Taipei, Taiwan, Oct. 31, 2006– System General Corporation (TAIEX:6280) today announced its audited financial statement for the first three quarters. Net revenue was NT$895 million, gross profit NT$442 million, operating profit NT$148 million, after-tax net income NT$144 million, and after-tax EPS of common stock NT$2.12.

The International Trade Commission (ITC) reached a final determination in August for the patent infringement litigation (Investigation 337-541) between System General and Power Integrations. The ITC maintained its unfavorable initial verdict against System General, resulting in a net revenue of NT$895 million for the first three quarters, which is just on par with the previous year. Fortunately, the successful introduction of new products has restored revenue to its normal level. In order to introduce new IC products to replace those that were involved in the patent infringement case, additional sales allowance was incurred to help customers achieve safety certification and pilot production. Increased market competition has also affected sales price. The combination of all three factors described above resulted in the decline of gross profit margin for the first three quarters to 49.4%, representing a 1.6% decrease when compared to the same period last year.

Consolidated operating profit for the first three quarters was NT$148 million and operating profit margin was 16.5%, representing a narrowing of 8.8% when compared to the same period last year. This mainly results from increase on R&D expenditure. The introduction of new-generation products was fast forwarded because of the ITC investigation. In addition, to maintain a market-leading position, the company has put a higher investment on new products and new technologies development. Up to the end of September 2006, System General has received 76 patents worldwide including 56 US patents, 19 Taiwan patents, and 1 China patents.

In the first three quarters, while unfavorable verdict by the ITC has caused an increase in operating expense ratio and decline in gross profit margin, the process of changing from old products to new products was successfully completed. Thus, in the fourth quarter, with the aggressive launch of new products and expansion in the existing product application market, a solid foundation is established for business growth in the coming year.

2006Q1-Q3 Profit and Loss of SG: