UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________.

Commission file number: 000-50730

VIEWSONIC CORPORATION

(Exact name of Registrant as Specified in Its Charter)

Delaware	95-4120606
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

381 Brea Canyon Road

Walnut, California 91789

(909) 444-8800

(Address, including Zip Code, of Registrant's Principal Executive Offices

and Registrant's Telephone Number, including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated file” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares of the registrant's common stock outstanding was 354,594,666 shares, the number of shares of Series B preferred stock outstanding was 0 shares, and the number of shares of Series C preferred stock outstanding was 3,300,000 shares, each as of October 31, 2006.

VIEWSONIC CORPORATION

FORM 10-Q

TABLE OF CONTENTS

		Page
PART I: FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited):	3
	Condensed Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005	3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2006 and 2005	4
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2005	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	19

PART II: OTHER INFORMATION
Item 1.	Legal Proceedings	20
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Submission of Matters to a Vote of Securities Holders	27
Item 5.	Other Information	27
Item 6.	Exhibits	28
	Signatures	29

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VIEWSONIC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2006 AND DECEMBER 31, 2005

(In thousands, except for share data and par value)

(Unaudited)

	September 30, 2006			December 31, 2005
ASSETS
Current assets:
Cash and cash equivalents	$	63,998		$	93,998
Trade receivables, net		241,491			145,982
Other receivables		8,212			7,013
Inventories		153,999			155,389
Deferred income taxes		3,977			3,194
Prepaids and other current assets		3,905			2,931
Income taxes receivable		83			761
Total current		475,665			409,268

Property, plant and equipment, net		14,689			12,929
Long-term investments		609			2,676
Goodwill		1,347			1,347
Other assets, net		1,353			6,505
Total assets	$	493,663		$	432,725
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank borrowings	$	—		$	4,852
Accounts payable		320,127			266,867
Accrued promotional expenses		22,847			22,663
Accrued warranty expense		24,877			21,350
Other accrued expenses		28,743			20,809
Total current liabilities		396,594			336,541

Subordinated notes payable — related party		43,000			43,000
Convertible mandatorily redeemable preferred stock		—			14,952
Stockholders’ equity:
Common stock, $.01 par value 600,000,000 shares authorized; 354,594,666 and 353,974,268 shares issued as of September 30, 2006 and December 31, 2005, respectively		3,546			3,540
Preferred stock, $.001 par value 50,000,000 shares authorized; 3,300,000 and 0 shares issued as of September 30, 2006 and December 31, 2005, respectively		3			—
Additional paid-in capital		94,137			93,716
Accumulated deficit		(40,961	)		(55,611	)
Accumulated other comprehensive loss		(2,656	)		(3,413	)
Total stockholders' equity		54,069			38,232
Total liabilities and stockholders’ equity	$	493,663		$	432,725

The accompanying notes are an integral part of these condensed consolidated financial statements.

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VIEWSONIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

SEPTEMBER 30, 2006 AND 2005

(In thousands, except per share data)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
Net sales	$	426,445		$	316,678		$	1,132,507		$	875,208
Cost of sales		383,992			288,482			1,029,640			791,827
Gross profit		42,453			28,196			102,867			83,381
Selling, general and administrative expenses		29,979			25,154			86,903			80,278
Income from operations		12,474			3,042			15,964			3,103
Other income (expense):
Interest income (expense), net		(366	)		125			(53	)		54
Other, net		(651	)		(130	)		970			(3,736	)
Total other income (expense), net		(1,017	)		(5	)		917			(3,682	)
Income (loss) from continuing operations before income taxes		11,457			3,037			16,881			(579	)
Provision for income taxes		860			1,021			2,183			14,217
Income (loss) from continuing operations		10,597			2,016			14,698			(14,796	)
Net (loss) gain on disposal of discontinued operations, net of tax		—			(115	)		—			599
Net income (loss)		10,597			1,901			14,698			(14,197	)
Preferred stock accretion		—			(389	)		(48	)		(1,124	)
Net income (loss) available to common stockholders	$	10,597		$	1,512		$	14,650		$	(15,321	)

Basic earnings (loss) per share:
Continuing operations	$	0.03		$	—		$	0.04		$	(0.04	)
Discontinued operations	$	—		$	—		$	—		$	—
Total basic earnings (loss) per share	$	0.03		$	—		$	0.04		$	(0.04	)
Diluted earnings (loss) per share
Continuing operations	$	0.03		$	—		$	0.04		$	(0.04	)
Discontinued operations	$	—		$	—		$	—		$	—
Total diluted earnings (loss) per share	$	0.03		$	—		$	0.04		$	(0.04	)
Basic weighted average shares outstanding		354,326			353,970			354,173			353,967
Diluted weighted average shares outstanding		357,604			357,183			359,706			353,967

The accompanying notes are an integral part of these condensed consolidated financial statements.

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VIEWSONIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

SEPTEMBER 30, 2006 AND 2005

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing operations	$	14,698		$	(14,796	)
Adjustments to reconcile net income (loss) from continuing operations to net cash used in operating activities:
Depreciation and amortization		2,157			2,240
Loss on disposal of property, plant and equipment		4			1
Provision for doubtful accounts		384			475
Net loss on sale and impairment of long-term investments		1,934			21
Deferred income taxes		134			12,696
Stock-based compensation expense		161			1,523
Changes in operating assets and liabilities:
Trade receivables		(95,598	)		9,085
Other receivables		(1,166	)		(1,546	)
Inventories		1,670			20,387
Prepaids and other current assets		(375	)		(140	)
Accounts payable		52,886			(14,822	)
Accrued promotional and other expenses		8,225			(8,037	)
Accrued warranty expense		3,523			4,029
Income taxes payable/receivable		675			1,985
Net cash (used in) provided by operating activities		(10,688	)		13,101
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment		21			—
Purchase of property, plant and equipment		(931	)		(559	)
Proceeds from sale of long-term investments		1,277			376
Proceeds from sale of short-term investments		15,152			28,721
Purchase of short-term investments		(15,213	)		(26,465	)
Net cash provided by investing activities		306			2,073

CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on bank borrowings		(4,920	)		(3,507	)
Proceeds from issuance of common stock		236			10
Proceeds from issuance of preferred stock		33			—
Redemption of preferred stock		(15,000	)		—
Net cash used in financing activities		(19,651	)		(3,497	)
CASH FLOW FROM DISCONTINUED OPERATIONS
Cash flow from operating activities		—			(1,116	)
Cash flow from investing activities		—			—
Cash flow from financing activities		—			—
Net cash used in discontinued operations		—			(1,116	)
Effect of exchange rate changes on cash and cash equivalents		33			(400	)
Net (decrease) increase in cash and cash equivalents		(30,000	)		10,161
Cash and cash equivalents at beginning of period		93,998			100,497
Cash and cash equivalents at end of period	$	63,998		$	110,658

The accompanying notes are an integral part of these condensed consolidated financial statements.

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VIEWSONIC CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Summary of Significant Accounting Policies

Basis of Presentation

In the opinion of management, the accompanying unaudited condensed consolidated financial statements for ViewSonic Corporation and its subsidiaries (collectively, the “Company”) contain all adjustments, which are normal and recurring, necessary to present fairly the Company’s financial position as of September 30, 2006 and the Company’s results of operations and cash flows for the three and nine months ended September 30, 2006 and 2005. The condensed consolidated balance sheet as of December 31, 2005 is derived from the December 31, 2005 audited consolidated financial statements.

The results of operations for the three and nine months ended September 30, 2006 are not necessarily indicative of the results to be expected for the full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2005 and notes thereto included in the Company’s Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 3, 2006.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. Management bases its estimates on historical experience and other factors believed to be reasonable under the circumstances which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Revenue Recognition, Warranty and Promotions

Revenues are recognized when products are shipped and risk of loss is transferred, persuasive evidence of an arrangement exists, the price is fixed or readily determinable and collectibility is reasonably assured. The Company extends rights of return to its customers, which are accrued for based on estimated future returns determined by using estimates and historical experience.

The Company provides a variety of warranty programs worldwide, which are based on specific products and geographic locations. Accruals are provided for such estimated future costs at the time the product is sold, and such amounts are based upon historical experience.

The Company offers promotions such as rebates, price protection and other incentives to customers in the normal course of business. Accruals for these promotions are provided for based on estimates and historical experience. The costs of these promotions are offset against sales.

The Company's primary business practice is to have finished goods delivered from its contract manufacturers directly to the Company's regional warehouses, where they are stored for eventual shipment to its customers. However, the Company occasionally requests that its contract manufacturer ship finished goods directly to its customers. For vendor drop shipment sales, the Company retains title to the shipment from the time it leaves the contract manufacturer's port of choice until it reaches destination.

Promotional Pricing Incentives from Vendors

The Company receives promotional pricing incentives from its product vendors. The amount of the pricing incentives is based on various market factors including the volatility of pricing of key product components, market dynamics and the quantity of the Company’s purchases from such vendors. The pricing incentives do not require the Company to commit to future component purchases from these vendors. The Company records the reimbursement from vendors for these promotional pricing incentives when the Company is released of the legal liability for the payment of the product purchases by the vendors. The benefit from pricing incentives related to products that have not been sold is deferred and recorded as a reduction of inventory cost. The benefit from pricing incentives related to products that have been sold is recorded as a reduction of the cost of sales.

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Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements (“SFAS 157”), which provides guidance for using fair value to measure assets and liabilities. SFAS 157 clarifies that for items that are not actively traded, such as certain kinds of derivatives, fair value should reflect the price in a transaction with a market participant, including an adjustment for risk, not just the company’s mark-to-model value. SFAS 157 also requires expanded disclosure of the effect on earnings for items measured using unobservable data and applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. SFAS 157 will be effective for the Company beginning January 1, 2008. The Company is in the process of determining the effect, if any, this statement will have on its financial statements.

In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”), which provides guidance for quantifying financial statement misstatements. SAB 108 is effective for the Company beginning in 2006. The Company is in the process of determining the effect, if any, this statement will have on its financial statements.

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), which prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. Additionally, FIN 48 provides guidance on derecognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions. FIN 48 will be effective for the Company beginning January 1, 2007. The Company is in the process of determining the effect, if any, this statement will have on its financial statements.

Reclassifications

Interest expense and interest income have been shown net for the three and nine months ended September 30, 2005 to conform to the three and nine months ended September 30, 2006 presentation on the Condensed Consolidated Statements of Operations. Provision for doubtful accounts, proceeds from the sale of short-term investments and purchase of short-term investments have been shown separately for the nine months ended September 30, 2005 to conform to the nine months ended September 30, 2006 presentation on the Condensed Consolidated Statements of Cash Flows.

