SecProbe.io

CORRESP
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June 13,
2005

VIA
Federal Express and EDGAR

Securities and
Exchange Commission

450 Fifth
Street, N.W.

Washington,
D.C.  20549

Attention:  Kevin Vaughn, Reviewing Accountant

Re:                               Zoran
Corporation.

Comments on Form 10-K for the year ended December 31, 2004
and related filings

File No. 000-27246

Dear Mr. Vaughn:

Reference is
made to the letter, dated April 29, 2005, addressed to Mr. Karl
Schneider, Chief Financial Officer, of Zoran Corporation (the “Company”),
regarding the above-referenced filings.
Provided below are responses to each of the numbered comments.  Please note that the headings and numbers of
the responses set forth below correspond to the headings and numbers of the
comments contained in the letter.

Form 10-K for the year ended December 31,
2004

Item 7, Management’s Discussion and Analysis
of Financial Condition and Results of Operations

Critical Accounting Policies and Estimates-Page 21

1.              We
note that you recorded significant inventory write downs in 2004.  In addition, we note that your inventory has
increased significantly from 2003 to 2004.
Supplementally, tell us and revise future filings to discuss the
specific reasons for any significant inventory write-downs and how you
determined the amount of the write-down to be recorded.  Finally, tell us why your inventory balance
has increased so much from 2003 to 2004 and tell us how you considered this
increase in your excess and obsolete inventory analysis.

The Company supplementally advises the Staff that during the fourth
quarter of 2004, revenues for our hardware products decreased as a result of an
unexpected worldwide inventory correction in the DVD market, the result of DVD
industry participants

overestimating
the growth of global DVD sales.  The
Company first became aware of this inventory correction when various DVD
manufacturers, primarily located in Asia, abruptly reduced their purchase
forecasts, which they provide to Zoran on a periodic basis.  We understand that our customers reduced their
forecasts when they realized that their own previous DVD growth estimates were
overly optimistic.

On a quarterly basis, management analyzes inventory balances to
determine the need for any inventory write-downs required to record inventories
at the lower of their cost or market value and to write off excess and obsolete
inventories.  Inventory write-downs
create a new cost basis and we do not reverse previous inventory write-downs.  We consider excess and obsolete inventories by
comparing the quantity of inventory on hand to management’s forecast of
customer demand over the following one-year period.  Zoran’s management estimated future sales of
its products based on forecasts provided by its customers and other industry
and customer information.  During the
fourth quarter of 2004 management’s forecast of sales declined primarily as a
result of the lower than expected orders of DVD components received from our
customers.  In light of the factors cited
above, we recorded inventory write-downs during the fourth quarter for products
where our inventory and purchase/manufacturing commitments at the end of 2004
exceeded expected sales of our products over the next twelve months.

In response to the Staff’s comment, the Company will revise future
filings to include specific reasons for any significant inventory write-downs
and how such write-downs were determined.

The Company supplementally advises the Staff that the overall increase
in our net inventory at December 31, 2004 compared to the prior year is primarily
the result of the growth in our business as evidenced by the increase in hardware
product revenues to $315.7 million for the year ended December 31, 2004 compared
to $200.2 million recorded in the prior year.
The inventory levels at December 31, 2004 were also impacted by the
slowdown in DVD sales as discussed above.

During the first quarter of 2005, we subsequently reduced our inventory
purchases and sold a large portion of our year end inventory in the ordinary
course of business.  At the end of that
quarter, our net inventory was reduced to $34.2 million compared to the $50.0
million recorded at the end of 2004.  The
Company did not record significant inventory write-downs during the first
quarter of 2005 as inventory on hand at March 31, 2005 did not exceed our
forecast of sales for the proceeding twelve month period.  We believe this further supports the
reasonableness of the Company’s estimate of excess and obsolete inventories at December 31,
2004.

2.              We
note in your discussion of operating loss on pages 25 and 26 that you present
your operating losses and effective tax rates excluding certain charges.  These financial measures qualify as non-GAAP
financial measures pursuant to Item 10(e)(2) of
Regulation S-K.

