Zarlink Releases Second Quarter Fiscal 2006 Results

OTTAWA, CANADA, October 20, 2005 – Zarlink Semiconductor Inc. (NYSE/TSX:ZL) today released results for the Fiscal 2006 second quarter ended September 23, 2005, prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP).

In line with the company’s guidance, second quarter revenue was US$46.9 million, compared with US$45.5 million in the prior quarter, and US$58.8 million in the second quarter of Fiscal 2005. Revenues were higher in the Consumer Communications business unit and down marginally in both Network Communications and Ultra Low-Power Communications.

Zarlink recorded a second quarter net loss of US$2.3 million or US$0.02 per share. In the Fiscal 2005 second quarter, the Company reported a net profit of US$3.2 million, or US$0.02 per share, which included a US$2.9 million gain on a note receivable.

Gross margin in the second quarter was 43% of revenue, compared with 38% in the first quarter and 46% in the second quarter a year ago.

Subsequent to the end of the current quarter, on October 7, 2005, Zarlink signed an agreement to sell its RF Front-End Consumer Business to Intel Corporation and its UK subsidiary for approximately US$68 million in cash and US$2 million in other consideration. Subject to closing conditions, the transaction is expected to close by the end of November 2005.

“The agreement with Intel is an important part of our plan to reposition the company on higher-margin growth opportunities in communications markets,” said Kirk K. Mandy, President and Chief Executive Officer, Zarlink Semiconductor. “We are satisfied that we met our second quarter revenue guidance and reported a lower net loss. We are making progress in our drive to further reduce our fixed costs, begin generating positive cash flow and return to profitability.”

Review of Operations

Both Research and Development (R&D) and Selling and Administrative (S&A) expenses were lower sequentially in the Fiscal 2006 second quarter as a result of the restructuring implemented in the fourth quarter of Fiscal 2005.

R&D expenses in the second quarter were US$11.8 million or 25% of revenue, compared with US$13.6 million or 30% of revenue in the first quarter, and US$15.6 million or 27% of revenue in the Fiscal 2005 second quarter.

S&A expenses were US$10.3 million or 22% of revenue in the second quarter, compared with US$11.3 million or 25% of revenue in the first quarter, and US$11.0 million or 19% of revenue in the second quarter of Fiscal 2005.

During the second quarter, the Company launched six new products, including:

·The industry’s first devices for carrying timing and synchronization over packet-switched networks;

·An acoustic echo canceller chip that delivers superior sound quality in hands-free communications products, including car kits, speakerphones, security and intercom systems;

·The world’s first single-chip tuner for free-to-air satellite DTV receivers;

·A low-power tuner for digital satellite PayTV systems; and

·Two terrestrial demodulators for PC-TV and portable DTV products.

Third Quarter Fiscal 2006 Guidance

Excluding the RF Front-End Consumer business, the opening order backlog at the start of the third quarter of Fiscal 2006 was US$28 million, compared with US$26 million in the prior quarter. Zarlink is forecasting that third quarter revenues, excluding RF Front-End revenues, will be between US$34 million and US$36 million. This compares to second quarter revenue of US$34.2 million, excluding the RF Front-End business. As a result, Zarlink expects third quarter earnings of between breakeven and US$0.01 per share. In addition, the company anticipates a gain of US$41 million to US$45 million, or US$0.32 to US$0.35 per share, relating to the sale of the RF Front-End business. After related costs associated with the transaction, the Company expects that net cash proceeds will be approximately US$60 million.

About Zarlink Semiconductor

For over 30 years, Zarlink Semiconductor has delivered semiconductor solutions that drive the capabilities of voice, enterprise, broadband and wireless communications. The Company’s success is built on its technology strengths including voice and data networks, consumer and ultra low-power communications, and high-performance analog. For more information, visit www.zarlink.com.

Shareholders and other individuals wishing to receive, free of charge, copies of the reports filed with the U.S. Securities and Exchange Commission and Regulatory Authorities, should visit the Company’s web site at www.zarlink.com or contact investor relations.

Certain statements in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and assumptions include, among others, the following: rapid technological developments and changes; our ability to achieve profitability and generate positive cash flows in the future; our exposure to product warranty claims resulting from product defects or failures; our dependence on our foundry suppliers and third-party subcontractors; increasing price and product competition; our exposure to currency exchange rate fluctuations and other factors inherent in our international operations; and other factors referenced in our Annual Report on Form 20-F for the fiscal year ended March 25, 2005. Investors are encouraged to consider the risks detailed in this filing.

- 30 -

Zarlink and the Zarlink Semiconductor logo are trademarks of Zarlink Semiconductor Inc.

An open conference call for analysts will be held today from 5:30-6:30 p.m. EDT. Investors, media and other parties are listen-only. Please dial 1-800-814-4859 or 613-287-8027. The replay number is 1-877-289-8525 (passcode 21157732#) or 416-640-1917 (passcode 21157732#). The replay is available until midnight, November 3, 2005. A live audio webcast will be available through www.newswire.ca (Canada NewsWire) or from the Company’s website at www.zarlink.com.

For further information:

Michael Salter
Corporate Communications
613 270-7115
michael.salter@zarlink.com

Mike McGinn
Investor Relations
613 270-7210
mike.mcginn@zarlink.com

View Financial Statements

Listen to Webcast

Home

Site Guide

Site Terms & Conditions

Privacy/Security Statement

Feedback

Trademarks