Zarlink Releases First Quarter Fiscal 2009 Results

OTTAWA, CANADA -- (MARKET WIRE) -- Jul 23, 2008 -- Zarlink Semiconductor Inc. (TSX: ZL)(NYSE: ZL) today issued results for the Fiscal 2009 first quarter ended June 27, 2008, prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP).

In line with guidance, first quarter revenue was US$60.5 million, compared with revenue of US$54.8 million in the Fiscal 2008 fourth quarter, and US$30.6 million in the first quarter of Fiscal 2008. Zarlink recorded net income of US$1.1 million or US$0.00 per share, compared with a Fiscal 2008 fourth quarter net loss of US$19.1 million or US$0.16 per share, and a net loss of US$5.0 million or US$0.05 per share in the Fiscal 2008 first quarter.

"This quarter provides a much clearer view of the Company that management, the Board of Directors and employees have been working to build over the past three years," said Kirk Mandy, President and CEO, Zarlink Semiconductor. "Quarterly revenue is growing, driven by increasing customer demand for new products across our communications, optoelectronics and medical businesses. We're looking forward to building on this momentum in the coming quarters to drive further growth and sustained profitability."

First quarter results include a gain of US$0.9 million related to the sale of land in the U.K., and severance and other integration costs related to the Legerity acquisition totaling US$1.4 million (US$1.3 million in cost of goods sold, US$0.1 million in S&A). At the end of the first quarter, cash and short-term investments were US$40.3 million and restricted cash was US$17.3 million. This compares to cash and short-term investments of US$42.6 million and restricted cash of US$17.3 million at the end of the Fiscal 2008 fourth quarter.

Business review

To more accurately represent Zarlink's lines of business, the Company has recently renamed its major product groups.

Revenue from Zarlink's Communications Products group, formerly Wired Communications, was US$39.1 million, an increase of US$3.4 million compared with revenue of US$35.7 million in the previous quarter. The acquisition of Legerity Holdings, Inc. accounted for US$23.2 million in revenue in the first quarter, compared to US$19.9 million in the Fiscal 2008 fourth quarter.

Medical Products, formerly Medical Communications, revenue in the first quarter of Fiscal 2009 grew to US$9.2 million, compared with US$7.5 million in the previous quarter. To-date, Zarlink has shipped over 30,000 modules incorporating the Company's ZL70101 radio system-on-a-chip to a leading medical manufacturer designing wirelessly enabled implanted devices used to treat patients with heart failure and arrhythmias.

Optical Products, formerly Optical Communications, revenue in the first quarter increased to US$6.2 million, compared with US$4.9 million in the Fiscal 2008 fourth quarter. This increase was driven in part by growing demand for the Company's ZLynx optical interconnect solutions for data centers and computer clusters.

Custom and Other revenue in the first quarter of Fiscal 2009 was US$6.0 million. In the Fiscal 2008 fourth quarter, Custom and Other revenue was US$6.6 million, which included nine weeks of revenue from the Swindon Foundry.

The Company made several important technology announcements in the first quarter, including:

- Synchronous Ethernet timing chips that ease system integration, lower component count and reduce power consumption for manufacturers designing next-generation equipment or retrofitting existing equipment to deliver reliable voice, video, data and legacy services across packet networks;

- The introduction of the second-generation Le79114 Voice Control Processor (VCP II) delivering industry-leading voice functionality and diagnostic tools for high-density access platforms;

- The VE890 voice interface chipset to enable voice services over digital subscriber line (DSL) networks. This low-power, high-performance chipset allows Zarlink to support all markets and applications for voice-over-IP (VoIP) deployment;

- Zarlink's ZL70101 radio chip for in-body medical communications was winner of the EE Times RF/Microwave Ultimate Product Award;

- The Company demonstrated its video IP surveillance (VIPS) interconnect products with network video equipment provider Axis Communications and Visual Defence's digital video storage solutions at ISC West.

On July 22nd, 2008, Zarlink declared a quarterly dividend of CDN$0.50 per share on its preferred shares (TSX: ZL.PR.A) payable on September 26th, 2008 to preferred shareholders of record as of September 5th, 2008. This dividend is fully eligible for Canadian tax purposes.

