PDF Solutions (PDFS) 8-K PDF Solutions®Reports Record Fiscal 2005 Revenue & Net Income

Exhibit 99.1

News Release

Investor Relations Contact:	Corporate Communications Contact:
Sonia Segovia, IR Coordinator	Abbie Kendall, Principal
PDF Solutions, Inc.	Armstrong Kendall, Inc.
Tel: (408) 938-6491	Tel: (503) 672-4681
Email: sonia.segovia@pdf.com	Email: abbie@akipr.com

PDF Solutions^®Reports Record
Fiscal 2005 Revenue & Net Income

Record Gain Share Contributes to 12^thSequential Quarter of Revenue Growth

     SAN JOSE, Calif.—January 26, 2006—PDF Solutions, Inc. (Nasdaq: PDFS) the leading provider of process-design integration technologies to enhance IC manufacturability, today announced financial results for its fourth fiscal quarter and fiscal year ended December 31, 2005.

     Revenue for the fourth fiscal quarter of 2005 totaled a record $19.0 million, an increase of 5%, compared with revenue of $18.1 million for the fourth fiscal quarter of 2004. Gain share revenue for the fourth fiscal quarter of 2005 totaled a record $3.8 million, an increase of 39%, compared to the fourth fiscal quarter of 2004. On a GAAP basis, net income for the fourth fiscal quarter of 2005 totaled a record $2.3 million, or $0.08 per diluted share, compared with net income of $1.6 million, or $0.06 per diluted share, for the fourth fiscal quarter of 2004.

     Revenue for the full fiscal year ended December 31, 2005 totaled a record $73.9 million, an increase of 19%, compared with revenue of $62.3 million for the full fiscal year ended December 31, 2004. On a GAAP basis, net income for the full fiscal year of 2005 totaled a record $6.5 million, or $0.24 per diluted share, compared with a net loss of approximately $614,000, or $0.02 per diluted share, for the full fiscal year of 2004.

     In addition to using GAAP results in evaluating PDF Solutions’ business, management also believes it is useful to measure results using a non-GAAP measure of net income or loss, which excludes amortization of stock-based compensation and acquired intangible assets. Using this non-GAAP measure, net income for the fourth fiscal quarter of 2005 totaled approximately

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$3.9 million, or $0.14 per diluted share, compared with non-GAAP net income of approximately $3.6 million, or $0.13 per diluted share, for the fourth fiscal quarter of 2004.

     As previously announced, PDF will hold a live conference call beginning at 3:00 p.m. Pacific Time/6:00 p.m. Eastern Time today to discuss these results. A live webcast of this conference call will be available on PDF Solutions’ website at http://ir.pdf.com/medialist.cfm. A replay of the call will be available at the same website address beginning approximately two hours after completion of the live call. Further, a copy of this press release, including the disclosure and reconciliation of certain non-GAAP financial measures to the comparable GAAP measure, which non-GAAP measures may be used periodically by PDF Solutions’ management when discussing financial results with investors and analysts, will be available on PDF Solutions’ website at http://www.pdf.com/news_archive.phtml following the date of this release.

Information Regarding Use of Non-GAAP Financial Measures

In addition to providing results that are determined in accordance with Generally Accepted Accounting Principles in the United States of America (GAAP), PDF Solutions also provides certain non-GAAP financial measures that exclude the effects of amortization of stock-based compensation and acquired intangible assets. PDF Solutions’ management believes that the presentation of these measures provides useful supplemental information to investors regarding PDF’s operating results. These non-GAAP financial measures are used by management internally to measure the company’s profitability and performance. PDF’s management believes that excluding the effects of amortization of stock-based compensation and acquired intangible assets provides a useful supplemental measure of the company’s ongoing operations in light of the fact that neither category of expense has a current effect on the future uses of cash nor do they have use with regards to the generation of current or future revenues. These non-GAAP results should not be considered an alternative to, or a substitute for, GAAP financial information, and may be different from similarly titled non-GAAP measures used by other companies. In particular, these non-GAAP financial measures are not a substitute for GAAP measures of income as a measure of performance, or to cash flows from operating, investing and financing activities as a measure of liquidity. Since management uses these non-GAAP financial measures internally to measure profitability and performance, PDF has included these non-GAAP measures to give investors an opportunity to see the company’s financial results as viewed by management. A reconciliation of the non-GAAP financial measures to the comparable GAAP financial measure is provided at the end of the company’s financial statements presented below.

