With the announcement of the review of strategic alternatives involving our
Audio and Wireless Division and Manufacturing Operations, Gennum is subject to
the risk that it may be unable to complete a transaction with a third party.

    OUTLOOK

    We see a slowdown in certain segments of the semiconductor industry.
According to the Semiconductor Industry Association (SIA), the outlook for the
global semiconductor market is slowing. The SIA lowered its forecast for 2007
chip sales growth from 10% to 1.8%.
    We believe the video market will be soft in the short term. However,
Gennum is seeing opportunities for its 3 Gb/s and HD-SDI products in North
America and Japan. With the requirements of the US-based Digital Transmission
Bill to be met by early 2009, the 2008 Olympics in Beijing and U.S.
presidential campaign, we expect to see continued demand for HD products.
Additionally, our key Japanese customers are well positioned to meet the needs
of offshore markets where the conversion to HD television is based on Japanese
standards. Key growth markets that have adopted or are considering the
Japanese standard include Brazil and other South American countries. Shipping
of HD products is expected to begin soon. Gennum will continue to strengthen
its HD-SDI and 3 Gb/s portfolio by introducing new innovative products for
video broadcast applications over the next few months.
    Gennum's image processing products have gained industry recognition as
the leading, high quality imaging solution. Additionally, our products have
gained traction in markets that demand superior HD image clarity. To ensure
alignment with the Company's growth and profitability targets, management is
reviewing the image processing portfolio to determine what actions can be
taken to improve return on investment and scalability.
    Gennum's healthy growth and revenue from its data communications product
line has the Company well positioned to capture additional global market
share. We expect continued strength in the 10 Gb/s market. Gennum's
collaboration with Intel and Fujitsu on SFP+ performance improvement for
networking applications further underscores the Company's technical core
competencies in high speed mixed signal. This positions us well to supply to
the emerging and growing SFP+ transceiver and XFP module markets.
    Good progress continues with the potential commercialization of our BST
technology. Gennum's fixed capacitor technology, mainly targeted for consumer
electronic devices, is in final prototyping stage with the Company's lead
customer. Gennum's variable BST capacitor technology met key milestones this
quarter. Prototypes were delivered to Gennum's lead customer, a leading mobile
device OEM, and the BST prototypes are being qualified. BST variable
capacitors are applicable for handheld devices such as cell phones and MP3
players.
    With the initial prioritization of Gennum's entire portfolio of
businesses and related technologies completed, Gennum is exploring various
strategic options for its Audio and Wireless Division and Manufacturing
Operations. As part of this effort, Gennum has engaged Genuity Capital Markets
to assist in its review and consideration of strategic alternatives. We are
presently in discussions with several third parties regarding potential
transactions. However, there can be no assurance that any third party
transaction will be completed.
    We believe that by focusing our energy and resources on a world-class
high speed mixed signal product portfolio, Gennum will be better positioned to
secure and gain global market share. As a part of our fundamental business
processes, we will undertake actions that will strengthen our position. We are
confident these changes will strengthen the Company for the future benefit of
all stakeholders.

    June 27, 2007GENNUM CORPORATION

                 Unaudited Consolidated Financial Statements

                    For the Six Months ended May 31, 2007



          The attached consolidated financial statements have been
            prepared by Management of Gennum Corporation and have
                      not been reviewed by an auditor.



    Gennum Corporation

    CONSOLIDATED BALANCE SHEETS
    (Canadian dollars, amounts in thousands)
     As at
                                                       May 31,   November 30,
                                                        2007         2006
                                                     (unaudited)   (audited)
    -------------------------------------------------------------------------
    ASSETS
    Current
    Cash and short-term investments                     40,997        47,421
    Accounts receivable                                 21,471        22,773
    Inventories                                         28,708        31,490
    Prepaid expenses and other assets                    4,650         2,827
    Income taxes receivable                                888             -
    Loan receivable (note 2)                               262           275
    Future income taxes                                 10,821        10,892
    -------------------------------------------------------------------------
    Total current assets                               107,797       115,678
    -------------------------------------------------------------------------

    Capital assets, net (note 3)                        31,582        43,220
    Long-term investment (note 4)                        2,552         3,217
    Intangible assets, net (note 5)                      1,998         2,366
    Long-term loan receivable (note 2)                       2           147
    Long-term prepaid royalty                            1,222         1,222
    Goodwill                                             2,531         2,531
    Future income taxes                                  6,025         2,051
    -------------------------------------------------------------------------
                                                       153,709       170,432
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Accounts payable and accrued liabilities             8,215        18,048
    Income taxes payable                                     -           432
    Future income taxes                                  1,151         2,594
    -------------------------------------------------------------------------
    Total current liabilities                            9,366        21,074
    -------------------------------------------------------------------------

    Future income taxes                                     62            66
    -------------------------------------------------------------------------