Note 2 - Stock-Based Compensation

On January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (“SFAS 123(R)”), which revises Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), supersedes Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”) and amends Statement of Financial Accounting Standards No. 95, Statement of Cash Flows (“SFAS 95”). Under SFAS 123(R), the fair value of stock-based awards to employees must be estimated at the date of grant using an option pricing model and recognized as expense over the requisite service period for those awards that are ultimately expected to vest. Prior to the adoption of SFAS 123(R), the Company accounted for its stock-based awards under the provisions of SFAS 123 beginning in the second quarter of 2005 using the minimum value method to determine the fair value of its stock options. Prior to the second quarter of 2005, the Company accounted for its stock-based awards under the recognition and measurement principles of APB 25 and the disclosure only provisions of SFAS 123.

The Company adopted SFAS 123(R) using the prospective method. Under the prospective method, prior periods are not revised for comparative purposes. Non-public companies that previously applied SFAS 123 using the minimum value method would continue to account for unvested stock options outstanding at the date of adoption in the same manner as they had been accounted for prior to adoption. All awards granted, modified or settled after the date of adoption are accounted for using the measurement, recognition and attribution provisions of SFAS 123(R).

Stock Option Activity

The Company has two employee stock plans: the 1999 Stock Plan (the “1999 Plan”) and the 2004 Equity Incentive Plan (the “2004 EIP”). Upon approval of the 2004 EIP, the 1999 Plan was terminated (except for all options previously granted and outstanding under such plan). The 2004 EIP provides for the granting of stock options to eligible employees and non-employee directors. Options granted under this plan are granted at an exercise price equal to the fair market value of the Company’s common stock on the date of grant, vest over three or four years and expire ten years after their original date of grant. As the Company’s common stock is not publicly traded, the fair market value of the Company’s common stock is approved by the Company’s Board of Directors based on various information, assumptions and factors. As of September 30, 2006, there were 18.3 million shares available for future grants under the 2004 EIP.

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The table below summarizes the stock option activity under the Company’s 1999 Plan and 2004 EIP:

	Number of Shares (in thousands)			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (in years)
Outstanding at December 31, 2005		27,626		$	0.38
Granted		220		$	0.45
Exercised		(621	)	$	0.38
Canceled		(3,172	)	$	0.38
Outstanding at September 30, 2006		24,053		$	0.38		5.53
Exercisable at September 30, 2006		20,287		$	0.38		4.97

The total intrinsic value of options exercised during the three and nine months ended September 30, 2006 was $32,000 and $43,000. Total cash received from the exercise of employee stock options was $175,000 and $236,000 for the three and nine months ended September 30, 2006.

The following table summarizes information for options outstanding as of September 30, 2006:

Range of Exercise Prices	Number of Options Outstanding (in thousands)		Weighted- Average Remaining Contractual Term (in years)		Weighted- Average Exercise Price		Options Exercisable (in thousands)
$0.38		23,346		5.42	$	0.38		20,264
$0.45		707		9.21	$	0.45		23

Valuation and Expense Recognition of Stock-Based Awards under SFAS 123(R)

For the three and nine months ended September 30, 2006, stock-based compensation expense for employee stock options recognized was $50,000 and $161,000, respectively. No income tax benefit related to stock-based compensation expense was recognized for the three and nine months ended September 30, 2006.

The Company used the Black-Scholes option-pricing model to estimate the fair value of employee stock options. The determination of fair value using the Black-Scholes option-pricing model is affected by the fair market value of the Company’s common stock as well as the use of certain highly subjective estimates and assumptions including expected stock price volatility, risk-free interest rate, expected dividends and projected employee stock option exercise behaviors.

All option awards were valued as a single award and amortized on a straight-line basis over the requisite service period. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions for the nine months ended September 30, 2006:

Expected volatility		52	%
Risk-free interest rate		5.0	%
Expected dividend yield		0	%
Expected option life (in years)		6.25
Weighted average fair value of stock options granted (per share)	$	0.25

Upon adoption of SFAS 123(R), the Company changed its expected volatility calculation to use an average of the expected volatilities of similar entities whose shares are publicly traded. In determining similarity of entities, the Company considered various factors including the industry, life cycle, size and financial leverage of such entities. The Company believes this method provides a more accurate estimate of stock price volatility over the expected life of the stock option awards. Prior to the adoption of SFAS 123(R), the Company used the minimum value method to estimate the fair value of its stock options. Under the minimum value method, expected volatility is omitted and thus fair value calculated under this method is not comparable to one based on fair value.

The risk-free interest rate assumption is based on observed interest rates for the expected option life of the Company’s stock options. The expected dividend yield assumption is based on the Company’s expectation of future dividend payouts. The Company has never declared or paid any cash dividends on its common stock and currently does not anticipate paying such cash dividends. The Company used the simplified method for its expected option life assumption as allowed by SEC Staff Accounting Bulletin No. 107, Share-Based Payment.

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SFAS 123(R) requires stock-based compensation expense to be recognized only for those stock options that are ultimately expected to vest. An estimate of forfeiture rate must be made and applied at the time of grant and revised in subsequent periods on a cumulative basis in the period of revision. The Company considered various factors including its actual historical experience of pre-vesting option forfeitures bifurcated by employee groups as the basis to arrive at an estimated average annual forfeiture rate of 4.7% for the nine months ended September 30, 2006.

As of September 30, 2006, the remaining amount of unrecognized compensation cost related to employee stock options was $168,000, which is expected to be recognized over a weighted average period of 2.6 years.

Accounting for Stock Options for Periods Prior to Fiscal 2006

In the second quarter of 2005, the Company adopted the fair value based method of accounting for stock-based compensation in accordance with the expense recognition provisions of SFAS 123 using the modified prospective method. Stock-based compensation expense for the three and nine months ended September 30, 2005 was $94,000 and $366,000, respectively, and was estimated using the minimum value method as permitted under SFAS 123 to determine the fair value of stock options. There was no share-based compensation expense recognized during the three months ended March 31, 2005 as the Company accounted for its employee stock option plans under the recognition and measurement principles of APB 25 and the disclosure only provisions of SFAS 123. Because the Company has historically granted at-the-money stock options with no intrinsic value on the date of grant, no compensation expense was recognized for stock options prior to the second quarter of 2005.

On May 9, 2005, the Company re-priced all outstanding stock options held by its employees, executive officers and members of the Board of Directors of record on March 2, 2005. As a result, the exercise price of the Company’s outstanding stock options subject to the re-pricing was lowered to $0.38 per share, the estimated fair value on that date, resulting in stock option expense of $1.1 million. The re-pricing was implemented in order to realign the cash and equity components of the Company’s compensation programs for employees, executive officers and directors.

Note 3 - Long-Term Investments

The Company’s long-term investments include both publicly traded and privately held companies. None of the Company’s investments represent ownership of more than 20% of the respective companies. For the Company’s publicly traded investments, the Company follows the provisions of Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, and accounts for such investments as available-for-sale. Unrealized holding gains or losses are recorded in other comprehensive income/loss, net of tax. The Company accounts for its privately held investments under the cost method. When events dictate, the Company performs an impairment analysis to determine whether the loss, if any, is other than temporary. Impairment on investments totaled $0.5 million and $1.5 million for the three and nine months ended September 30, 2006, respectively. During the three and nine months ended September 30, 2006, the Company reduced its positions in certain long-term investments and recognized realized losses of $0.1 million and $0.4 million, respectively.

Note 4 - Comprehensive Income

Comprehensive income includes foreign currency translation gains and losses and unrealized gains and losses on marketable securities classified as available for sale. The following table sets forth the calculation of comprehensive income for the periods indicated (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006		2005
Net income (loss)	$	10,597		$	1,901		$	14,698	$	(14,197	)
Foreign currency translation		(119	)		(254	)		82		(104	)
Unrealized holding (losses) gains on marketable securities, less realized gains		247			(634	)		675		150
Net change in other comprehensive (loss) income		128			(888	)		757		46
Total comprehensive income (loss)	$	10,725		$	1,013		$	15,455	$	(14,151	)

Note 5 - Income Taxes

The Company recorded a non-cash charge of $13.7 million to establish a valuation of allowance against its net deferred U.S. based income tax assets during the second quarter of 2005. In addition, the Company has valuation allowances against its deferred income taxes in all foreign jurisdictions other than its foreign subsidiary in Taiwan. The valuation allowances have been calculated pursuant to Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (“SFAS 109”), which requires an assessment of both positive and negative evidence when measuring the need for a valuation allowance. Such evidence includes the Company’s past and projected future performance, the market environment in which the Company operates, the utilization of past tax credits and the length of the carry-back and carry-forward periods of net operating losses. The Company intends to maintain a valuation allowance until sufficient positive evidence as contemplated by SFAS 109 exists in future periods.

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Note 6 - Commitments and Contingencies

Litigation - The Company is involved in various legal matters in the normal course of its business. While the outcome of these proceedings and claims cannot be predicted with certainty, management believes that the ultimate outcome of such matters will not have a material adverse effect on the condensed consolidated financial statements.

Four of the Company’s stockholders filed a purported derivative action against James Chu, the Company’s Chairman and Chief Executive Officer, and the Company on April 17, 2006 in the United States District Court for the Central District of California. The complaint alleged, among other things, that Mr. Chu breached various fiduciary duties by personally investing in certain of the Company’s suppliers, thereafter directing the Company’s contracts to these suppliers and failing to disclose such actions. Plaintiffs sought actual and punitive damages, attorneys’ fees, costs, disgorgement of alleged profits made by Mr. Chu, a declaratory judgment against Mr. Chu for alleged breaches of various fiduciary duties and an injunction prohibiting the award of contracts to suppliers in which Mr. Chu or his relatives have a financial interest. On October 11, 2006, plaintiffs voluntarily dismissed the complaint without prejudice.

On July 27, 2006, the jury in the trial of LG Philips LCD Co. Ltd., (“LPL”) v. Tatung Company, Tatung Company of America, Inc., Chungwa Picture Tubes Ltd. (“CPT”), and ViewSonic Corporation, pending in United States District Court, District of Delaware, (Case No. 05-292-JJF) delivered a verdict finding that each of the defendants, including the Company, had willfully infringed (through the doctrine of equivalents) a patent of LPL’s relating to electrostatic discharge. The jury awarded monetary damages of $52.5 million against CPT only. Although there is no monetary award against the Company, the finding of willful infringement, if upheld, may subject the Company to certain other relief including an award of some portion of LPL’s attorneys fees and/or exemplary damages as well as injunctive relief which may require the Company to, among other things, change its sourcing of certain LCD displays or key components. The Court has not entered judgment in the case. Instead, the Court has entered a briefing schedule for defendants’ motions challenging various aspects of the jury’s verdict. While the outcome of these post-trial proceedings cannot be predicted with certainty, the Company does not believe that the outcome will have a material adverse effect on its condensed consolidated financial statements.

Imposition of Additional Duties and Taxes— The European Union (the “EU”) issued notices stating that effective January 18, 2006, LCD monitors with a digital video interface (“DVI”) connector, would incur a 14% import duty tax. To date, this change in classification has been applied prospectively. The Company believes it is reasonably possible, but not probable that the tariff could be applied retroactively.

