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Comms chips

Zarlink Reports Q2

OTTAWA -- Zarlink Semiconductor Inc. (NYSE/TSX:ZL) today released results for the Fiscal 2007 second quarter ended September 29, 2006, prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP).

Second quarter revenue was US$38.1 million, down slightly from US$38.4 million in the previous quarter, but up from US$34.2 million in the second quarter of Fiscal 2006.

Zarlink earned second quarter net income of US$6.9 million or US$0.05 per share, which includes a tax recovery of $2.8 million. This compares favorably with first quarter Fiscal 2007 net income of US$4.2 million or US$0.03 per share. In Fiscal 2006 second quarter the Company recorded a net loss of US$2.3 million or US$0.02 per share.

"I am pleased with our second quarter performance as we continue the execution of our strategic initiatives designed to rebuild Zarlink Semiconductor over the long term," said Kirk K. Mandy, President and Chief Executive Officer, Zarlink Semiconductor. "Looking to the third quarter, we expect lower revenue consistent with the general market weakness that has negatively impacted our peers. Our new initiatives in optoelectronics, network communications, wireless telemetry and analog foundry are gaining momentum in the marketplace and are expected to contribute significantly over the coming years."

Review of Operations

Gross margin in the second quarter was 53% of revenue, compared with 58% in the Fiscal 2007 first quarter, and 49% in the second quarter a year ago. Lower gross margin this quarter was due to weaker mix within telecom networking combined with lower telecom product revenue and higher foundry revenue.

R&D expenses in the second quarter were US$7.5 million or 20% of revenue, compared with US$9.5 million or 25% of revenue in the previous quarter, and US$8.9 million or 26% of revenue from the Fiscal 2006 second quarter. The decrease was due to lower than usual materials spending, increased non-recurring engineering recoveries on jointly funded developments with lead customers and the recently announced Canadian Government funding.

S&A expenses were US$9.6 million or 25% of revenue, compared with S&A expenses of US$10.0 million or 26% of revenue in the previous quarter, and S&A expenses of US$7.8 million or 23% of revenue in the second quarter of Fiscal 2006.

Zarlink also recorded a tax recovery of US$2.8 million in the second quarter from settlement of prior years audits, compared with US$0.2 million in the previous quarter, and an income tax expense of US$0.4 million in the second quarter of Fiscal 2006.

Zarlink Semiconductor Inc. (NYSE/Toronto: ZL)

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