    Shareholders' equity
    Capital stock (note 6)                              11,300        11,001
    Deferred compensation                               (1,524)       (2,148)
    Retained earnings                                  137,823       143,068
    Contributed surplus                                    579            94
    Accumulated other comprehensive loss (note 7)       (3,897)       (2,723)
    -------------------------------------------------------------------------
    Total shareholders' equity                         144,281       149,292
    -------------------------------------------------------------------------

                                                       153,709       170,432
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Commitments and contingencies (note 12)



    Gennum Corporation

    CONSOLIDATED STATEMENT OF EARNINGS (unaudited)
    (Canadian dollars, amounts in thousands except per share data)


                                        Three Months Ended   Six Months Ended
                                              May 31              May 31

                                          2007      2006      2007      2006
    -------------------------------------------------------------------------

    Revenue (note 9)                    35,670    37,116    70,551    71,611
    Cost of goods sold                  15,556    12,271    26,718    24,437
    -------------------------------------------------------------------------

    Gross margin                        20,114    24,845    43,833    47,174
    -------------------------------------------------------------------------

    Sales, marketing and
     administration expense             10,308     9,368    19,416    18,118
    Research and development expense    11,214    11,529    22,262    22,634
      Less government assistance        (2,003)   (2,383)   (4,085)   (4,458)
    -------------------------------------------------------------------------

    Operating expenses before
     asset impairment                   19,519    18,514    37,593    36,294

    Asset impairment (note 3)            9,595         -     9,595         -
    -------------------------------------------------------------------------

    (Loss) earnings from operations     (9,000)    6,331    (3,355)   10,880
    Investment income                      429       316       904       643
    Other income (expense) (note 10)    (1,622)     (222)   (1,183)      265
    -------------------------------------------------------------------------

    (Loss) earnings before
     income taxes                      (10,193)    6,425    (3,634)   11,788
    (Recovery) provision for
     income taxes (note 11)             (3,204)    1,917      (895)    3,621
    -------------------------------------------------------------------------

    Net (loss) earnings for the period  (6,989)    4,508    (2,739)    8,167

    Retained earnings,
     beginning of period               146,065   135,348   143,068   132,765
    Dividends                           (1,253)   (1,259)   (2,506)   (2,335)
    -------------------------------------------------------------------------

    Retained earnings, end of period   137,823   138,597   137,823   138,597
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Loss (earnings) per share
    Basic                                (0.20)    $0.13     (0.08)    $0.23
    Diluted                              (0.19)    $0.12     (0.08)    $0.23
    -------------------------------------------------------------------------

    Dividends declared per share        $0.035    $0.035    $0.065    $0.065
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
    (Canadian dollars, amounts in thousands)

                                      Three Months Ended    Six Months Ended
                                        May 31,   May 31,   May 31,   May 31,
                                         2007      2006      2007      2006
    -------------------------------------------------------------------------
    Capital stock
    Balance at beginning of period      11,205    11,061    11,001     9,392
    Proceeds from shares issued on
     exercise of options                    95         6       299     1,675
    -------------------------------------------------------------------------
    Balance at end of period            11,300    11,067    11,300    11,067
    -------------------------------------------------------------------------
    Deferred compensation
    Balance at beginning of period      (1,755)   (1,357)   (2,148)   (1,383)
    New awards                             (33)     (181)      (33)     (341)
    Forfeitures                             62         -       194         -
    Amortization                           202       212       463       398
    -------------------------------------------------------------------------
    Balance at end of period            (1,524)   (1,326)   (1,524)   (1,326)
    -------------------------------------------------------------------------
    Retained earnings
    Balance at beginning of period     146,065   135,348   143,068   132,765
    Net (loss) income                   (6,989)    4,508    (2,739)    8,167
    Dividends                           (1,253)   (1,259)   (2,506)   (2,335)
    -------------------------------------------------------------------------
    Balance at end of period           137,823   138,597   137,823   138,597
    -------------------------------------------------------------------------
    Contributed surplus
    Balance at beginning of period         252         -        94         -
    Stock option amortization              327         -       485         -
    -------------------------------------------------------------------------
    Balance at end of period               579         -       579         -
    -------------------------------------------------------------------------
    Accumulated other comprehensive
     (loss) income, net of income taxes
    Balance at beginning of period      (3,694)   (3,229)   (2,723)   (3,264)
    Transition adjustment on adoption
     of financial instruments standards      -         -      (782)        -
    Other comprehensive (loss) income
     for the period (note 7)              (203)      125      (392)      160
    -------------------------------------------------------------------------
    Balance at end of period            (3,897)   (3,104)   (3,897)   (3,104)
    -------------------------------------------------------------------------
    Total shareholders' equity
     at end of period                  144,281   145,234   144,281   145,234
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (unaudited)
    (Canadian dollars, amounts in thousands)

                                      Three Months Ended    Six Months Ended
                                        May 31,   May 31,   May 31,   May 31,
                                         2007      2006      2007      2006
    -------------------------------------------------------------------------