Laws, Regulations and Directives — The Company is subject to local laws and regulations in the various regions in which the Company operates, including the EU. There are two particular EU directives that may have a material impact on the Company’s business. The first is the Restriction of Certain Hazardous Substances Directive (“RoHS”) that restricts the distribution of certain substances, including lead, within the EU and is effective July 1, 2006. In addition to specifying the elimination and/or reduction in the level of specified hazardous materials from the manufacture of the Company’s products, the Company must take reasonable measures to ensure that it is not being supplied with products containing the restricted chemical substances. The Company is working with suppliers to ensure that products placed on the market from July 1, 2006 are RoHS compliant products. The second directive is the Waste Electrical and Electronic Equipment Directive (“WEEE”) that became effective on August 13, 2005, and requires manufacturers or importers to provide a process of recycling all of its manufactured products or imports into the EU. Certain EU countries adopted WEEE on August 13, 2005. The majority of EU countries into which the Company’s European region sells its products have adopted the legislation with the exception of France and the United Kingdom. Many of those countries that adopted WEEE in August 2005 have not published regulations nor issued legislation with respect to a manufacturer or importer’s obligations. The Company is currently unable to assess the impact of these directives on the Company’s operations until more information becomes available, but at this time, the Company does not believe that these regulations will have a material impact on the Company’s business.

Income Tax Contingencies — The Company has recorded a $3.1 million liability related to certain tax positions. The resolution of such income tax contingencies is not expected to have an adverse material effect on the Company’s condensed consolidated financial statements.

Note 7 - Business Segments

In accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, the Company has three reportable segments: Americas, Europe and Asia Pacific. The Company sells similar products in its segments, including CRT displays, LCD displays, projectors, HDTV technology and the latest in mobile products including wireless products. The type and class of customers, primarily distributors and retailers, are also similar across the product lines. The Company’s management evaluates the performance of and allocates resources to its segments based on net sales and operating income. Assets are not segregated by segment for management reporting purposes.

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The following table summarizes segment financial information for the three and nine months ended September 30, 2006 and 2005 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2006		2005		2006			2005
Net Sales:
Americas	$	192,638	$	138,769	$	533,023		$	393,784
Europe		97,241		77,418		240,920			209,051
Asia Pacific		136,566		100,491		358,564			272,373
Total	$	426,445	$	316,678	$	1,132,507		$	875,208
Income (loss) from operations:
Americas	$	5,468	$	254	$	14,069		$	(8,376	)
Europe		3,390		1,218		(3,877	)		4,377
Asia Pacific		3,616		1,570		5,772			7,102
Total	$	12,474	$	3,042	$	15,964		$	3,103

Note 8 - Warranty Liability

The Company provides product warranty programs on a worldwide basis that vary in term from 12 to 36 months. The length of the warranty period and the specific warranty coverage are based on the type of product. The Company accrues for estimated warranty costs at the time the product is sold. Estimates are primarily based on historical experience and other available information. The historical data used in estimating the warranty accrual includes the following key factors: net cost of repair (repair costs less reimbursements from suppliers), defect rates and total number of products under warranty.

The following table summarizes activity in the Company’s warranty liability for the nine months ended September 30, 2006 and 2005 (in thousands):

Nine Months Ended September 30,	Beginning Accrued Warranty Liability		Additions Charged to Expenses		Payments for Units Returned			Adjustments⁽¹⁾			Ending Accrued Warranty Liability
2006	$	21,350	$	15,585	$	(9,765	)	$	(2,293	)	$	24,877
2005	$	17,365	$	12,246	$	(8,833	)	$	595		$	21,373

⁽¹⁾	For the nine months ended September 30, 2006, the adjustment is primarily due to lower defect rates, partially offset by higher cost of repair.

Note 9 - Earnings Per Share

The Company presents both basic and diluted earnings (loss) per common share (“EPS”) amounts. Basic EPS is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted EPS amounts are based upon the weighted-average number of common and potential common shares, including warrants outstanding during the period.

Potential common shares are excluded from the computation in periods in which they have an anti-dilutive effect. The Company uses the treasury stock method to calculate the impact of outstanding stock options. Stock options for which the exercise price exceeds the average fair market value over the period have an anti-dilutive effect on EPS and, accordingly, are excluded from the calculation. On January 10, 2006, the Company redeemed all 7.5 million outstanding shares of Series B Preferred Stock and excluded such shares as it had an insignificant impact on the Company’s 2006 earnings per share calculations.

The basic and diluted EPS was calculated in accordance with EITF 03-06, Participating Securities and the Two Class Method under SFAS No. 128 (“EITF 03-06”). The following is a reconciliation of the numerators and denominators of the basic and diluted net income (loss) per common share computations (in thousands, except per share data):

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	Three Months Ended September 30,					Nine Months Ended September 30,
	2006		2005			2006		2005
Basic EPS:
Numerator:
Income (loss) from continuing operations (1)	$	10,507	$	1,627		$	14,608	$	(15,920	)
Income (loss) from discontinued operations	$	—	$	(115	)	$	—	$	599
Denominator - Weighted-average shares outstanding		354,326		353,970			354,173		353,967
Basic EPS:
Continuing operations	$	0.03	$	0.00		$	0.04	$	(0.04	)
Discontinued operations	$	—	$	0.00		$	—	$	0.00
Total Basic EPS	$	0.03	$	0.00		$	0.04	$	(0.04	)
Diluted EPS:
Numerator:
Income (loss) from continuing operations (1)	$	10,507	$	1,627		$	14,608	$	(15,920	)
Income (loss) from discontinued operations	$	—	$	(115	)	$	—	$	599
Denominator:
Weighted-average shares outstanding		354,326		353,970			354,173		353,967
Stock options(2)		3,278		—			3,382		—
Interest warrants(3)		—		3,213			2,151		—
Total shares		357,604		357,183			359,706		353,967
Diluted EPS:
Continuing operations	$	0.03	$	0.00		$	0.04	$	(0.04	)
Discontinued operations	$	—	$	0.00		$	—	$	0.00
Total Diluted EPS	$	0.03	$	0.00		$	0.04	$	(0.04	)

(1)

In accordance with EITF 03-06, income (loss) from continuing operations includes the accretion for the mandatorily redeemable preferred stock. Income from continuing operations of $90,000 and $42,000 was allocated to preferred stock for the three and nine months ended September 30, 2006, respectively, and is excluded in the computation above. The EPS calculation reflects the allocation of income from continuing operations between common stock and preferred stock.

(2)

For the three and nine months ended September 30, 2006, 0.7 million shares and 0.6 million shares, respectively, were excluded from the diluted earnings per common share calculation because they were anti-dilutive. For the three and nine months ended September 30, 2005, all stock options were excluded from the diluted earnings per common share calculation because they were anti-dilutive.

(3)

For the three and nine months ended September 30, 2006, common stock issuable upon the exercise of outstanding warrants of 0.8 million and 5.2 million, respectively, were excluded from the diluted earnings per share calculation because they were anti-dilutive. For the three and nine months ended September 30, 2005, common stock issuable upon the exercise of outstanding warrants of 7.5 million and 10.8 million, respectively, were excluded from the diluted earnings per share calculation because they were anti-dilutive.

Note 10 - Convertible Mandatorily Redeemable Preferred Stock and Warrants for Convertible Series C Preferred Stock

On January 10, 2002, the Company entered into a Series B Preferred Stock Exchange and Warrant Purchase Agreement (the "Exchange Agreement") with Intel Capital Corporation, a Cayman Islands company (“Intel”). Under the Exchange Agreement, Intel paid an additional $5.0 million, bringing the total cash paid to $15.0 million. The exchange was made for the 3.7 million shares of Series A Preferred Stock originally issued to Intel and related warrants. As consideration for the exchange, the Company issued 7.5 million shares of Series B mandatorily redeemable convertible preferred stock, par value of $.001 per share (the "Series B Stock") to Intel. Each share of Series B Stock was convertible into one share of common stock or redeemable for cash for $2.00 per share on January 10, 2006. In connection with such issuance, the Company granted to Intel 3.3 million Interest Warrants and 7.5 million Valuation Warrants to purchase Series C Preferred Stock (par value of $.001 per share). The Interest Warrants vested on January 10, 2006, have an exercise price of $.01 per share and 3.3 million were exercised on July 7, 2006. The Valuation Warrants were immediately vested, have an exercise price of $2.00 per share and 7.5 million expired on July 10, 2006. On January 10, 2006, the Company redeemed its outstanding Series B Stock for $15.0 million, representing the full redemption price for such Series B Stock. As of September 30, 2006, a total of 18.0 million shares of Series C Preferred Stock were authorized and 3.3 million shares were outstanding.

The Series C Preferred Stock is convertible into the Company’s common stock at any time on a one-to-one ratio based upon a conversion price initially set at $2.00 per share. The conversion ratio may be adjusted upon the issuance of additional shares of common stock at an issue price that is less than the initial $2.00 conversion price of the Series C Preferred Stock, subject to certain exceptions. The Series C Preferred Stock shall automatically convert into the Company’s common stock upon the occurrence of certain events including an initial public offering under certain restrictions, or a majority vote by the holders of Series C Preferred Stock. Each holder of the Series C Preferred Stock is entitled to voting rights under applicable law. In addition, our certificates of incorporation possess certain protective provisions which require the consent of the holders of Series C Preferred Stock. The holders of Series C Preferred Stock are entitled to receive dividends, when and if declared by the Board of Directors. Such dividends will be non-cumulative. No dividends will be payable on the Company’s common stock unless equal or greater dividends have been declared and paid to the holders of the Series C Preferred Stock. The Series C Preferred Stock has a liquidation preference of $2.60 per share, plus any declared and unpaid dividends. Upon a liquidation, dissolution or winding up of the Company, the holders of the Company’s common stock and C Preferred Stock shall participate in the remaining assets of the Company on a pro rata basis.

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ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are subject to the "safe harbor" created by those sections. These forward-looking statements include but are not limited to: statements related to industry trends and future growth in the markets for visual display technology products; our product development efforts; the timing of our introduction of new products; industry and consumer acceptance of our products; and future profitability. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document. The “Risk Factors” section, among other things, should be considered in evaluating our prospects and future financial performance.

In this report, all references to “ViewSonic,” ”we,” “us,” or “our” mean ViewSonic Corporation and our subsidiaries.

Our Company

ViewSonic Corporation is a leading global provider of visual display technology products. We develop, market and support a broad range of display technology products, including liquid crystal display (“LCD”) monitors, cathode ray tube (“CRT”) monitors, projectors, LCD TVs and the latest in mobile products including wireless monitors. Our ViewSonic branded products are sold through distributors, retailers and other resellers to businesses including Fortune 1000 companies, small and medium sized businesses and consumer electronics markets. We sell our products globally and our sales are managed geographically in three regional segments: the Americas, Europe and Asia Pacific.