•                  We note that you have presented your operating losses
and effective tax rates excluding charges such as amortization of intangible
assets, deferred stock compensation and inventory impairment.  We note that you have incurred similar
expenses in each of the past three years.
Pursuant to Item 10(e)(1)(ii)(B) of Regulation
S-K, a registrant must not adjust a non-GAAP performance measure to eliminate
or smooth items identified as non-recurring, infrequent or unusual when the
nature of the charge or gain is such that it is reasonably likely to recur
within two years or there was a similar charge or gain within the prior two
years.  Please revise future filings to
eliminate these non-GAAP financial measures, or tell us why you believe the
current presentation is appropriate.

•                  We note your statement regarding non-GAAP financial
measures on page 20.  We do not
believe that your disclosure addresses all of the requirements of Item 10(e)(1)(i) of Regulation S-K, and may be confusing to
investors.  Accordingly, please revise
your disclosures in future filings to explain why each individual non-GAAP
measure presented is useful to an investor and to discuss how management uses
the measures and the limitations of using this measure in accordance with Item
10(e)(1)(i) of Regulation S-K.

•                  You state the purpose of the adjustment in the Form 10-K
“is to give an indication of [your] baseline performance before gains, losses
or other charges that are considered by management to be outside of [your] core
operating results.”  Revise future
filings to disclose why you do not consider charges for excess and obsolete
inventory, amortization of intangible assets and stock compensation expense to
be part of your “core operating results.”

The Company advises the Staff that in future filings the Company will
refrain from presenting non-GAAP financial measures in our Form 10-Ks
and 10-Qs.

Item 8. Financial Statements and Supplemental Data

Note 2. Significant Accounting Policies

Revenue Recognition-Page 47

3.              You
note on page 23 that imaging software products comprised approximately 13%
of your consolidated revenues in fiscal 2004.
Please tell us and revise future filings to disclose your revenue
recognition policy for imaging software, including the applicability of SOP 97-2,
EITF 03-05 and EITF 00-21.

The Company applies the provisions of Statement
of Position (SOP) 97-2, as
amended by SOP 98-9, to determine revenue recognition from the sale
of imaging software.  EITF 03-05 and EITF 00-21,
are not applicable as imaging software is not sold with our hardware. The
Company’s software license agreements typically include obligations to provide
maintenance and other support over the first year and provide for renewal of
maintenance on an annual basis for a fixed amount at the option of the customer.
The Company

determined
that the renewal rate provides vendor specific objective evidence of the fair
value of the maintenance obligations bundled with the sale of the software in
accordance with Technical Practice Aids
for SOP 97-2, TPA 5100.54, “Fair value of PCS in a multi-year time-based license and software revenue
recognition under SOP 97-2.” The Company carves out the portion of
the fee related to maintenance based on this substantive renewal rate and
recognizes this amount ratably over the term of the maintenance period.

The Company recognizes revenue from the sale
of software licenses when persuasive evidence of an arrangement exists, the
product has been delivered, title and risk of loss have transferred to the
customer, the fee is fixed or determinable and collection of the resulting
receivable is probable.  The assessment
of whether a fee is fixed or determinable is based partly on the payment terms
associated with the transaction.  If any
portion of a fee is considered to be extended payment terms, the Company does
not consider the fee to be fixed or determinable, in which case, the Company
recognizes revenue as the fees become due.
If the Company determines that collection of a fee is less than
probable, then the Company will defer the entire fee and recognize revenue upon
receipt of cash.

In addition to the license fee, the Company
receives royalties based on the number of units sold by a licensee in which the
related software is embedded.  As the
Company cannot reliably estimate earned royalties, revenue is recognized one
quarter in arrears during which time we receive detailed royalty reports from
our customers.

The Company advises the Staff that in future filings, the Company will
include the following information regarding our revenue recognition policy for
software and other revenues:

“The Company recognizes software license revenues in accordance with
the provisions of Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended
by SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition, With Respect
to Certain Transactions.  Software license agreements typically include
obligations to provide maintenance and other support over a fixed term and
allows for renewal of maintenance on an annual basis.  The Company determines that the fair value of
its maintenance obligations with reference to substantive renewal rates within
the agreement or objective evidence of fair value as required under SOP 97-2.
 Maintenance and support revenue is
recognized ratably over the term of the arrangement.  In addition, the Company also receives
royalty revenues based on per unit shipments of products embedding our software
which is recognized by the Company upon receipt of a royalty report from the
customer, typically one quarter in arrears.”

Item 9A. Controls and
Procedures-Page 71

We note on page 69 that you incorrectly
calculated deferred compensation expense in each of the quarters of fiscal 2004
and have restated the unaudited financial results for those quarters.