Review of Operations

Gross margin in the first quarter was 46%, which included integration costs of US$1.3 million. This compares with gross margin of 45% in the previous quarter, which included integration costs of US$1.4 million.

R&D expenses in the first quarter were US$12.0 million or 20% of revenue. This compares with R&D expenses in the previous quarter of US$13.8 million or 25% of revenue, which included US$0.5 million in integration costs.

S&A expenses in the first quarter were US$12.4 million or 20% of revenue, which included severance and integration costs of US$0.1 million. This compares with Fiscal 2008 fourth quarter S&A expenses of US$15.5 million or 28% of revenue, which included severance and integration costs of US$1.1 million.

In addition, first quarter earnings include a US$0.3 million non-cash foreign exchange loss related mainly to Zarlink's Canadian dollar denominated debenture, based on an exchange rate of CDN$1.00 to US$0.99 at June 27, 2008.

Second Quarter Fiscal 2009 Guidance

The opening backlog at the start of the Fiscal 2009 second quarter was approximately US$56 million, compared with a US$53 million opening backlog in the first quarter. Zarlink is forecasting Fiscal 2009 second quarter revenue will be between US$61 million and US$63 million. Severance and other integration costs are expected to be approximately US$0.5 million. Excluding integration-related costs, gross margins are expected to be 47% to 49% and operating expenses are expected to be approximately US$24 million to US$25 million excluding amortization of intangibles. Excluding proxy defense costs and any potential impact of foreign exchange gains/losses related to the Company's denominated debentures, Zarlink expects second quarter earnings of between US$0.01 to US$0.03 per share.

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, optoelectronics and ultra low-power communications. For more information, visit

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 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: our dependence on the successful development and market introduction of new products; our dependence on revenue generation from our legacy products in order to fund development of our new products; our ability to successfully integrate Legerity and any businesses acquired in the future; any potential undisclosed liabilities associated with the Legerity acquisition; our ability to operate profitably and generate positive cash flows in the future; our dependence on our foundry suppliers and third-party subcontractors; order cancellations and deferrals by our customers; and other factors referenced in our Annual Report on Form 20-F. Investors are encouraged to consider the risks detailed in this filing.

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

An open conference call for analysts will be held today beginning at 8:30 a.m. EDT in advance of the Company's Annual General Meeting. Investors, media and other parties are listen-only. For a replay, call 1-877-289-8525, passcode 21276838# or 416-640-1917, passcode 21276838#. The replay is available until midnight August 6, 2008. A live audio webcast will be available through (Marketwire) or from the Company's website at

                              Zarlink Semiconductor Inc.
         (in millions of U.S. dollars, except per share amounts, U.S.

                                                                                              Three  months  ended
                                                                                        June  27,    March  28,    June  29,
                                                                                              2008              2008            2007
Revenue                                                                              $60.5            $54.8          $30.6
Cost  of  revenue                                                                32.9              30.3            17.4                                                                                        ----------------------------
Gross  margin                                                                      27.6              24.5            13.2

  Research  and  development                                            12.0              13.8              8.8
  Selling  and  administrative                                        12.4              15.5              9.9
  Amortization  of  intangible  assets                            1.8                1.8              0.2
  Contract  impairment  and  other                                        -                1.5              0.5
  Loss  (gain)  on  sale  of  business                                    -              18.2                  -

                                                                                              26.2              50.8            19.4
Operating  income  (loss)                                                  1.4            (26.3)          (6.2)

Gain  on  insurance  settlement                                            -                5.5                  -
Gain  (loss)  on  sale  of  assets                                      0.9              (0.1)                -
Interest  income                                                                  0.4                0.5              1.5
Interest  expense                                                              (1.2)            (1.2)                -
Amortization  of  debt  issue  costs                              (0.2)            (0.2)                -
Foreign  exchange  gain  (loss)                                      (0.3)              2.9            (0.3)
Income  (loss)  before  income  taxes                              1.0            (18.9)          (5.0)
Income  tax  recovery  (expense)                                      0.1              (0.2)                -