    Net (loss) earnings for the period  (6,989)    4,508    (2,739)    8,167
    Other comprehensive income, net
     of income taxes
      Change in unrealized (losses)
       gains on translating financial
       statements of self-sustaining
       foreign operations               (1,477)      125    (1,370)      160
      Change in gains on derivative
       instruments designated as cash
       flow hedges(1)                    1,106         -       734         -
      Reclassification to earnings
       of losses on cash flow hedges(2)    158         -       182         -
      Change in unrealized gains on
       available-for-sale financial
       assets(3)                            10         -        62         -
    -------------------------------------------------------------------------
    Comprehensive income (loss)
     for the period                     (7,192)    4,633    (3,131)    8,327
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) -  Net of income taxes of $372 year to date
    (2) -  Net of income taxes of $94 year to date
    (3) -  There are no income tax implications as the Company has capital
           loss carryforwards to offset potential capital gains



    Gennum Corporation

    CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
    (Canadian dollars, amounts in thousands)

                                        Three Months Ended   Six Months Ended
                                              May 31              May 31

                                          2007      2006      2007      2006
    -------------------------------------------------------------------------

    OPERATING ACTIVITIES
    Net (loss) earnings for the period  (6,989)    4,508    (2,739)    8,167
    Items not affecting cash
      Asset impairment                   9,595         -     9,595         -
      Depreciation and amortization      2,301     2,525     4,617     5,218
      Inventory provisions               2,177       309     2,084       473
      Deferred compensation and
       stock option amortization           528       212       947       398
      Interest and currency impact
       on loan receivable                   21        10         4        10
      Gain on financial instrument
       valuation                           (98)        -      (122)        -
      Future income taxes               (5,267)     (936)   (5,815)   (2,491)
    -------------------------------------------------------------------------
                                         2,268     6,628     8,571    11,775
      Net change in non-cash
       working capital balances
       related to operations            (2,833)   (1,176)  (10,210)  (10,398)
    -------------------------------------------------------------------------
    Cash (used) provided by
     operating activities                 (565)    5,452    (1,639)    1,377
    -------------------------------------------------------------------------

    INVESTING ACTIVITIES
    Purchase of capital assets          (1,460)     (943)   (2,168)   (2,393)
    Payment of license fees                  -      (153)      (93)     (266)
    Loan receivable                          -         -         -      (632)
    Repayment of loan receivable            77        83       154        83
    -------------------------------------------------------------------------
    Cash used in investing activities   (1,383)   (1,013)   (2,107)   (3,208)
    -------------------------------------------------------------------------

    FINANCING ACTIVITIES
    Stock options exercised                 95       205       299     1,675
    Deferred compensation forfeited
     (awarded)                              30      (181)      162      (341)
    Dividends paid                      (1,253)   (1,259)   (2,506)   (2,335)
    -------------------------------------------------------------------------
    Cash used in financing activities   (1,128)   (1,235)   (2,045)   (1,001)
    -------------------------------------------------------------------------

    Effect of exchange rate changes
     on cash and short-term investments   (660)       17      (633)       36
    -------------------------------------------------------------------------

    Net increase (decrease) in cash and
     short-term investments during
     the period                         (3,736)    3,221    (6,424)   (2,796)
    Cash and short-term investments,
     beginning of the period            44,733    33,095    47,421    39,112
    -------------------------------------------------------------------------

    Cash and short-term investments,
     end of the period                  40,997    36,316    40,997    36,316
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    GENNUM CORPORATION

    Notes To Consolidated Financial Statements
    (Canadian dollars, amounts in thousands except share and per share data)

    1.  ACCOUNTING POLICIES

    The accompanying unaudited consolidated financial statements have been
    prepared by the Company in accordance with Canadian Generally Accepted
    Accounting Principles (GAAP) on a basis consistent with those followed in
    the most recent audited financial statements, except as noted below.
    These unaudited consolidated financial statements do not include all the
    information and footnotes required by GAAP for annual financial
    statements and therefore should be read in conjunction with the audited
    consolidated financial statements and notes included in the Company's
    Annual Report for the year ended November 30, 2006.

    Changes in accounting policies

    Effective December 1, 2006, the Company adopted the Canadian Institute of
    Chartered Accountants (CICA) Handbook Section 3855, Financial Instruments
    - Recognition and Measurement; Section 3865, Hedges; Section 1530,
    Comprehensive Income and Section 3861, Financial Instruments - Disclosure
    and Presentation. The adoption of the new standards resulted in changes
    in accounting for financial instruments and hedges as well as the
    recognition of certain transition adjustments that have been recorded in
    opening accumulated other comprehensive loss. The comparative
    Consolidated Financial Statements have not been restated, except for the
    presentation of translation gains or losses on self sustaining foreign
    operations.

    a) Financial Assets and Financial Liabilities

       Prior to the adoption of the new standards, the Company classified all
       of its financial assets as short-term investments, investment
       securities or loans and receivables. Short-term investments were
       accounted for at fair value. Long-term investments were accounted for
       at cost, net of any adjustment for other-than-temporary impairment.
       Loans and receivables were accounted for at amortized cost using the
       effective interest rate method. All of the Company's financial
       liabilities were accounted for on an accrual basis.

