Volumes down for Zarlink

Zarlink Semiconductor has released results for the fiscal 2004 second quarter ended 26th September 2003.

Zarlink Semiconductor has released results for the fiscal 2004 second quarter ended 26th September 2003, prepared in accordance with US Generally Accepted Accounting Principles.

On 23rd September 2003, Zarlink announced revised guidance for its fiscal 2004 second quarter.

In line with that revised guidance, second quarter revenue was US $46.6 million, compared with US $53.7 million in the first quarter, and up 1% from US $46.2 million in the same period last year.

For the first six months of fiscal 2004, revenues reached US $100.3 million, up 6.5% from US $94.2 million in the first half of fiscal 2003.

Zarlink recorded a second quarter net loss of US $18.9 million, or US $0.15 per share, of which US $0.07 was related to restructuring activities announced earlier.

For the same period in fiscal 2003, the company recorded a net loss of US $11.9 million or US $0.10 per share.

As previously announced, second quarter revenue was impacted by bookings in August that were lower than expected.

"Although bookings are now improving, we are taking additional steps to lower our costs and return the company to profitability", said Patrick J Brockett, President and Chief Executive Officer, Zarlink Semiconductor.

Gross margin for the second quarter was 42% of revenue, compared with 48% in the first quarter.

The reduction in gross margin was primarily due to reduced volume in the quarter, as compared to the first quarter.

Also impacting gross margin for the second quarter was US $0.6 million of severance costs as the company finalises its outsourcing programmes, and a change in product mix from the first quarter.

At the end of the second quarter, the company's 90-day backlog stood at US $29 million, compared with US $33 million at the end of the first quarter.

Cash (the company's cash is composed of cash, cash equivalents, short-term investments and restricted cash) at the end of the second quarter was US $97 million, compared with US $108 million in the first quarter.

The decrease was principally due to severance payments related to restructuring activities, and scheduled annual payments for insurance and other operating expenses.

The combination of cash, cash equivalents, short-term investments and restricted cash is a non-GAAP measure, which is discussed below and reconciled in this press release.

R and D expenses in the second quarter were US $19.2 million, or 41% of revenue, and included US $1 million in severance costs.

R and D expenses were US $19.2 million in the previous quarter, and US $22.9 million in the second quarter of fiscal 2003.

Selling and administrative expenses were US $14.2 million in the second quarter and included severance costs of US $1.8 million and other charges of US $1.0 million.

This compares to US $11.6 million in the first quarter, which included severance costs of US $0.2 million.

In addition to the above-mentioned severance costs of US $3.4 million recorded during the quarter, Zarlink recorded a charge of US $0.6 million related to excess space under lease contract, and an impairment loss on fixed assets of US $4.7 million, based upon a review of ongoing usage of its testing equipment and enterprise resource planning system.

Zarlink is forecasting revenues of US $47 million in the third quarter of fiscal 2004, compared with US $46.8 million recorded in the year-earlier period.

Third quarter revenues are expected to be sequentially flat as expected year-over-year revenue increases in the company's consumer communications and ultra low-power communications business units will be offset by declines in network communications' revenues.

The company is announcing reduced spending primarily in its network communications business unit, as it moves to return to profitability.

These spending reductions are expected to generate savings of US $3.0 million per quarter, the full benefit of which will be realised in the first quarter of next fiscal year.

Accordingly, the company expects to record a restructuring charge of approximately US $4.5 million, which will be taken in the third quarter of fiscal 2004, related to reducing its global workforce by approximately 5%.

As a result of these actions and the revenue guidance given above, Zarlink expects to record a third quarter net loss of approximately US $0.10 per share, including US $0.04 per share in restructuring costs.

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