Recent Trends in Our Business

During the third quarter of 2006, the display industry continued to experience competitive pressures in terms of declining average selling prices (“ASPs”) and margin compression. However, unlike the first half of 2006, we began to experience spot shortages of display panels for some LCD sizes. This was primarily due to an increase in demand in excess of LCD panel production capacities. The implementation of key initiatives to improve our supply chain and logistics efficiency, simplify our business processes to maximize operating efficiencies, grow sales in regional markets and expand core product offerings continued to positively impact our margins. While product costs began to increase during the third quarter of 2006, we benefited from lower cost inventories that were purchased during the second quarter of 2006. Our initiative to source LCD panels directly from manufacturers also continued to benefit us resulting in higher margins and profitability. We believe this sourcing initiative has brought us closer to the supply base so that we can keep abreast of recent market trends and supply cycles and has allowed us to consolidate our LCD panel purchasing power. By means of this key component sourcing initiative, we hope to be less vulnerable to the instability that is inherent in the LCD monitor industry. We believe that spot shortages for some LCD sizes will continue through the fourth quarter of 2006.

We sold 2.2 million display products in the third quarter of 2006 compared to 1.5 million display products in the third quarter of 2005. The display industry continues to experience a shift from older technologies, such as CRT, to newer technologies, such as LCD, as well as a broadening of applications from PC monitors to TVs and other digital media applications. Unit sales of LCD displays and LCD TVs grew 83% and 93%, respectively, in the third quarter of 2006 compared to the third quarter of 2005, while sales of CRT monitors declined 35% to 0.2 million units in the third quarter of 2006 from 0.4 million units in the third quarter of 2005.

Our net sales increased $109.8 million, or 34.7%, to $426.4 million in the third quarter of 2006 from $316.7 million in the third quarter of 2005 despite a 3% decline in average selling prices. Income from operations increased $9.4 million to $12.5 million in the third quarter of 2006 from $3.0 million in the third quarter of 2005. The increase was primarily the result of higher gross margin of 1.1 percentage points and increased leverage in our selling, general and administrative expenses which were 7.1% of net sales in the third quarter of 2006 compared to 7.9% of net sales in the third quarter of 2005.

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RESULTS OF OPERATIONS

The following table sets forth our Condensed Consolidated Statements of Operations expressed as a percentage of net sales for the periods indicated:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		90.0			91.1			90.9			90.5
Gross profit		10.0			8.9			9.1			9.5
Selling, general and administrative expenses		7.1			7.9			7.7			9.2
Income (loss) from operations		2.9			1.0			1.4			0.3
Other income (expense):
Interest income (expense), net		(0.1	)		(0.2	)		—			(0.2	)
Other income (expense) net		(0.1	)		0.2			0.1			(0.2	)
Total other income (expense), net		(0.2	)		—			0.1			(0.4	)
Income (loss) from continuing operations before income taxes		2.7			1.0			1.5			(0.1	)
Provision for income taxes		0.2			0.3			0.2			1.6
Income (loss) from continuing operations		2.5			0.7			1.3			(1.7	)
Net gain on disposal of discontinued operations, net of tax		—			—			—			0.1
Net income (loss)		2.5			0.7			1.3			(1.6	)
Preferred stock accretion		—			(0.1	)		—			(0.1	)
Net income (loss) available to common stockholders		2.5	%		0.6	%		1.3	%		(1.7	)%

The following table compares net sales and income (loss) from operations by segment for the periods indicated (in thousands):

	Three Months Ended September 30,									Nine Months Ended September 30,
					Increase/(Decrease)											Increase/(Decrease)
	2006		2005		$		%			2006			2005			$			%
Net sales:
Americas	$	192,638	$	138,769	$	53,869		38.8	%	$	533,023		$	393,784		$	139,239			35.4	%
Europe		97,241		77,418		19,823		25.6	%		240,920			209,051			31,869			15.2	%
Asia Pacific		136,566		100,491		36,075		35.9	%		358,564			272,373			86,191			31.6	%
Total	$	426,445	$	316,678	$	109,767		34.7	%	$	1,132,507		$	875,208		$	257,299			29.4	%
Income (loss) from operations:
Americas	$	5,468	$	254	$	5,214		2052.8	%	$	14,069		$	(8,376	)	$	22,445			268.0	%
Europe		3,390		1,218		2,172		178.3	%		(3,877	)		4,377			(8,254	)		(188.6	%)
Asia Pacific		3,616		1,570		2,046		130.3	%		5,772			7,102			(1,330	)		(18.7	%)
Total	$	12,474	$	3,042	$	9,432		310.1	%	$	15,964		$	3,103		$	12,861			414.5	%

Net Sales

Our consolidated net sales increased $109.8 million, or 34.7%, to $426.4 million for the third quarter of 2006 from $316.7 million for the third quarter of 2005. Net sales increased $257.3 million, or 29.4%, to $1,132.5 million for first nine months of 2006 from $875.2 million for the first nine months of 2005. The increase was primarily due to increased LCD and LCD TV unit sales of 83.0% and 93.2%, respectively, for the third quarter of 2006 compared to the third quarter of 2005, and 81.1% and 95.1%, respectively, for the first nine months of 2006 compared to the first nine months of 2005. In addition, sales of our LCD TVs experienced relatively higher ASPs during the first nine months of 2006 compared to the first nine months of 2005 due to a shift in mix to larger LCD TV sizes. These increases were partially offset by lower CRT unit sales of 35.4% and 35.6% for the third quarter of 2006 compared to the third quarter of 2005 and for the first nine months of 2006 compared to the first nine months of 2005, respectively. In addition, we continued to experience declines in ASPs within the LCD and CRT product categories for the third quarter and first nine months of 2006 compared to the third quarter and first nine months of 2005. The decline in the ASPs reflects the effects of competition and reduced costs associated with advances in visual display technology.

We sold 2.2 million visual display products in the third quarter of 2006 compared to 1.5 million visual display products in the third quarter of 2005 and 5.7 million visual display products in the first nine months of 2006 compared to 4.3 million visual display products in the first nine months of 2005. The increase in units sold was primarily due to strong unit sales across all of our segments driven by our strategic marketing efforts and continued expansion in China and other Asian markets. Of the visual display product units sold in the third quarter of 2006, LCDs accounted for 80.9%, CRTs accounted for 10.7% and other products accounted for 8.4% as compared to 60.7%, 23.2%, and 16.1%, respectively, in the third quarter of 2005. Of the visual display product units sold in the first nine months of 2006, LCDs accounted for 75.8%, CRTs accounted for 13.8% and other products accounted for 10.4% as compared to 55.0%, 28.4%, and 16.6%, respectively, in the first nine months of 2005.

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Americas - In our Americas region, net sales increased $53.9 million, or 38.8%, to $192.6 million for the third quarter of 2006 from $138.8 million for the third quarter of 2005. Net sales increased $139.2 million, or 35.4%, to $533.0 million for the first nine months of 2006 from $393.8 million for the first nine months of 2005. The increase was primarily due to growth in LCD unit sales of 78.4% and 99.1% in the third quarter and first nine months of 2006 compared to the third quarter and first nine months of 2005, respectively, and an increase in LCD TV and projector unit sales in the third quarter and first nine months of 2006 compared to the third quarter and first nine months of 2005. These increases were partially offset by lower ASPs for our LCD and CRT products.

Europe - In our Europe region, net sales increased $19.8 million, or 25.6%, to $97.2 million for the third quarter of 2006 from $77.4 million for the third quarter of 2005. Net sales increased $31.9 million or 15.2% to $240.9 million for the first nine months of 2006 from $209.1 million for the first nine months of 2005. The increase was primarily due to growth in our LCD unit sales and LCD TV unit sales, partially offset by a decrease in CRT unit sales and lower ASPs for our LCD and CRT products. Our Europe region experienced increased sales in most countries particularly in Russia, Ukraine, Sweden, Greece, Spain and the Middle East for the third quarter of 2006 compared to the third quarter of 2005. Foreign currency translation also had a positive impact on our net sales due to the 7.4% stronger Euro exchange rate relative to the U.S. dollar during the first nine months of 2006.

Asia Pacific - In our Asia Pacific region, net sales increased $36.1 million, or 35.9%, to $136.6 million for the third quarter of 2006 from $100.5 million for the third quarter of 2005. Net sales increased $86.2 million or 31.6% to $358.6 million for the first nine months of 2006 from $272.4 million for the first nine months of 2005. The increase was primarily due to increased sales of our LCD and LCD TV products as a result of our continued growth in the China market and expanded sales efforts in Taiwan, Australia, New Zealand and Southeast Asia, partially offset by the declining CRT market.

Cost of Sales

Cost of sales increased $95.5 million, or 33.1%, to $384.0 million for the third quarter of 2006 from $288.5 million for the third quarter of 2005. As a percentage of net sales, cost of sales decreased to 90.0% for the third quarter of 2006 from 91.1% for the third quarter of 2005. For the first nine months of 2006, cost of sales increased $237.8 million, or 30.0%, to $1,029.6 million from $791.8 million for the first nine months of 2005. Cost of sales as a percentage of net sales increased to 90.9% for the first nine months of 2006 from 90.5% for the first nine months of 2005. The decrease in cost of sales as a percentage of net sales for the third quarter of 2006 compared to the third quarter of 2005 was primarily due to the ASP of our products declining at a slower rate than our cost of sales. The increase in cost of sales as a percentage of net sales during the first nine months of 2006 compared to the first nine months of 2005 was primarily due to the ASP of our products declining at a faster rate than our cost of sales. The first nine months of 2006 experienced lower margins primarily in our European region due to oversupply in the Russian market resulting in inventory write-downs of $4.2 million for the first nine months of 2006 compared to $1.5 million for the first nine months of 2005. As a percentage of net sales, product costs decreased to 86.7% for the third quarter of 2006 from 87.2% for the third quarter of 2005. For the first nine months of 2006, product costs as a percentage of net sales increased to 87.1% from 85.9% for the first nine months of 2005. Gross margin improved to 10.0% for the third quarter of 2006 from 8.9% for the third quarter of 2005. For the first nine months of 2006, gross margin declined to 9.1% from 9.5% for the first nine months of 2005. The gross margin increase in the third quarter of 2006 was primarily due to the increase in selling prices as a result of spot shortages experienced for some LCD sizes and the continued benefit from our sourcing of LCD components directly from manufacturers resulting in better pricing, partially offset by higher promotional allowances offered to our customers. The gross margin decrease in the first nine months of 2006 was primarily due to increased product costs as a percentage of net sales, partially offset by better pricing due to our sourcing of LCD components directly from manufacturers and promotional incentives received from our vendors as well as increased efficiencies and reductions in freight and warranty expenses as a percentage of net sales.