       Under the new standards, financial assets and financial liabilities
       are initially recognized at fair value and are subsequently accounted
       for based on their classification as described below. The
       classification depends on the purpose for which the financial
       instruments were acquired and their characteristics. Except in very
       limited circumstances, the classification is not changed subsequent to
       initial recognition. Transaction costs are recognized immediately in
       income or are capitalized, depending upon the nature of the
       transaction and the associated product.

       Trading

       Financial assets and financial liabilities that are purchased and
       incurred with the intention of generating profits in the near term are
       classified as trading. These instruments are accounted for at fair
       value with the change in the fair value recognized in investment
       income.

       Available-for-sale

       Financial assets classified as available-for-sale are carried at fair
       value with the changes in fair value recorded in other comprehensive
       income. Securities that are classified as available-for-sale and do
       not have a readily available market value are recorded at cost.
       Available-for-sale securities are written down to fair value through
       income whenever it is necessary to reflect other-than-temporary
       impairment. Previously, such write-downs were to net realizable value.
       Gains and losses realized on disposal of available-for-sale
       securities, which are calculated on an average cost basis, are
       recognized in other income. The long-term investment on the balance
       sheet has been designated as available-for-sale, which resulted in an
       after-tax loss of $727 recorded as an adjustment to opening
       accumulated other comprehensive loss as at December 1, 2006.

       Held-to-maturity

       Securities that have a fixed maturity date, where the Company intends
       and has the ability to hold to maturity, are classified as held-to-
       maturity and accounted for at amortized cost using the effective
       interest rate method.

       Loans

       Loans are accounted for at amortized cost using the effective interest
       rate method. This classification is consistent with the classification
       under the prior accounting standards.

    b) Derivatives and Hedge Accounting

       Embedded derivatives

       Derivatives may be embedded in other financial instruments (the "host
       instruments"). Prior to the adoption of the new standards, such
       embedded derivatives were not accounted for separately from the host
       instrument. Under the new standard, embedded derivatives are treated
       as separate derivatives when their economic characteristics and risks
       are not clearly and closely related to those of the host instrument,
       the terms of the embedded derivatives are measured at fair value with
       subsequent changes recognized in trading income. The impact of the
       change in accounting policy related to embedded derivatives was not
       material.

       Hedge accounting

       At the inception of a hedging relationship, the Company documents the
       relationship between the hedging instrument and the hedged item, its
       risk management objective and its strategy for undertaking the hedge.
       The Company also requires a documented assessment, both at hedge
       inception and on an ongoing basis, of whether or not the derivatives
       that are used in hedging transactions are highly effective in
       offsetting the changes attributable to the hedged risks in the cash
       flows of the hedged items.

       Under the previous standards, derivatives that met the requirements
       for hedge accounting were generally accounted for on an accrual basis.
       Under the new standards, all derivatives are recorded at fair value
       and are recorded in prepaid expenses and other assets or accounts
       payable and accrued liabilities. The Company's hedges are classified
       as hedges of the variability in highly probable future cash flows
       attributable to a forecasted transaction (cash flow hedges).

       The Company is exposed to variability in future revenue cash flows, as
       much of the Company's revenues are denominated in US dollars or
       Japanese yen. The amount and timing of future cash flows are projected
       for the next four quarters. The actual foreign currency revenue over
       time forms the basis for identifying the effective portion of gains
       and losses on the derivatives designated as cash flow hedges on
       forecasted transactions.

       The effective portion of changes in the fair value of derivatives that
       are designated and qualify as cash flow hedges is recognized in other
       comprehensive income. Any gains or losses in fair value relating to
       the ineffective portion are recognized immediately in the statement of
       earnings in other income (expense).

       Amounts accumulated in other comprehensive income are reclassified to
       the statement of earnings in the period in which the hedged item
       affects income.

       When a hedging instrument expires or is sold, or when a hedge no
       longer meets the criteria for hedge accounting, any cumulative gain or
       loss existing in other comprehensive income at that time remains in
       other comprehensive income until the forecasted transaction is
       eventually recognized in the statement of earnings. When a forecasted
       transaction is no longer expected to occur, the cumulative gain or
       loss that was reported in other comprehensive income is immediately
       transferred to the statement of earnings. Upon adoption of the new
       standard, the Company recorded a net increase in accounts payable and
       other liabilities of $55 designated as cash flow hedges and an
       increase of $55 after-tax in accumulated other comprehensive income.

    c) Comprehensive Income

       Comprehensive income is composed of the Company's net earnings and
       other comprehensive income. Other comprehensive income includes
       unrealized gains and losses on available-for-sale financial assets,
       foreign currency translation gains and losses on the net investment in
       self-sustaining operations and changes in the fair market value of
       derivative instruments designated as cash flow hedges, all net of
       income taxes. The components of comprehensive income are disclosed in
       the Consolidated Statement of Comprehensive Income.

    d) Capital Assets

       Capital assets are stated at cost less accumulated depreciation, net
       of related government assistance and asset impairment. No depreciation
       is provided until the assets are ready for use.