About PDF Solutions

PDF Solutions, Inc. (Nasdaq: PDFS) is the leading provider of process-design integration technologies for manufacturing integrated circuits (ICs). PDF Solutions’ software, methodologies and services enable semiconductor companies to create IC designs that can be more easily manufactured using manufacturing processes that are more capable. By simulating deep sub-micron product and process interactions, the PDF solution offers clients reduced time to market, increased IC yield and performance, and enhanced product reliability and profitability. Headquartered in San Jose, Calif., PDF Solutions operates worldwide with additional offices in Europe and Japan. For more information, visit www.pdf.com.

PDF Solutions^Ò is a registered trademark of PDF Solutions, Inc.

PDF SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)

	December 31,			December 31,
	2005			2004
ASSETS
Current assets:
Cash and cash equivalents	$	60,506		$	45,660
Accounts receivable, net of allowances		22,082			15,978
Prepaid expenses and other current assets		1,992			2,685
Deferred tax assets		908			1,586
Total current assets		85,488			65,909
Property and equipment, net		3,328			3,321
Goodwill		39,886			39,886
Intangible assets, net		9,787			15,791
Deferred tax assets		877			—
Other assets		526			500
Total assets	$	139,892		$	125,407
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,728		$	1,023
Accrued compensation and related benefits		4,922			3,209
Other accrued liabilities		1,469			2,593
Taxes payable		4,950			3,286
Deferred revenues		2,281			2,905
Billings in excess of recognized revenue		1,604			1,581
Total current liabilities		16,954			14,597
Long-term liabilities		257			311
Deferred tax liabilities		—			1,701
Total liabilities		17,211			16,609
Stockholders’ equity:
Common stock		4			4
Additional paid-in-capital		141,720			134,191
Treasury stock, at cost		(5,549	)		(4,806	)
Deferred stock-based compensation		(27	)		(148	)
Notes receivable from stockholders		—			(550	)
Accumulated deficit		(13,451	)		(19,975	)
Accumulated other comprehensive income (loss)		(16	)		82
Total stockholders’ equity		122,681			108,798
Total liabilities and stockholders’ equity	$	139,892		$	125,407

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PDF SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share amounts)

	Three Months Ended						Twelve Months Ended
	December 31,			December 31,			December 31,		December 31,
	2005			2004			2005		2004
Revenue:
Design-to-silicon-yield solutions:
Integrated solutions	$	14,061		$	13,491		$	52,719	$	49,573
Software licenses		1,140			1,809			9,319		4,971
Gain share		3,821			2,751			11,890		7,802
Total revenue		19,022			18,051			73,928		62,346
Cost and expenses:
Cost of design-to-silicon-yield solutions:
Direct costs of design-to-silicon-yield solutions:
Integrated solutions		6,421			6,230			24,319		21,772
Software licenses		20			15			293		83
Amortization of acquired core technology		1,266			1,266			5,064		5,209
Research and development		5,641			5,352			22,106		20,332
Selling, general and administrative		3,964			3,987			16,138		15,207
Stock-based compensation amortization*		13			61			106		742
Amortization of other acquired intangible assets		235			235			940		1,406
Total costs and expenses		17,560			17,146			68,966		64,751
Income (loss) from operations		1,462			905			4,962		(2,405	)
Interest and other income, net		573			234			1,658		675
Income (loss) before taxes		2,035			1,139			6,620		(1,730	)
Tax provision (benefit)		(217	)		(414	)		96		(1,116	)
Net income (loss)	$	2,252		$	1,553		$	6,524	$	(614	)
Net income (loss) per share:
Basic	$	0.09		$	0.06		$	0.25	$	(0.02	)
Diluted	$	0.08		$	0.06		$	0.24	$	(0.02	)
Weighted average common shares:
Basic		26,272			25,391			25,983		25,330
Diluted		28,013			26,975			27,473		25,330
* Stock-based compensation amortization:
Cost of design-to-silicon-yield solutions	$	—		$	—		$	—	$	39
Research and development		13			61			98		667
Selling, general and administrative		—			—			8		36
	$	13		$	61		$	106	$	742

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PDF SOLUTIONS, INC.
RECONCILIATION OF REPORTED GAAP NET INCOME TO NON-GAAP NET INCOME
(UNAUDITED)
(In thousands, except per share amounts)

	Three Months Ended
	December 31, 2005		December 31, 2004
GAAP net income	$	2,252	$	1,553
Stock-based compensation amortization		13		61
Amortization of intangibles, net of taxes		1,660		2,019
Non-GAAP net income	$	3,925	$	3,633
Non-GAAP net income per share — diluted	$	0.14	$	0.13
Weighted average common shares — diluted.		28,013		26,975

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