Selling, General, and Administrative Expenses

Selling, general and administrative expenses increased $4.8 million, or 19.2%, to $30.0 million for the third quarter of 2006 from $25.2 million for the third quarter of 2005. Selling, general and administrative expenses as a percentage of net sales for the third quarter of 2006 decreased to 7.1% compared to 7.9% for the third quarter of 2005. For the first nine months of 2006, selling, general and administrative expenses increased $6.6 million, or 8.3%, to $86.9 million from $80.3 million for the first nine months of 2005. Selling, general and administrative expenses as a percentage of net sales for the first nine months of 2006 decreased to 7.7% compared to 9.2% for the first nine months of 2005. The increase in expenses for the third quarter of 2006 was primarily due to an increase in account development funds expense of $2.0 million, higher personnel-related costs of $1.2 million due to higher headcount, an increase in advertising and marketing expenses of $0.6 million and other costs of $1.0 million. For the first nine months of 2006, the increase in expenses was primarily due to an increase in account development funds expense of $4.8 million, higher incentive compensation of $3.4 million as a result of the increase in sales and profits, an increase in advertising and marketing expenses of $0.9 million and other costs of $0.4 million, partially offset by lower legal fees of $1.8 million related to patent infringement lawsuits and a decrease in stock-based compensation of $1.3 million. We continued to benefit from increasing leverage in our selling, general and administrative expenses as a percentage of net sales as a result of strategic initiatives undertaken to maximize operating efficiencies and enhance our competitiveness.

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Income from Operations

Income from operations increased $9.4 million, or 310.1%, to $12.5 million for the third quarter of 2006 from $3.0 million for the third quarter of 2005. For the first nine months of 2006, income from operations increased $12.9 million to $16.0 million from $3.1 million for the first nine months of 2005.

Americas - In our Americas region, income from operations increased $5.2 million to $5.5 million for the third quarter of 2006 from $0.3 million for the third quarter of 2005. For the first nine months of 2006, income from operations increased $22.4 million to $14.1 million from a loss of $8.4 million for the first nine months of 2005. The increase was primarily due to a 38.8% and 35.4% increase in net sales for the third quarter and first nine months of 2006, respectively, sourcing of LCD panels from manufacturers which resulted in additional benefits and increased leverage in selling, general and administrative expenses. The majority of the benefits related to the sourcing of the LCD panels from manufacturers remained in the Americas during the first nine months of 2006. We do not expect these panel sourcing benefits to remain in the Americas in the fourth quarter of 2006 as the sourcing of LCD panels will move to China during the fourth quarter of 2006.

Europe - In our Europe region, income from operations increased $2.2 million to $3.4 million for the third quarter of 2006 from $1.2 million for the third quarter of 2005. For the first nine months of 2006, income from operations decreased $8.3 million to a $3.9 million loss from $4.4 million of income for the first nine months of 2005. The increase in the third quarter of 2006 was primarily due to a 25.6% increase in net sales, lower product cost as a percentage of net sales and a decrease in warranty costs. The decrease for the first nine months of 2006 was primarily due to a decline in gross profit margins as a result of higher product costs and higher inventory write-down expense resulting from an oversupply of LCD monitors in Russia during the first quarter of 2006, partially offset by lower warranty costs due to lower defect rates. Selling, general and administrative expenses increased slightly as a percentage of net sales in the third quarter and first nine months of 2006 compared to the third quarter and first nine months of 2005 due to the increase in headcount in 2006, a stronger Euro exchange rate relative to the U.S. dollar and higher advertising and marketing expenses in order to promote sales in a very competitive environment.

Asia Pacific - In our Asia Pacific region, income from operations increased $2.0 million to $3.6 million for the third quarter of 2006 from $1.6 million for the third quarter of 2005. For the first nine months of 2006, income from operations decreased $1.3 million to $5.8 million from $7.1 million for the first nine months of 2005. The increase in the third quarter of 2006 was primarily due to a 35.9% increase in net sales and lower product costs as a percentage of net sales. The decrease in the first nine months of 2006 was primarily the result of aggressive pricing strategies to promote LCD monitors which resulted in lower gross margins on products sold despite an increase in net sales in the China, Taiwan, Australia, New Zealand, and Southeast Asia markets. In addition, selling, general and administrative expenses were higher as a percent of net sales for the third quarter and first nine months of 2006 compared to the third quarter and first nine months of 2005 due to higher headcount as we continue to build our infrastructure to support our growing sales in the Asia markets.

Other Income (Expense) - Net

Other income (expense), net decreased to $1.0 million in expense for the third quarter of 2006 from $5,000 in expense for the third quarter of 2005. For the first nine months of 2006, other income (expense), net increased to $0.9 million of other income from $3.7 million in expense for the first nine months of 2005. The decrease for the third quarter of 2006 compared to 2005 was primarily due to $0.6 million of impairment write-downs of investments, $0.2 million of unfavorable foreign currency translation and $0.2 million in higher interest expense. The increase in the first nine months of 2006 compared to 2005 was primarily due to $6.1 million of favorable foreign currency translation and $0.4 million of other income, partially offset by $1.9 million of realized losses on the sale of certain investments and impairment write-downs of investments.

Provision for Income Taxes

The provision for income taxes decreased $0.2 million in the third quarter of 2006 compared to the third quarter of 2005. For the first nine months of 2006, the provision for income taxes decreased $12.0 million compared to the first nine months of 2005. The effective tax rate on pre-tax income (i.e., provision) decreased to 7.5% for the third quarter of 2006 from an effective tax rate of 33.6% for the third quarter of 2005. For the first nine months of 2006, the effective tax rate on net income decreased to 12.9% from an effective tax rate of 2455% on losses from continuing operations for the first nine months of 2005. The decrease in the third quarter of 2006 compared to 2005 was primarily due to the fact that no U.S. income taxes were provided for our Americas region due to the utilization of deferred tax assets which were previously subject to a full valuation allowance. The decrease in the first nine months of 2006 compared to 2005 was primarily due to, (1) the recording of a non-cash charge of $13.7 million to establish a valuation allowance against net deferred income tax assets during the second quarter of 2005, and (2) for the first nine months of 2006, we did not provide for U.S. income taxes on pre-tax income of $14.6 million for our Americas region due to the utilization of deferred tax assets which were previously subject to a full valuation allowance. This benefit was partially offset by our European region, where we did not provide tax benefits on operating losses of $2.9 million for the first nine months of 2006 due to the full valuation allowance in Europe.

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LIQUIDITY AND CAPITAL RESOURCES

	Nine Months Ended September 30,
	2006			2005
	(in thousands)
Net cash (used in) provided by operating activities	$	(10,688	)	$	13,101
Net cash provided by investing activities		306			2,073
Net cash used in financing activities		(19,651	)		(3,497	)
Net cash used in discontinued operations		—			(1,116	)
Effect of exchange rate changes on cash and cash equivalents		33			(400	)
Net (decrease) increase in cash and cash equivalents	$	(30,000	)	$	10,161

As of September 30, 2006, we had cash and cash equivalents of $64.0 million. Our cash balances are held in numerous locations throughout the world. Most of the amounts held outside the United States can be repatriated to the United States, but under current law would be subject to U.S. federal income taxes, less applicable foreign tax credits. In certain countries, foreign exchange limitations limit the amount of cash that can be repatriated. We have accounted for the U.S. federal tax liability on these amounts for financial statement purposes except for foreign earnings that are considered indefinitely reinvested outside the United States. Repatriation could result in additional U.S. federal income tax payments in future years. Where local restrictions prevent an efficient inter-company transfer of funds, our intent is that cash balances would remain in the foreign country and we would meet U.S. liquidity needs through ongoing cash flows from operations, external borrowings, or both. We utilize various tax planning and financing strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed. We have available various credit lines in the Americas, Europe and Asia Pacific to meet expected and unexpected cash flow needs.

Operating Activities

Cash flow used in operating activities was $10.7 million during the first nine months of 2006 compared to cash flow provided by operating activities of $13.1 million during the first nine months of 2005. The use of cash during the first nine months of 2006 was primarily due to cash used for working capital requirements related to timing of payments for our strategic purchases of inventory with favorable pricing terms. This increased cash outlay was partially offset by income from continuing operations and less cash outlay for warranty and accrued promotional and other expenses.

Trade receivables increased $95.6 million during the first nine months of 2006 compared to a decrease of $9.1 million during the first nine months of 2005. The increase during the first nine months of 2006 was primarily due to increased sales and shift in customer mix. Day sales outstanding slightly increased from 45 days at December 31, 2005 to 46 days at September 30, 2006. Payment terms vary by geographic location and in some cases, a cash discount option is offered in addition to the standard payment terms.

Inventories decreased $1.7 million during the first nine months of 2006 compared to a decrease of $20.4 million during the first nine months of 2005. The decrease during first nine months of 2006 was primarily due to the selling of our European inventories, which were overstocked due to oversupply in Russia, offset by increased purchases of inventory with favorable pricing terms as a result of the oversupply of display panels in the industry during the first half of 2006. Our inventory turns have remained relatively stable at four turns during the first nine months of 2006 and 2005.

Accounts payable increased $52.9 million during the first nine months of 2006 compared to a decrease of $14.8 million during the first nine months of 2005. The increase during the first nine months of 2006 was primarily due to increased purchases of inventory and timing of payments to our suppliers. The decrease during the first nine months of 2005 was primarily due to the reduction in our inventory balances and timing of product payments.

Investing Activities

Cash provided by investing activities was $0.3 million during the first nine months of 2006 compared to $2.1 million during the first nine months of 2005. The increase during the first nine months of 2006 was primarily the result of cash proceeds from the sale of long-term investments. The increase during the first nine months of 2005 was primarily the result of cash proceeds from the sale of short-term investments.

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Financing Activities

Cash used in financing activities was $19.7 million during the first nine months of 2006 and $3.5 million during the first nine months of 2005. During the first nine months of 2006, we redeemed all outstanding shares of series B convertible mandatorily redeemable preferred stock for $15.0 million and had net payments on borrowings of $4.9 million. During the first nine months of 2005, we repaid bank loans of $3.5 million.

On July 7, 2006, we issued an aggregate of 3.3 million shares of our Series C Preferred Stock to Intel Capital Corporation pursuant to the exercise of an outstanding warrant, dated January 10, 2002. The warrant had an exercise price of $0.01 per share and Intel paid an aggregate of $33,000 for the shares of Series C Preferred Stock.

Credit Facilities

In the United States, we have a $60.0 million credit line that expires in March 2008. Advances bear interest at the prime rate plus 0.50% (8.75% at September 30, 2006) with interest payable monthly. As of September 30, 2006 and December 31, 2005, there was no outstanding balance on the line-of-credit. All advances under the agreement are collateralized by substantially all of the assets of ViewSonic Americas. Under the agreement we are subject to various restrictive covenants, which, among other things, limit dividends (not to exceed $250,000 per year without the consent of the financial institution), capital expenditures and executive compensation and require us to maintain a minimum earnings before interest, taxes, depreciation and amortization amount. We are not required to comply with the restrictive covenants when borrowing capacity exceeds $15.0 million.

In Europe, we have a $20.0 million line-of-credit facility with a financial institution. This line-of-credit is secured by trade receivables and inventory of ViewSonic Europe Limited. Advances bear interest at Libor plus 2.00%. There were no outstanding borrowings against this facility as of September 30, 2006, and December 31, 2005.

Certain of our other international subsidiaries also have line-of-credit facilities with various financial institutions that are secured by certain of their assets. These credit facilities allow cash advances, letters of credit and bank guarantees. As of September 30, 2006 and December 31, 2005, there were outstanding cash advances of $0 and $4.9 million, respectively. As of September 30, 2006, the aggregate borrowing limit was $23.4 million.