       Buildings are depreciated using the straight-line method over an
       estimated useful life of thirty years. Equipment and furniture are
       depreciated using the straight-line method over estimated useful lives
       ranging from five to seven years. Computer software and hardware are
       depreciated using the straight-line method over the estimated useful
       life of three years.

       During fiscal 2007, the Company re-evaluated the estimated useful
       lives of its buildings and determined that the estimated useful lives
       should be increased to thirty years from twenty years. The impact of
       this change was applied on a prospective basis commencing with the
       first quarter of 2007. The impact of this change of accounting
       estimate resulted in a decrease in depreciation expense of $266 in the
       first half of fiscal 2007.

    e) Asset Impairment

       The Company follows the guidance in the Canadian Institute of
       Chartered Accountants (CICA) Handbook Section 3063, "Impairment of
       Long-Lived Assets". When events or circumstances warrant a review, the
       Company evaluates the carrying value of long-lived and intangible
       assets for potential impairment. The carrying value of such assets are
       considered impaired when the anticipated net recoverable amount of the
       asset is less than its carrying value. In that event, the carrying
       value of the asset is adjusted to fair value and an impairment loss is
       recorded.

    2. LOAN RECEIVABLE

    The Company has a loan receivable due in weekly installments of US $5,
    accruing interest at 7% and maturing in June 2008. Due to prepayments, as
    at May 31, 2007, the loan balance was $264, of which $262 was current.

    3. CAPITAL ASSETS, NET
                                                        May 31,  November 30,
                                                          2007          2006
    -------------------------------------------------------------------------
    Land                                                 2,823         2,823
    Buildings                                           12,821        21,969
    Equipment and furniture                             14,179        16,058
    Computer software and hardware                       1,759         2,370
    -------------------------------------------------------------------------
                                                        31,582        43,220
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    During the second quarter of 2007, the Company determined that the
    carrying value of the manufacturing facilities were impaired due to the
    under-utilization of such facilities. The carrying values of the long-
    lived depreciable assets were written down to its fair value. Fair value
    was determined based on independent quoted fair market value. As a
    result, the Company recorded an impairment charge of $9,595 of which
    $8,612 was allocated to the manufacturing building and $983 to production
    and computer equipment. The net book value of the manufacturing
    facilities after the impact of the impairment charge is approximately
    $6,246. These long-lived assets are reported in the Audio & Wireless,
    Video and Datacom segments as the assets support all of the segments.

    4. Long-Term Investment

    In November 2005, the Company received a 6% interest in Nanoscience Inc.
    (11.1 million shares) as consideration for the sale of its investment in
    Toumaz Technology Limited to Nanoscience. The shares of Nanoscience are
    traded on the AIM exchange in London, England and have a market value of
    $2,552 as at May 31, 2007. Under the new standards, this investment has
    been classified as available-for-sale and is therefore recorded on the
    balance sheet at its fair value. Fair value is based on the trading price
    of the shares and the impact of currency fluctuations. An after-tax loss
    of $727 was recorded as at December 1, 2006 as an opening balance
    adjustment to Other Comprehensive Income, with the unrealized gain of $10
    recorded to other comprehensive income in the second quarter and the
    unrealized gain of $62 in the first half of 2007.

    5. INTANGIBLE ASSETS

                                                        May 31,  November 30,
                                                          2007          2006
    -------------------------------------------------------------------------
    Licence fees                                         4,067         3,975
    Technology intangibles                               2,221         2,221
    -------------------------------------------------------------------------
                                                         6,288         6,196
    Less accumulated amortization                       (4,290)       (3,830)
    -------------------------------------------------------------------------
                                                         1,998         2,366
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Licence fees are amortized using the straight-line method over the
    estimated useful lives ranging from three to five years.

    Technology intangibles represent those intangible assets resulting from
    the SiGe Semiconductor acquisition in May 2004. Technology intangibles
    are amortized using the straight-line method over the estimated useful
    life of seven years.

    Intangible assets are reviewed quarterly for impairment. There was no
    impairment of intangible assets in the second quarter of 2007
    (Q2 2006 - $21). In the first half of 2007 no intangible assets have been
    written off and impairments of $79 were written off to date in 2006.

    6. CAPITAL STOCK

    The issued common shares of the Company as at May 31, 2007 consist of
    35,810,286 common shares (November 30, 2006 - 35,784,636) at a stated
    value of $11,300 (November 30, 2006 - $11,001). An unlimited number of
    preferred shares have also been authorized, none of which have been
    issued. The number of common stock options outstanding as at May 31, 2007
    is 1,969,140, of which 539,938 are exercisable. In the second quarter of
    2007, 260,000 options were granted (year to date - 720,000), 8,000 were
    exercised (year to date - 25,650) and 117,875 were forfeited or
    relinquished (year to date - 154,175).

    Stock Option Plan

    The Company has an incentive stock option plan, which provides for the
    granting of options for the benefit of employees and officers. The total
    number of Company shares that may be issued under this plan is 2,700,000
    of which 1,302,898 remain available for new grants. An additional 930,000
    options were issued outside the plan to new officers upon hiring at
    exercise prices ranging from $9.75 - $13.27. Options issued outside the
    plan are governed by the same conditions as applicable to the employee
    stock option plan.