Net  income  (loss)                                                            $1.1          $(19.1)        $(5.0)

Net  income  (loss)  attributable
  to  common  shareholders                                                $0.4          $(20.0)        $(6.1)

Net  income  (loss)  per  common  share:
  Basic  and  diluted                                                              $-          $(0.16)      $(0.05)

Weighted  average  number
  of  common  shares
  outstanding  (millions):
    Basic                                                                              127.2            127.3          127.3
    Diluted                                                                          127.2            127.3          127.3

Percentage  of  revenue:
    Gross  margin                                                                      46%                45%              43%
    Research  and  development                                              20%                25%              29%
    Selling  and  administrative                                          20%                28%              33%

                                                            Zarlink  Semiconductor  Inc.
                                            CONSOLIDATED  STATEMENTS  OF  CASH  FLOWS  DATA
                                          (in  millions  of  U.S.  dollars,  U.S.  GAAP)

                                                                                                  Three  months  ended
                                                                                        June  27,    March  28,    June  29,
                                                                                              2008              2008            2007
Operating  activities:
  Net  income  (loss)                                                          $1.1          $(19.1)        $(5.0)
  Depreciation  of  fixed  assets                                      1.2                1.5              1.2
  Amortization  of  intangible  assets                            1.8                2.4              0.2
  Stock  compensation  expense                                          0.5                0.6              0.5
  Other  non-cash  changes  in
    operating  activities                                                  (0.3)            15.0                  -
  Deferred  income  taxes                                                  (0.1)              0.1            (0.4)
  Gain  on  insurance  settlement                                          -              (5.5)                -
  Proceeds  from  insurance                                                    -              14.1                  -
  Flood  related  expenditures                                              -            (10.9)                -
  Contact  impairment                                                              -                1.5                  -
  Decrease  (increase)  in  working  capital:
    Trade  accounts  and  other  receivables                  (2.8)              4.5              1.7
    Inventories                                                                      0.4              (0.7)          (1.3)
    Prepaid  expenses  and  other                                        1.3              (3.2)            0.3
    Payables  and  accrued  liabilities                          (2.7)              5.0            (3.9)
    Deferred  credits                                                          (0.3)            (0.8)          (0.1)
Total                                                                                      0.1                4.5            (6.8)

Investing  activities:
  Expenditures  for  fixed  assets                                  (1.6)            (1.7)          (0.7)
  Proceeds  from  disposal  of  fixed  assets                  1.0                    -                  -
  Proceeds  from  insurance  for  fixed  assets                  -                1.1                  -
  Proceeds  from  sale  of  investment                                  -                0.6                  -
  Proceeds  (payment)  from  sale  of  business                  -              (3.6)                -
Total                                                                                    (0.6)            (3.6)          (0.7)

Financing  activities:
  Payment  of  dividends  on  preferred  shares            (0.5)            (0.7)          (0.6)
  Repurchase  of  preferred  shares                                (0.5)            (0.5)          (0.5)
  Repurchase  of  common  shares                                      (0.8)                  -                  -
  Decrease  (increase)  in  restricted
    cash  and  cash  equivalents                                              -              (0.5)                -
Total                                                                                    (1.8)            (1.7)          (1.1)

Effect  of  currency  translation  on  cash                        -              (0.5)            0.1
Increase  (decrease)  in  cash
  and  cash  equivalents                                                    (2.3)            (1.3)          (8.5)

Cash  and  cash  equivalents,
  beginning  of  period                                                      42.4              43.7          111.3

Cash  and  cash  equivalents,
  end  of  period                                                                $40.1            $42.4        $102.8

                                                    Zarlink  Semiconductor  Inc.
                                              CONSOLIDATED  BALANCE  SHEET  DATA
                                  (in  millions  of  U.S.  dollars,  U.S.  GAAP)

                                                                                                June  27,        March  28,
                                                                                                      2008                  2008