Off-Balance Sheet Arrangements

As of September 30, 2006 and December 31, 2005, we did not have any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or variable interest entities, which are typically established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Seasonality

The market for our products historically has experienced seasonal shifts in demand due to changes in buying patterns by our customers. Buying patterns vary geographically, and the impact on our operating results in a given period may vary depending on our actual or anticipated level of activity in the relevant region. We generally experience a decline in net sales from the first quarter to the second quarter of each year and we tend to experience the highest net sales in the fourth quarter of the year due to a strong buying season in the fourth quarter by large wholesale distribution partners and retailers due to the holiday season in the Americas. Our seasonality is moderated through slightly different seasonal variations in the three regions.

Operating Capital and Capital Expenditure Requirements

We believe that our existing cash balances, credit facilities and anticipated cash flows from operations will be sufficient to meet our operating, acquisition and capital requirements for at least the next 12 months. However, there is no assurance that we will not need to raise additional equity or debt financing within this period. We also may require additional capital for other purposes not presently contemplated. If we are unable to obtain sufficient capital, we could be required to curtail capital equipment purchases or research and development expenditures, which could harm our business. Factors that could affect our cash used or generated from operations and, as a result, our need to seek additional borrowings or capital include:

Decreased demand and market acceptance for our products;

Inability to successfully develop our next generation products;

An adverse change in payment terms with our customers or our suppliers;

Competitive pressures and oversupply in the marketplace resulting in lower than expected ASPs; and

New product announcements or product introductions by our competitors.

Critical Accounting Policies and Estimates

Our critical accounting policies reflecting our estimates and judgments are described in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the year ended December 31, 2005, filed with the Securities and Exchange Commission on April 3, 2006. We have not changed those policies since such date other than described below.

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During the second quarter of 2005, we adopted the fair value based employee stock-based compensation expense recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), using the modified prospective method. We previously had applied the intrinsic value based expense recognition provisions set forth in Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”).

On January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (“SFAS 123(R)”), which requires all share-based payments to employees, including grants of employee stock options, to be expensed and recognized over the requisite service period based on the grant date fair value of those awards. Among other differences, SFAS 123(R) includes an estimate of volatility. SFAS 123 does not require the use of volatility for privately held companies in estimating the fair value of stock options and, accordingly, we used the minimum value method afforded by SFAS 123. We adopted SFAS 123(R) using the prospective method and, accordingly, have not restated the consolidated financial statements for prior periods to reflect the impact of SFAS 123(R). Stock-based compensation expense recognized during the third quarter and first nine months of 2006 applies to unvested stock options granted prior to January 1, 2006 based on the grant date minimum value estimated in accordance with the original provisions of SFAS 123. In addition, stock-based compensation expense recognized during the third quarter and first nine months of 2006 has been reduced by estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The adoption of the prospective method under SFAS 123(R) did not have a material impact on our consolidated financial position, results of operations, cash flows or earnings per share. For the third quarter and first nine months of 2006, stock-based compensation expense was $50,000 and $161,000, respectively. As of September 30, 2006, unrecognized compensation cost related to employee stock options was $168,000, which is expected to be recognized over a weighted-average period of 2.6 years.

On May 9, 2005, we re-priced all outstanding stock options held by our employees, executive officers and members of the Board of Directors of record on March 2, 2005. As a result, the exercise price of our outstanding stock options subject to the re-pricing was lowered to $0.38 per share, the estimated fair value on that date, resulting in stock option expense of $1.1 million. The re-pricing was implemented in order to realign the cash and equity components of our compensation programs for employees, executive officers and directors.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our financial market risk arises from fluctuations in foreign currencies. A majority of our net sales, expense and capital purchasing activities are transacted in U.S. Dollars. However, we do enter into these transactions in other currencies, primarily the Euro, U.K. Pound, the Chinese Yuan and the New Taiwan Dollar, among others. Our net sales and purchasing transactions denominated in currencies other than the U.S. Dollar are subject to exchange rate fluctuations and could potentially negatively impact our financial results.

We have significant European net sales denominated in the Euro. During the first nine months of 2006, the Euro-to-U.S. Dollar foreign currency exchange rate strengthened against the U.S. Dollar increasing 7.4% compared to the year-end rate of 2005. During the first nine months of 2005, the Euro-to-U.S. Dollar decreased by 13.0% as compared to the 2004 year-end rate. For the third quarter of 2006, the strengthening of the Euro positively impacted our net sales and income from operations by $3.0 million and $1.9 million, respectively, compared to the third quarter of 2005 assuming all other factors remained constant. For the first nine months of 2006, the strengthening of the Euro increased our net sales and income from operations by $5.4 million and $3.6 million, respectively, compared to the first nine months of 2005 assuming all other factors remained constant. We cannot determine the ultimate impact of future changes to these and other currency exchange rates on our 2006 net sales, income from operations, net income, equity, and comprehensive income.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

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Based on their evaluation as of September 30, 2006, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were sufficiently effective to ensure that the information required to be disclosed by us in this Quarterly Report on Form 10-Q was recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Control

There were no changes in our internal control over financial reporting during the three months ended September 30, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

Four of our stockholders filed a purported derivative action against James Chu, our Chairman and Chief Executive Officer, and ViewSonic on April 17, 2006 in the United States District Court for the Central District of California. The complaint alleged, among other things, that Mr. Chu breached various fiduciary duties by personally investing in certain of our suppliers, thereafter directing our contracts to these suppliers and failing to disclose such actions. Plaintiffs sought actual and punitive damages, attorneys’ fees, costs, disgorgement of alleged profits made by Mr. Chu, a declaratory judgment against Mr. Chu for alleged breaches of various fiduciary duties and an injunction prohibiting the award of contracts to suppliers in which Mr. Chu or his relatives have a financial interest. On October 11, 2006, plaintiffs voluntarily dismissed the complaint without prejudice.

On July 27, 2006, the jury in the trial of LG Philips LCD Co. Ltd., (“LPL”) v. Tatung Company, Tatung Company of America, Inc., Chungwa Picture Tubes Ltd. (“CPT”), and ViewSonic Corporation, pending in United States District Court, District of Delaware, (Case No. 05-292-JJF) delivered a verdict finding that each of the defendants, including ViewSonic, had willfully infringed (through the doctrine of equivalents) a patent of LPL’s relating to electrostatic discharge. The jury awarded monetary damages of $52.5 million against CPT only. Although there is no monetary award against ViewSonic, the finding of willful infringement, if upheld, may subject us to certain other relief including an award of some portion of LPL’s attorneys fees and/or exemplary damages as well as injunctive relief which may require us to, among other things, change our sourcing of certain LCD displays or key components. The Court has not entered judgment in the case. Instead, the Court has entered a briefing schedule for defendants’ motions challenging various aspects of the jury’s verdict. While the outcome of these post-trial proceedings cannot be predicted with certainty, we do not believe that the outcome will have a material adverse effect on our condensed consolidated financial statements.

In addition, in the ordinary course of business, we are involved in lawsuits, claims, investigations, proceedings, and threats of litigation consisting of intellectual property, commercial, employment and other matters. In accordance with SFAS No. 5, Accounting for Contingencies, we make a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Litigation is inherently unpredictable. However, we believe that we have valid defenses with respect to the legal matters pending against us, as well as adequate provisions for any probable and estimable losses. While the outcome of these proceedings and claims cannot be predicted with certainty, we do not believe that the outcome of any pending legal matters will have a material adverse effect on our condensed consolidated financial statements.

ITEM 1A.

RISK FACTORS

Factors that May Affect Our Business and Financial Results

The risks described below are not exhaustive of the risks that might affect our business. Other risks, including those we currently deem immaterial, may also impact our business. Any of the following risks could materially and adversely affect our business operations, results of operations and financial condition.

Our revenue and profitability can fluctuate from period to period and are often difficult to predict for particular periods due to factors beyond our control.

Our results of operations for any quarter or year are not necessarily indicative of results to be expected in future periods. Our operating results have historically been, and are expected to continue to be, subject to quarterly and yearly fluctuations as a result of a number of factors, including:

The introduction and market acceptance of new technologies, products and services;

Variations in product costs and the mix of products sold;

The size and timing of customer orders, which, in turn, will often depend upon the success of our customers, business or specific products or services;

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Adverse changes in the conditions in the markets for display products;

The size and timing of capital expenditures by our customers;

Inventory practices of our customers;

Conditions in the broader markets for information technology and communications;

Adverse changes in the credit quality of our customers and suppliers;

Adverse changes in the supply of components such as LCD panels, including oversupply and undersupply;

The impact of acquired businesses and technologies;

Changes in the pricing policies of, or the introduction of, new products by us or our competitors; and

Changes in the terms of our contracts with our customers or suppliers.

These trends and factors could harm our business, operating results and financial condition.

Our industry is highly competitive and such price competition may substantially reduce our revenues and profits.

Competitive factors in the display industry include product features, product quality, breadth and reliability, price and performance characteristics, end user support, marketing and channel capability as well as corporate reputation and brand strength. We believe that we compete favorably with respect to all of these factors in the monitor market. However, we are a new entrant to the home entertainment market, and, therefore, we are just beginning to establish our competitive position. Many of our competitors in our markets have significantly greater financial, technical, manufacturing and marketing resources than we have. We believe that competition will have the effect of continually reducing the ASP of our products over time. We expect price competition to increase in future periods and such price competition may substantially reduce our revenues and products in such periods. Our competition includes established consumer electronic companies, personal computer manufacturers and Asian manufacturers interested in building a brand presence for their goods, including Acer Inc., BenQ Corporation, LG Philips LCD Ltd., NEC Display Solutions, and Samsung Electronics.

We believe that over time, this competition will have the effect of reducing the ASP of our products. Some of our competitors have substantially longer operating histories, greater assets, and name recognition, as well as greater financial, marketing, technical and other resources, than we do. These advantages may allow our competitors to, among other things: undertake more extensive marketing initiatives, implement and sustain more aggressive pricing, obtain more favorable pricing, obtain more favorable allocations from suppliers or cross subsidize their display operations from their other operations. Consequently, there is no assurance that our products will remain competitive relative to those of our competitors. To the extent we are unable to effectively compete against our competitors for any of these reasons or otherwise, our business, financial conditions and results of operations would be materially adversely affected.

Changes in the way we do business and volatility in our industry could require us to raise additional capital.

Although we believe that our existing cash balances, credit facilities and anticipated cash flows from operations will be sufficient to meet our operating, acquisition and capital requirements for at least the next 12 months, we may be required to raise additional capital through either equity or debt financing. Factors that could adversely affect our cash used or generated from operations and, as a result, our need to seek additional borrowings or capital include:

Differences between payment terms for the purchase of key component and the sale of finished products;

Early-pay or pre-pay arrangements to secure lower pricing and capacity of key components or finished products;

Decreased demand and market acceptance for our products;

Inability to successfully develop our next-generation products;

Competitive pressures resulting in lower than expected average selling prices;

An adverse change in payment terms with our customers or our suppliers; or

New product announcements or product introductions by our competitors.