    A summary of the plan and changes to date during 2007 and for the full
    year of 2006 are as follows:

                                               YTD 2007                 2006
    -------------------------------------------------------------------------
                                               Weighted             Weighted
                                                average              average
                                       Number  exercise     Number  exercise
                                    of shares     price  of shares     Price
    -------------------------------------------------------------------------

    Outstanding, beginning
     of fiscal year                 1,428,965     11.53    812,713     12.44
    Granted                           720,000     12.89    774,527     10.79
    Forfeited                        (154,175)    12.44    (23,625)    13.23
    Exercised                         (25,650)    11.62   (134,650)    12.44
    -------------------------------------------------------------------------
    Outstanding, end
     of second quarter              1,969,140     11.94  1,428,965     11.53
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Options exercisable
     at May 31, 2007                  539,938     12.48    651,938     12.40
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The following table summarizes information about options outstanding at
    May 31, 2007:

                                   Options outstanding    Options Exercisable
    -------------------------------------------------------------------------
                                    Weighted
                                     average  Weighted               Weighted
    Range of                       remaining   average                average
    exercise             Number  contractual  exercise       Number  exercise
    prices          outstanding         life     price  exercisable     price
    -------------------------------------------------------------------------

    $9.75 - $12.00      862,438    4.8 years     10.50      307,438     11.63
    -------------------------------------------------------------------------
    $12.01 - $14.25   1,070,702    5.6 years     12.99      194,000     13.15
    -------------------------------------------------------------------------
    $14.26 - $16.50      36,000    1.1 years     15.54       36,000     15.54
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The estimated weighted average fair value of stock options granted during
    the first half of 2007 was $4.14 per share using the Black-Scholes
    option-pricing model with the following weighted average assumptions:

               -----------------------------------------------
               Risk-free interest rate                   4.11%
               Expected dividend yield                   1.09%
               Expected volatility                       30.6%
               Expected time until exercise          5.5 years
               -----------------------------------------------

    The Company utilizes the fair-value based method of accounting for all
    its stock-based compensation, which has been applied on a prospective
    basis. Had compensation been determined based on the fair value at the
    grant date for all awards granted since the inception of the incentive
    stock option plan, the Company's net earnings for the quarter would not
    have been affected, however earnings for prior periods would have been
    reduced by $2,523.

    Earnings per Share

    The Company uses the treasury stock method of calculating the dilutive
    effect of options on earnings per share. The following is a
    reconciliation of the numerator and denominator of earnings per share
    computations:

                                        Three Months Ended  Six Months Ended
                                              May 31             May 31

                                          2007      2006      2007      2006
    -------------------------------------------------------------------------

    Net earnings for the year           (6,989)    4,508    (2,739)    8,167
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted average shares
     outstanding                        35,808    35,991    35,799    35,951
    Effect of dilutive stock options        57       145        57       145
    -------------------------------------------------------------------------
    Diluted weighted average
     shares outstanding                 35,865    36,136    35,856    36,096
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per share - basic           (0.20)     0.13     (0.08)     0.23
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per share -  diluted        (0.19)     0.12     (0.08)     0.23
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Options to purchase 1,134,702 common shares were not included in the
    computation of diluted earnings per share for the six months ended
    May 31, 2007 because the option exercise prices and unamortized
    compensation costs were greater than the average market price of the
    common shares.

    7. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

                                     Quarter Ended May 31, 2007

    -------------------------------------------------------------------------
                                        Unrealized
                                           loss on
                                       translating   Unrealized
                                         financial         gain
                       Gain (loss) on   statements    (loss) on
                           derivative     of self-    available
                          instruments   sustaining     for sale
                   designated as cash      foreign    financial
                          flow hedges   operations       assets        Total
    -------------------------------------------------------------------------
    Balance, as at
     February 28, 2007           (403)      (2,616)        (675)      (3,694)
    Changes incurred
     during the quarter         1,264       (1,477)          10         (203)
    -------------------------------------------------------------------------
    Balance, as at
     May 31, 2007                 861       (4,093)        (665)      (3,897)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                    Six Months Ended May 31, 2007

    -------------------------------------------------------------------------
                                        Unrealized
                                           loss on
                                       translating   Unrealized
                                         financial         gain
                       Gain (loss) on   statements    (loss) on
                           derivative     of self-    available
                          instruments   sustaining     for sale
                   designated as cash      foreign    financial
                          flow hedges   operations       assets        Total
    -------------------------------------------------------------------------
    Balance, as at
     December 1, 2006               -       (2,723)           -       (2,723)
    Adjustment to
     opening balance              (55)           -         (727)        (782)
    Changes incurred
     during the first
     half of the year             916       (1,370)          62         (392)
    -------------------------------------------------------------------------
    Balance, as at
     May 31, 2007                 861       (4,093)        (665)      (3,897)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    8. FOREIGN EXCHANGE RISK

    Transactions and balances denominated in currencies other than Canadian
    dollars are translated on the following basis. Current assets and current
    liabilities are translated at the quarter-end rate of exchange. Exchange
    gains and losses on these balances are recognized in earnings in the
    quarter. Revenue and expenses are translated at the average of the
    monthly rates of exchange during the quarter. Fixed assets and
    depreciation are translated at rates prevailing when the related assets
    are acquired.