4.               We note your disclosures that you “improved
disclosure controls and procedures by updating our database to include the
necessary information required to calculate the impact of cancelled options on
an ongoing basis” and that you “updated personnel and financial records to
ensure stock compensation expense relating to the vesting of assumed options
held by former employees of Oak Technology, Inc. was properly accounted
for.”  It appears that your corrective
action may have adequately addressed the amounts recorded in fiscal 2004;
however, this does not appear to be a change in controls.  Please supplementally tell us and revise
future filings as appropriate to discuss what changes you made to your controls
to address the deficiency identified.

The Company supplementally advises the Staff that the root cause of the
deficiency was the lack of detailed information in the Company’s financial
records necessary to properly calculate the impact of stock option cancellations
on stock compensation expense.  During
the fourth quarter of 2004, this information was compiled by the Company and as
a result, the impact of cancellations is now captured in the financial records
and will continue to be available on an ongoing basis so that the calculation
can be properly performed.

Every quarter, the Company reviews the list of terminations during the
quarter and determines the impact, if any, on stock compensation and deferred
stock compensation in accordance with EITF 00-23 issue 11. The specific
controls that were put in place during the fourth quarter of 2004 include a detailed
computation of the financial statement impact of stock option cancellations
accompanied by a documented review of the computation to verify its completeness
and accuracy.  Such calculations go
through an additional level of review for consistency and completeness and then
the appropriate adjusting entries are recorded.
These controls continue to be effective and are expected to continue
until they are no longer applicable to the Company.  The changes described above will be discussed
in future filings.

Exhibit 31.1 and 31.2

5.              We
note that the certifications filed as Exhibits 31.1 and 31.2 to your Form 10-K
were not in the proper form.  The
required certification must be in the exact form prescribed; the wording of the
required certification may not be changed in any respect.  Certain portions of the certification
relating to internal control over financial reporting may be omitted as stated
in Section III.E. of SEC Release No. 33-8238.  Accordingly, please revise the certifications
of your CEO and CFO in future filings to be in the form currently set forth in
Item 610(b)(31) of Regulation S-K.

The Company advises the Staff that in future filings, the Company will
provide certifications in the exact form prescribed in Item 610(b)(31) of Regulation S-K.

Forms 8-K dated January 25, 2005
and April 28, 2005

6.               We do not believe that the presentation of a non-GAAP
statement of operations is appropriate unless all disclosures required by Item
10(e)(1)(i) of Regulation S-K are included for
each separate non-GAAP measure.  Please
delete this presentation from all future Forms 8-K.

If you continue to
present non-GAAP information, Item 2.02 of Form 8-K requires that
disclosures “furnished” include information that complies with the disclosure
requirements of Item 10(e)(1)(i) of Regulation S-K.  Accordingly, you must present a reconciliation for each non-GAAP measure presented in the
non-GAAP statements of operations.  You
must also provide statements disclosing the reasons why management believes
presentation of each of the individual non-GAAP measures provide useful
information to investors regarding your financial condition and results of
operation.  Those disclosures should be
specific and substantive to each individual measure.  Refer to SEC Release 33-8176 and also
Question 8 of the FAQ Regarding the Use of Non-GAAP Financial Measures, dated June 13,
2003.  Please confirm that you will
revise your Forms 8-K in future periods to provide all of the disclosures
required by Item 10(e)(1)(i) for each non-GAAP
measure presented.  Provide us with a
full sample of your proposed disclosure.
Please note that the disclosure and reconciliation requirements also
apply to the non-GAAP financial measure presented on your Form 8-K
dated January 12, 2005.

The Company agrees that these non-GAAP financial measure items have
recurred within a two year period and will in future be classified as “recurring
in nature.”  The Company understands, based on the FAQ, that there is no prohibition against
removing a recurring item, if the Company can demonstrate the usefulness of the
measure that excludes recurring items.
The following documents the Company’s response to the disclosure requirements
of Regulation S-K Item 10(e)(1)(i) and includes
samples of our proposed disclosures:

(e) USE OF NON-GAAP FINANCIAL MEASURES
IN COMMISSION FILINGS.

(1) Whenever one or more non-GAAP
financial measures are included in a filing with the Commission:

(i) The
registrant must include the following in the filing:

(A)