We also may require additional capital for other purposes not presently contemplated. If we are unable to obtain sufficient capital, we could be required to curtail capital equipment purchases or research and development expenditures, which could harm our business. If we should require capital in excess of our current availability and if we were unable to raise additional capital, our business could be harmed.

The ASP of our products typically decreases rapidly over the life of the product, which negatively affects our gross margin.

The market in which we compete is subject to technological advances with yearly new product releases and price competition. As a result, the price at which we can sell our products typically declines over the life of the product. The decline in LCD monitors’ ASP is primarily due to increased production capacity and aggressive pricing by the competition. Over the recent years, the decline in ASP for LCD monitors has been faster than the decline in our product-sourcing costs and this has resulted in decreased margins.

In order to sell products that have a declining ASP and still maintain our gross margins, we need to continually reduce our product costs and manage our inventory. To manage product-sourcing costs, we must collaborate with our contract manufacturers to engineer the most cost-effective design for our products. In addition, we must carefully manage the price paid for components used in our products. We must also successfully manage our freight and inventory holding costs to reduce overall product costs. We also need to continually introduce new products with more attractive sales prices and gross margins in order to maintain our overall gross margins. If we are unable to manage the cost of older products or successfully introduce new products with higher gross margins, our net sales will decrease and our gross margins will decline.

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We seek to mitigate the risk of declining ASPs by obtaining promotional pricing incentives from several product vendors. A vendor’s willingness to give us a pricing incentive and the amount of the pricing incentive are based on how competitive the market is, the volatility of the price on our key product components, and the quantity of historical purchases of these components from vendors. The pricing incentives do not require us to commit to future component purchases from vendors. We record the reimbursement from our vendors for these promotional pricing incentives when we are released of the legal liability for the payment of the product purchases by the vendors. If we are unable to obtain the promotional pricing incentives or if these incentives are unexpectedly discontinued, our gross margins will decline and our business could be harmed.

We order components, materials and tooling in advance of anticipated customer demand. Therefore, we have limited ability to reduce our inventory purchase commitments quickly in response to any revenue shortfalls.

Substantially all of our sales are made on the basis of purchase orders rather than long-term agreements. As a result, we may commit to purchase products without having received advance purchase commitments from customers. Any inability to sell products to which we have devoted significant resources could harm our business. Additionally, because we typically need sufficient lead-time in purchasing our products, we may not be able to reduce our inventory purchase commitments in a timely manner in response to any revenue shortfalls. We could be subject to excess or obsolete inventories and under-utilized tooling and be required to take corresponding inventory write-downs or tooling write-offs if growth slows or if we incorrectly forecast product demand. A reduction in demand could negatively impact our gross margins and financial results.

If we do not effectively manage our sales channel inventory and product mix, we may incur costs associated with excess inventory or lose sales from having too few products or the wrong mix of products.

If we are unable to properly monitor, control and manage our sales channel inventory and maintain an appropriate level and mix of products with our customers and within our sales channels, we may incur increased and unexpected costs associated with our inventory. We generally allow wholesale distributors and retailers to return a limited amount of our products in exchange for other products. Under our price protection policy, subject to certain conditions, if we reduce the list price of a product, we issue a credit in an amount equal to the reduction for each of the products held in inventory by our wholesale distributors and retailers. If our wholesale distributors and retailers are unable to sell their inventory in a timely manner, we may under our policy lower the price of the products, or these parties may exchange the products for newer products. If we improperly forecast demand for our products we could end up with too many products and be unable to sell the excess inventory in a timely manner, if at all, or, alternatively we could end up with too few products and not be able to satisfy demand. If these events occur, we could incur increased expenses associated with writing off excessive or obsolete inventory or lose sales and therefore suffer declining gross margins.

Our failure to anticipate changes in the supply or pricing of product components or customer demand may result in excess or obsolete inventory that could adversely affect our gross margins.

Inventory purchases are based upon future demand forecasts. These forecasts are based upon assumptions about future demand that might prove to be inaccurate. If there were to be a sudden and significant decrease in demand for our products, or if there were a higher incidence of inventory obsolescence because of rapidly changing prices of product components, rapidly changing technology and customer requirements or an increase in the supply of products in the marketplace, we could be required to write-down our inventory and our gross margins could be adversely affected.

If we are unable to provide our third-party component suppliers and contract manufacturers with an accurate forecast of our component and material requirements, we may experience delays in the manufacturing of our products and the costs of our products may increase.

We provide our third-party component suppliers and contract manufacturers with a rolling forecast of demand which they use to determine their material and component requirements. Lead times for ordering materials and components vary significantly and depend on various factors, such as the specific supplier, contract terms and demand and supply for a component at a given time. Some of our components have long lead times. If our forecasts are less than our actual requirements, our contract manufacturers may be unable to manufacture enough products in a timely manner. If our forecasts are too high, our component suppliers and contract manufacturers may be unable to use the components they have purchased. The cost of the components used in our products tends to drop rapidly as volumes increase and the technologies mature. Therefore, if our contract manufacturers are unable to promptly use components purchased on our behalf, our cost of producing products may be higher than that of our competitors, due to an over-supply of higher-priced components. Moreover, if they are unable to use certain components, we may need to reimburse them for any losses they incur.

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Our implementation of strategic initiatives may strain our operations and increase our operating expense or harm our net earnings.

We have been implementing strategic initiatives designed to focus our resources on our core products, to improve supply chain and logistics efficiency, to simplify our business processes to maximize operating efficiencies in all aspects of our business, to grow sales in regional markets and to expand core product offerings, among others. The undertaking of these initiatives may strain our existing management, information systems, employee workforce, operational capability and financial controls. The difficulties associated with implementing these initiatives, procedures and controls may place a significant burden on our management, operational and financial resources. If we fail to successfully implement these initiatives or encounter unexpected difficulties during the implementation, our business could be harmed.

If we do not succeed in executing our growth strategies within our markets, our revenues may not increase.

Our strategies include further expansion of our business in markets in which we currently operate, including Brazil, China, India, Russia, Eastern and Western Europe. In many of these markets, we face barriers in the form of long-standing relationships between our potential customers and their local suppliers, as well as protective regulations. In addition, pursuing international growth opportunities may require us to make significant investments long before we realize returns on the investments, if any. Increased investments may result in expenses growing at a faster rate than revenues. Our overseas investments could be adversely affected by:

Reversals or delays in the opening of foreign markets to new participants;

Exchange controls;

Restrictions on foreign investment or the repatriation of profits or invested capital;

Nationalization of local industry;

Changes in export or import restrictions;

Changes in the tax system or rate of taxation in the countries where we do business; and

Economic, social, and political risks.

In addition, difficulties in foreign financial markets, economies and foreign financial institutions, particularly in emerging markets, could adversely affect demand from customers in the affected countries. Because of these factors, we may not succeed in expanding our business in international markets. This could hurt our business growth prospects and results of operations.

Our operating expenses are relatively fixed and we may have limited ability to reduce expenses quickly in response to any revenue shortfalls.

As a percentage of net sales, selling, general and administrative expenses represent 7.1% and 7.9% for the three months ended September 30, 2006 and 2005, respectively, and 7.7% and 9.2% for the nine months ended September 30, 2006 and 2005, respectively. We expect sales, general and administrative expenses to remain relatively fixed or decrease as a percentage of net sales as we continue to improve efficiencies in all aspects of our business. Additionally, because we typically recognize a substantial portion of our revenues in the last month of each quarter, we may not be able to adjust our operating expenses in a timely manner in response to any revenue shortfalls. If we are unable to reduce operating expenses quickly in response to any revenue shortfalls, it would negatively impact our financial results.

We are subject to risks associated with our international operations, which may harm our business.

We generated a majority of our total net sales to customers outside of the United States and other Americas in the first nine months of 2006. Sales to these customers outside of the United States and other Americas subject us to a number of risks associated with conducting business outside of the United States and other Americas, including the following:

International economic and political conditions;

Unexpected changes in, or impositions of, legislative or regulatory requirements;

Increases or decreases in the U.S. dollar as compared to other currencies;

Inadequate local infrastructure;

Delays resulting from difficulty in obtaining export licenses for certain technology, tariffs, quotas and other trade barriers and restrictions;

Transportation delays;

Longer payment cycles;

Tax laws (including U.S. taxes on foreign operations);

Foreign currency exchange rates;

Imposition of additional taxes and penalties; and

The burdens of complying with a variety of foreign laws.

Any one of the foregoing factors could cause our business, operating results and financial condition to suffer.

Intellectual property litigation and infringement claims could cause us to incur significant expenses or prevent us from selling our products.

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Many of our products are designed to include software or other intellectual property licenses from third parties. Competitors’ protected technology may be unavailable to us or be made available to us only on unfavorable terms and conditions. While it may be necessary in the future to seek or renew licenses relating to various aspects of our products, we believe that, based upon past experience and standard industry practice, these licenses generally can be obtained on commercially reasonable terms. There can be no assurances, however, that we will be able to obtain, on commercially reasonable terms or at all, from third parties the licenses that we will need. Due to the existence of a large number of patents in our field and the rapid rate of issuance of new patents, it is not practical to determine in advance whether a product or any of its components infringe the patent rights of others.

We routinely receive claims regarding patent and other intellectual property matters. Pursuant to our agreements with our suppliers and manufacturers, we generally seek indemnification in connection with such claims. Whether or not these claims have merit, they may require significant resources to defend. To date, none of these claims has had a material impact on our business. We are currently involved in several such proceedings, none of which we believe are material to our business. If an infringement claim is successful and we are unable to obtain the license for the infringed technology or substitute similar non-infringing technology, our business could be harmed. In addition, if an infringement claim is successful or costly to defend and we are unable to obtain indemnification from our suppliers, our business could be harmed.

If we fail to maintain and/or expand our sales channels, our revenue may decline.

To maintain and grow our market share, net sales and brand, we must maintain and expand our sales channels. We currently sell our products through distributors, retailers, VARs, system integrators, commercial or enterprise resellers, direct marketing/e-retailers, and ViewSonic online stores. These entities purchase our products directly from us or through our distributors. We have no minimum purchase commitments or long-term contracts with any of these third parties. Our agreements are generally non-exclusive and generally may be terminated by either party for any reason or no reason with 30 days notice.

Retailers have limited shelf space and promotional budgets, and competition is intense for these resources. A competitor with more extensive product lines and stronger brand identity may have greater bargaining power with these retailers. The competition for retail shelf space may increase, which would require us to increase our marketing expenditures to maintain current levels of retail shelf space.

We must also continuously monitor and evaluate emerging sales channels. If we fail to establish a presence in an important developing sales channel, our business could be harmed. If we are unable to establish relationships in emerging sales channels, our sales could decline and we would lose market share.

We rely on a limited number of wholesale distribution and national retail customers for most of our sales, and changes in price or purchasing patterns and failure to maintain or establish new distributor relationships in existing and new sales channels could lower our revenue or gross margins.