    The Company's operations outside of Canada are considered self-sustaining
    and accordingly, the assets and liabilities are translated to Canadian
    dollars using the quarter-end exchange rates and revenue and expenses are
    translated at the average of the monthly rates during the quarter.
    Exchange gains or losses on assets and liabilities are deferred and
    included in other comprehensive income.

    In order to manage the risk associated with fluctuations in foreign
    exchange rates, the Company has entered into foreign exchange forward
    contracts to sell an aggregate amount of US $15,000 and yen 1,258,000 as
    at May 31, 2007. These contracts mature at the latest on March 26, 2008
    at exchange rates varying between Canadian $1.0712 and Canadian $1.1545
    against the US dollar, and between Canadian $0.00889 and Canadian
    $0.00993 against the Japanese yen. Management estimates that a gain of
    $1,300 would be realized if the contracts were terminated on May 31,
    2007. In accordance with the new standards, these forward contracts are
    designated as cash flow hedges and therefore this gain has been included
    in other comprehensive income, net of a deferred tax asset of $439. This
    gain is expected to be reclassified to net income over the next twelve
    months as the forward contracts mature. During the three months ended
    May 31, 2007, there were no firm commitments that no longer qualified as
    hedges and no forecasted transactions that failed to occur.

    Realized losses on foreign exchange forward and spot contracts were $127
    during the quarter (2006 - gains of $777) and losses of $331 for the year
    to date (2006 - gain of $2,001). In addition, there were translation
    losses of $1,565 during the quarter (2006 - losses of $911) and $883 for
    the year to date (2006- losses of $1,526).

    9. SEGMENTED INFORMATION

    The Company has three reportable segments:

    Video Products (Video): Develops and supplies high-performance image
    processing, serial digital transmission and timing generation components
    for display and professional video/film applications.

    Audio & Wireless Products (Audio): Develops and supplies a wide range of
    components, systems and sub-systems for use by manufacturers of analogue
    and digital signal processing products in the hearing instrument and
    other specialized markets. Wireless devices include low power links for
    hearing aids and wireless headset products.

    Data Communication Products (Datacom): Develops and supplies high-
    performance physical layer integrated circuits for high-speed backplane
    and high-speed optical transceiver applications.

    Each of the segments represents a strategic business unit that offers
    products to distinct markets. The total of segment operating earnings and
    Other reconciles to earnings before income taxes disclosed in the
    Consolidated Statement of Earnings. Corporate allocations consist of
    general and administrative costs which are charges for corporate services
    and centralized operational activities allocated to the operating
    segments based upon estimates of usage. The Company's Other segment
    revenue consists primarily of user specific integrated circuit products,
    which are not included within the operating segment revenues. The Company
    has included investment income and foreign exchange gains or losses in
    the determination of Other segment profit. The total assets in Other
    include: cash and short-term investments, future income taxes, income tax
    receivable or payable and capital assets not allocated to the operating
    segments. The significant accounting policies of the reportable segments
    are the same as those referred to in note 1.

                                          Quarter Ended May 31, 2007

                                   Video    Audio  Datacom    Other    Total
    -------------------------------------------------------------------------
    Segment revenue               22,044    7,067    6,402      157   35,670
    Segment earnings (losses)      3,169  (13,249)     960   (1,073) (10,193)
    Depreciation and
     amortization                    988      880      433        -    2,301
    Asset Impairment              (2,987)  (6,531)     (77)       -   (9,595)
    Corporate allocations          2,508    1,524      697        -    4,729
    Capital asset additions          452       66      942        -    1,460
    -------------------------------------------------------------------------



                                          Quarter Ended May 31, 2006

                                   Video    Audio  Datacom    Other    Total
    -------------------------------------------------------------------------
    Segment revenue               24,352    8,784    3,741      239   37,116
    Segment earnings (losses)      8,709   (1,978)    (521)     215    6,425
    Depreciation and
     amortization                  1,204      800      521        -    2,525
    Corporate allocations          2,125    1,584      451        -    4,160
    Capital asset additions          578      165      200        -      943
    -------------------------------------------------------------------------



                                          Six Months Ended May 31, 2007

                                   Video    Audio  Datacom    Other    Total
    -------------------------------------------------------------------------
    Segment revenue               44,660   14,008   11,534      349   70,551
    Segment earnings (losses)     11,103  (15,966)   1,444     (215)  (3,634)
    Depreciation and amortization  2,093    1,725      799        -    4,617
    Asset impairment              (2,987)  (6,531)     (77)       -   (9,595)
    Corporate allocations          4,607    2,823    1,217        -    8,647
    Capital asset additions          750      244    1,174        -    2,168
    Total assets                  45,041   35,451   12,889   60,328  153,709
    -------------------------------------------------------------------------