Current  assets:
  Cash  and  cash  equivalents                                                $40.1                $42.4
  Short-term  investments                                                          0.2                    0.2
  Restricted  cash  and  cash  equivalents                            17.3                  17.3
  Trade  accounts  receivable  -  net                                      27.7                  23.4
  Other  receivables  -  net                                                        8.5                  10.0
  Inventories                                                                              28.4                  28.8
  Prepaid  expenses  and  other                                                  6.9                    8.2
  Deferred  tax  assets                                                                1.2                    1.3
  Assets  held  for  sale                                                              3.1                    3.1
                                                                                                    133.4                134.7

Fixed  assets  -  net                                                                  14.3                  14.7
Deferred  income  tax  assets  -  net                                        7.6                    7.5
Goodwill                                                                                      46.9                  46.9
Intangible  assets  -  net                                                        54.6                  56.5
Other  assets                                                                                3.4                    3.6
                                                                                                  $260.2              $263.9


Current  liabilities:
  Trade  accounts  payable                                                      $13.9                $13.3
  Employee-related  accruals                                                  11.9                  12.7
  Income  and  other  taxes  payable                                          0.4                    0.4
  Current  portion  of  provisions
  for  exit  activities                                                                3.2                    3.5
  Other  accrued  liabilities                                                    6.7                    9.6
  Deferred  credits                                                                      0.3                    0.6
  Deferred  income  tax
    liabilities  -  current  portion                                          0.1                    0.1
                                                                                                      36.5                  40.2

Long-term  debt  -  convertible  debentures                        77.8                  77.4
Long-term  portion  of  provisions
  for  exit  activities                                                                0.4                    0.4
Pension  liabilities                                                                19.9                  19.9
Deferred  income  tax
  liabilities  -  long-term  portion                                        0.1                    0.2
Long-term  income  taxes  payable                                          10.7                  10.9
Other  long-term  liabilities                                                  0.9                    0.8
                                                                                                    146.3                149.8

Redeemable  preferred  shares,
unlimited  shares  authorized;  non-voting;
  1,260,400  shares  issued  and  outstanding
  (March  28,  2008  -  1,148,800)                                            14.4                  14.7

Shareholders'  equity:
  Common  shares,  unlimited  shares    authorized;  no  par  value;  127,445,682
    shares  issued  and  outstanding
    (March  28,  2008  -  127,345,682)                                    763.1                768.5
  Additional  paid-in  capital                                                10.0                    5.1
  Deficit                                                                                  (637.8)            (638.4)
  Accumulated  other  comprehensive  loss                          (35.8)              (35.8)
                                                                                                      99.5                  99.4
                                                                                                  $260.2              $263.9


                                                  Zarlink  Semiconductor  Inc.
                                                    SUPPLEMENTARY  SCHEDULES
                                    (in  millions  of  U.S.  dollars,  U.S.  GAAP)

Geographic  Information

Revenue,  based  on  the  geographic  location  of  Zarlink's  customers,  was
distributed  as  follows:

                                Three  Months                Three  Months                Three  Months
                                              Ended                              Ended                              Ended
                                          June  27,  %  of            March  28,  %  of              June  29,  %  of
                                                2008  Total                    2008  Total                    2007  Total

Europe                                  $17.0        28%                $15.1        27%                $11.8        38%
Asia  -  Pacific                    29.5        49                    26.7        49                    10.6        35
Americas                                14.0        23                    13.0        24                      8.2        27
                                              $60.5      100%                $54.8      100%                $30.6      100%

Product  Group  Information:

Revenue,  based  on  product  group,  was  distributed  as  follows:

                                Three  Months                Three  Months                Three  Months
                                              Ended                              Ended                              Ended
                                          June  27,  %  of            March  28,  %  of              June  29,  %  of
                                                2008  Total                    2008  Total                    2007  Total

Wired                                    $39.1        65%                $35.8        65%                $14.9      49%
Medical                                    9.2        15                      7.5        14                      6.5      21
Optical                                    6.2        10                      4.9          9                      3.5      11
Custom  &  Foundry                  6.0        10                      6.6        12                      5.7      19
                                              $60.5      100%                $54.8      100%                $30.6    100%


Ed Goffin
Media Relations
613 270-7112

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