Sonic Foundry Adjusts Business Plan to Reflect Changing Technology Market Conditions

Sonic Foundry[R], Inc. today announced that like other technology companies, the Company expects to be affected by significant holiday retail weakness and an overall softening in the PC industry, causing potential discounting, sales promotions and possible returns in its PC software business unit.

The Company reiterated that its media services business continues to be growth constrained by a worldwide slowdown in dot com business activity.

As a result of rapidly changing market conditions, the Company announced immediate actions geared toward moving the operating business toward EBITDA breakeven sooner than originally forecasted and continuing to focus on its core activities. The first of these actions includes an across the board 40% workforce reduction, reducing headcount to approximately 245 and operating expenses by over $20MM annually. The remaining work force is expected to be sufficient to handle the Company's business opportunities as they arise.

These market changes may decrease quarterly revenue for the quarter ending December 31, 2000, by as much as $3MM from previous quarterly results. Due to these reductions, the Company expects that fiscal Q1 operating losses will be greater than originally forecasted. However, the Company expects to have sufficient cash resources to reach EBITDA breakeven sooner in the fiscal year than originally anticipated, and will be providing more detailed forward looking guidance in conjunction with formally announced fiscal Q1 2001 operating results.

"We ended the previous quarter with signs that the overall technology industry was slowing and began taking cost cutting actions at that time in anticipation of this change," stated Rimas Buinevicius, chairman and chief executive officer. "It's obvious that after further industry warnings and a continued softening of the economy, additional cost cutting measures are necessary. We will continue to adjust our business plan to these rapidly changing market conditions and will take further actions, if necessary, to position the Company to be able to take advantage of business opportunities as they reemerge."

"In light of these circumstances we now anticipate that year-on-year revenue growth may potentially slow to less than 20 percent and we are budgeting accordingly. I remain confident that our technology solutions are among the best in the world and through our announced and further planned actions, we are positioning the Company to operate more efficiently in the present market environment."