                                          Six Months Ended May 31, 2006

                                   Video    Audio  Datacom    Other    Total
    -------------------------------------------------------------------------
    Segment revenue               46,118   18,243    6,842      408   71,611
    Segment earnings (losses)     16,245   (4,149)  (1,421)   1,113   11,788
    Depreciation and amortization  2,588    1,531    1,099        -    5,218
    Corporate allocations          4,260    3,117      891        -    8,268
    Capital asset additions        1,479      346      568        -    2,393
    Total assets                  46,856   51,493   12,648   47,857  158,854
    -------------------------------------------------------------------------

    Revenue by principal markets is as follows:

                                        Three Months Ended  Six Months Ended
                                          2007      2006      2007      2006
    -------------------------------------------------------------------------
    United States                       12,591    12,198    25,384    25,510
    Europe                               5,130     7,814    10,436    14,296
    Pacific Rim                         12,399    10,309    23,632    20,528
    Canada                               5,550     6,795    11,099    11,277
    -------------------------------------------------------------------------
                                        35,670    37,116    70,551    71,611
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Revenue is attributable to countries based upon the location of
    customers.

    Assets per country are as follows:

                                                        May 31,  November 30,
                                                          2007          2006
    -------------------------------------------------------------------------
    Canada                                             138,154       154,138
    UK                                                   5,248         5,834
    Japan                                               10,307        10,460
    -------------------------------------------------------------------------
                                                       153,709       170,432
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    10. OTHER INCOME (EXPENSE)

                                        Three Months Ended  Six Months Ended
                                          2007      2006      2007      2006
    -------------------------------------------------------------------------

    Realized gains (losses) on foreign
     exchange contracts (note 8)          (127)      777      (331)    2,001
    Unrealized foreign exchange gains
     on other contracts                     98         -       122         -
    Foreign exchange (losses) on
    translation (note 8)                (1,565)     (911)     (883)   (1,526)
    -------------------------------------------------------------------------
    Gain (loss) on foreign exchange     (1,594)     (134)   (1,092)      475
    Other expense                          (28)      (88)      (91)     (210)
    -------------------------------------------------------------------------
                                        (1,622)     (222)   (1,183)      265
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    11. INCOME TAXES

    The following is a reconciliation of the expected income tax expense
    obtained by applying the combined Canadian corporate tax rates to
    earnings before income taxes:

                                        Three Months Ended  Six Months Ended
                                          2007      2006      2007      2006
    -------------------------------------------------------------------------

    Expected income tax (recovery)
     using statutory tax rates          (3,478)    2,192    (1,240)    4,022
      Adjustment to future income
       taxes - Provincial benefit
       on ITCs                               -         -         -      (156)
      Permanent differences                128         -       162         -
      Adjustment to final 2005 tax
       liability                             -      (283)        -      (283)
      Different income tax rates
       on earnings of foreign
       subsidiaries                         45       (34)       70       (41)
    Changes in tax rates and other         101        42       113        79
    -------------------------------------------------------------------------
                                        (3,204)    1,917      (895)    3,621
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    12. COMMITMENTS AND CONTINGENCIES

    The Company is committed to future minimum lease payments under operating
    leases for software design tools and buildings as at May 31, 2007 as
    follows:

    -------------------------------------------------------------------------
                                  Design Tools      Buildings          Total
    -------------------------------------------------------------------------

    2007                                 1,030            363          1,393
    2008                                 2,789            529          3,318
    2009                                 3,270            444          3,714
    2010                                 2,648            235          2,883
    -------------------------------------------------------------------------
                                         9,737          1,571         11,308
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Company has committed to approximately $3.5 million in purchase
    obligations as at May 31, 2007. The purchase obligations relate primarily
    to inventory, product development, general operating costs and authorized
    capital projects. The Company is also committed to license fee payments
    of $1.0 million over the next 3 years and other payments of $0.2 million
    within the next 5 year.

    In the ordinary course of business activities, the Company may be
    contingently liable for litigation and claims with customers, suppliers,
    former employees and third parties. Management believes that adequate
    provisions have been recorded in the accounts where required. Although it
    may not be possible to accurately estimate the extent of potential costs
    and losses, if any, management believes that the ultimate resolution of
    such contingencies would not have a material adverse effect on the
    financial position of the Company.


    13. COMPARATIVE AMOUNTS

    Certain of the comparative amounts have been reclassified to conform to
    the presentation adopted in the current year.
For further information: Gennum Media Contact, Robin Vaitonis, Director
of Corporate Communications, Gennum Corporation, Tel: (905) 632-2999 ext.
2110, E-mail: vaitonis@gennum.com; Gennum Investor Relations Contact, Gordon
Currie, Senior Vice-President, Finance & Administration and Chief Financial
Officer, Gennum Corporation, Tel: (905) 632-2999 ext. 3060, E-mail:
gcurrie@gennum.com