We sell our products through wholesale distributors such as Ingram Micro, Inc., Tech Data Corporation and Synnex Corporation and national retailers such as CompUSA, Inc. We expect that a majority of our net sales will continue to come from sales to a small number of wholesale distributors and national retailers for the foreseeable future. We have no minimum purchase commitments or long-term contracts with any of these customers. The wholesale distributors and retailers could decide at any time to discontinue, decrease or delay their purchases of our products. We must also monitor and evaluate new sales channels in existing markets and in new markets. If we fail to establish a presence in an important developing sales channel or market, our business could be harmed.

In addition, the prices that wholesale distributors and retailers pay for our products are subject to negotiation and could change frequently. If any of our major wholesale distributors or retailers change their purchasing patterns or refuse to pay the prices that we set for our products, our net sales and operating results could be negatively impacted. If our wholesale distributors and retailers increase the size of their product orders without sufficient lead-time for us to process the order, our ability to fulfill product demands would be compromised. In addition, because our accounts receivable are concentrated within a small group of wholesale distributors and retailers, the failure of any of them to pay on a timely basis, or at all, would reduce our cash flow.

We depend on third-party component suppliers and contract manufacturers for the manufacture of our products. If these third parties experience any delay, disruption or quality control problems in their operations, we could lose market share and revenues, and our reputation may be harmed.

All of our products are manufactured, assembled, tested and packaged by contract manufacturers. We rely on several, component suppliers and contract manufacturers to procure components and, in some cases, subcontract engineering work. Some of our products are manufactured by a single contract manufacturer. Our component suppliers and contract manufacturers are primarily located in mainland China, Taiwan, and Thailand and may be subject to disruption by earthquakes, typhoons and other natural disasters, epidemics, pandemics, as well as political, social or economic instability. We do not have any long-term contracts with any of these third party component suppliers and contract manufacturers. Product pricing is generally negotiated on an order-by-order basis. All of our contracts with our component suppliers and contract manufacturers, including those contracts containing provisions that may be materially favorable to us, are generally terminable for any reason and by either party with 90 day’s notice. If our component suppliers and contract manufacturers encounter financial or other business difficulties, if their strategic objectives change, or if they perceive us to no longer be an attractive customer, they may no longer assist us in our product development efforts, and our business could be harmed.

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The loss of the services of any of our primary contract manufacturers or a change in material terms could cause a significant disruption in operations and delays in product shipments and adverse impact on cash flow. Qualifying a new contract manufacturer and commencing volume production is expensive and time consuming.

Our reliance on third party component suppliers and contract manufacturers also exposes us to the following risks over which we have limited control:

Inability to procure key required components for our finished products to meet our customer’s demand;

Unexpected increases in manufacturing and repair costs;

Unexpected reductions in payment terms;

Interruptions in shipments if one of our manufacturers is unable to complete production;

Inability to control the quality of finished products;

Inability to control delivery schedules;

Inability to obtain favorable pricing;

Unpredictability of manufacturing yields; and

Potential lack of adequate capacity to manufacture all or a part of the products we require.

We rely upon third parties for technology that is critical to our products, and if we are unable to continue to license this technology and future technology, our ability to offer competitive products could be harmed and our costs of production could increase.

We rely on third parties to obtain non-exclusive software license rights to technologies that are incorporated into and necessary for the operation and functionality of our products. Because the intellectual property we license is available from third parties, barriers to entry for our competitors may be lower than if we owned exclusive rights to the technology we license and use. On the other hand, if a competitor enters into an exclusive arrangement with any of our third-party technology providers, our ability to develop and sell products containing that technology could be severely limited. Our licenses often require royalty payments or other consideration to third parties. Our success will depend in part on our continued ability to have access to these technologies on commercially reasonable terms. If we are unable to license the necessary technology, we may be forced to acquire or develop alternative technology of lower quality or performance standards. This could limit and delay our ability to offer competitive products and increase our costs of production. As a result, our gross margins, market share, and operating results could be harmed.

If we fail to continue to introduce new products that achieve broad market acceptance on a timely basis, or fail to market or sell our products in a way that receives broad acceptance in the market place, we will not be able to compete effectively and we will be unable to increase or maintain net sales and gross margin and our financial results could be negatively impacted.

We operate in a highly competitive, quickly changing environment. We are dependent upon sufficient demand and broad market acceptance for display products, which are branded separately from the computing devices (primarily desktop PCs and laptops) to which they are attached. Our future success depends on our ability to develop and introduce new products and product enhancements that achieve broad market acceptance in the business and home markets. Our future success will depend in large part upon our ability to:

Identify demand trends in the business and home display markets and quickly develop, manufacture and sell products that satisfy these demands;

Manage our cost structure to enable us to bring new products to market at competitive prices;

Respond effectively to new product announcements from our competitors by designing, competitive products, either internally or through the use of third parties;

Provide compatibility and interoperability of our products with products offered by other vendors and new technologies as they emerge;

Manage our product offerings either as stand-alone, in combination with other products or services, or in some other manner; and

Respond effectively to unexpected shifts in market demand towards display and PC products sold together under the same brand or away from stand-alone displays.

In investigating and/or litigating a stockholder derivative action, we may incur substantial costs

We and James Chu, our Chairman and Chief Executive Officer, were named as defendants in a purported derivative action brought by certain of our stockholders. The complaint alleged, among other things, that Mr. Chu had breached various fiduciary duties by personally investing in certain of our suppliers, thereafter directing contracts to these suppliers and failing to disclose such actions. In October 2006, the plaintiffs voluntarily dismissed the complaint without prejudice. If the plaintiffs refile the complaint or otherwise make proper demand upon our Board of Directors in accordance with Delaware law, in connection with investigating and/or litigating this action, we may incur substantial costs.

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We depend on our officers, and if we are not able to retain them, our business will suffer.

James Chu, our Chairman of the Board and Chief Executive Officer and majority stockholder, along with other senior officers of the Company, possess specialized knowledge with respect to our business and our operations. Consequently, the loss of service of any of our officers could adversely affect our business. We do not carry key man life insurance on our officers.

Each of our officers may terminate their employment without notice and without cause or good reason. We currently are not aware that any officer is planning to leave or retire.

We may fail to comply with the Restriction of Certain Hazardous Substances Directive, or RoHS, and Waste Electrical and Electronic Equipment Directive, or WEEE, which could harm our business.

We are subject to local laws and regulations in various regions in which we operate, including the European Union, or the EU. There are two particular EU directives, RoHS and WEEE that may have a material impact on our business. RoHS restricts the distribution of certain substances, including lead, within the EU and is effective July 1, 2006. RoHS requires us to eliminate and/or reduce the level of specified hazardous materials from our products and requires us to maintain and publish a detailed list of all chemical substances in our products. WEEE requires us to take back and recycle all products we manufacture or import into the EU at our own expense and became effective in January 2006. If we fail to comply with the EU directives our business may be harmed. For example,

We may be unable to procure appropriate RoHS compliant material in sufficient quantity and quality and/or be unable to incorporate it into our product procurement processes without compromising quality and/or harming our cost structure;

We may not be able to sell non-compliant product into the EU or to any customer whose end product will be sold into the EU, which may result in reduced sales; or

We may face excess and obsolete inventory risk related to non-compliant inventory that we may continue to hold in 2006 for which there is reduced demand and we may need to write down.

If disruptions in our transportation network occur or our shipping costs substantially increase, our operating expense could increase and our financial results could be negatively impacted.

We are highly dependent upon the transportation systems we use to ship our products, including surface, ocean and airfreight. Our attempt to closely match our inventory levels to our product demand intensifies the need for our transportation systems to function effectively and without delay. The transportation network is subject to disruption from a variety of causes, including labor disputes or port strikes, acts of war or terrorism and natural disasters. If our delivery times increase unexpectedly for these or any other reasons, our ability to deliver products on time could result in delayed or lost revenue. In addition, if the recent increases in fuel prices were to continue, our transportation costs would likely increase. A prolonged transportation disruption or a significant increase in the cost of freight could severely disrupt our business and harm our operating results.

We may be subject to product liability claims that could result in significant direct or indirect costs to us.

There is a risk that defects may occur in our products and services. The occurrence of these defects could make us liable for damages caused by these defects, including consequential damages. To date, none of these claims has had a material impact on our business. Negative publicity concerning these problems could also make it more difficult to convince customers to buy our products and services. Both could hurt our business, operating results, and financial condition.

Expensing employee stock options may materially and adversely affect our reported operating results and could adversely affect our competitive position as well.

Since inception, we have used stock options as a fundamental component of our compensation packages. We believe that these incentives directly motivate our employees and, through the use of vesting, encourage our employees to remain with us. During the second quarter of 2005, we elected to adopt the fair value based employee stock-based compensation expense recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, or SFAS 123, in connection with an option re-pricing program, using the modified prospective method. We previously applied the intrinsic value based expense recognition provisions set forth in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. In December 2004, the Financial Accounting Standards Board, issued SFAS No. 123(R), Share-Based Payment, or SFAS 123(R), which requires the measurement and recognition of compensation expense for all stock-based compensation payments. In April 2005, the SEC delayed the effective date of SFAS 123(R), which is now effective for annual periods that begin after June 15, 2005. We adopted SFAS 123(R) effective as of January 1, 2006 using the prospective method. SFAS 123(R) requires that we record compensation expense for stock options using the fair value of those awards. Expensing these incentives in future periods may materially and adversely affect our reported operating results as the stock-based compensation expense is charged directly against our reported earnings.

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To the extent that SFAS 123(R) results in additional expenses when granting stock options we may elect to incur increased cash compensation costs instead. In addition, actions that we may take to reduce stock-based compensation expense that might be more severe than any actions our competitors may implement, could make it difficult to attract, retain and motivate employees, which could adversely affect our competitive position, as well as our business and operating results.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On July 7, 2006, ViewSonic issued an aggregate of 3,300,000 shares of our Series C Preferred Stock to Intel Capital Corporation, a Cayman Islands company, pursuant to the exercise of an outstanding warrant, dated January 10, 2002. The warrant had an exercise price of $0.01 per share and Intel paid an aggregate of $33,000 for the shares of Series C Preferred Stock. We relied upon Section 4(2) of the Securities Act of 1933, as amended, and Regulation D promulgated thereunder, for the issuance of the Series C Preferred Stock to Intel.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

Not applicable.

ITEM 5.

OTHER INFORMATION

Not applicable

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ITEM 6.

EXHIBITS

Exhibit No.

Description of Exhibits

31.1	Certification of Chief Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

31.2	Certification of Chief Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

32.1*

Certification of Chief Executive Officer and Chief Financial Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended.

The certification attached as Exhibit 32.1 accompanies this Quarterly Report on Form 10-Q, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of ViewSonic Corporation under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 13, 2006.

	ViewSonic Corporation

	By:	/s/ James A. Morlan
		James A. Morlan
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

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EXHIBIT INDEX

Exhibit No.	Description of Exhibits

31.1	Certification of Chief Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

31.2	Certification of Chief Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

32.1*	Certification of Chief Executive Officer and Chief Financial Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended.

VIEWSONIC CORP 10-Q