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ZarlinkSemiconductor (55PT)

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Friday 02 November, 2001

ZarlinkSemiconductor

Interim Results

Zarlink Semiconductor Incorporated
2 November 2001

Zarlink Semiconductor releases fiscal 2002 second quarter results

:: Beats revenue and earnings per share guidance forecasts modest improvement
in fiscal third quarter

OTTAWA, CANADA - Zarlink Semiconductor Inc. (NYSE/TSE: ZL) today released
second quarter results for the Fiscal 2002 period ended September 28, 2001.

Revenue for the second fiscal quarter was better than forecasted at $77.5
million, but lower when compared to $194.3 million for the same period last
year. Sales continue to be affected by the prolonged downturn of the
semiconductor industry.

Adjusted Net Loss ((x)) for the quarter was better than expected at $27.2
million, representing a loss of $0.22 per share. This compares to Adjusted
Net Income of $25.1 million or $0.20 per share for the same period last year.

'We are managing our way through a very difficult period for our industry
by aggressively controlling our spending and driving down our new product
development times,' said Patrick J. Brockett, president and CEO, Zarlink
Semiconductor.

'I'm pleased to report that Zarlink launched a record twelve new products
during the second quarter. These included the industry's highest density
packet processor for broadband networking, the industry's best price-
performance voice echo cancellers, and the highest capacity, most flexible
TDM digital switches available. I am very confident that our focus on time
-to-market improvement will give us an increasing flow of exciting new
products that customers want.'

In the second quarter, Zarlink recorded a net loss of $33.1 million or
$0.27 per share.

Order backlog at the end of the second quarter was $118.1 million,
compared with $126.8 million at the close of the previous quarter.

Review of Operations
--------------------

In the second quarter, Zarlink continued to exercise rigorous spending
controls that were initiated earlier this year. As a result, selling and
administrative expenses were sequentially reduced in the second quarter, and
were down to $24.0 million or 31% of sales, a reduction of approximately $2
million compared to the previous quarter. These expenses were $33.7 million
for the second quarter of Fiscal 2000.

At the same time, Zarlink continued to substantially support its research
and development programs. For the quarter, R&D investments totaled $28.7
million or 37% of sales, and were up marginally from the same period last
year.

Gross margin for the second quarter was 31% of sales, compared to 49% of
sales in the previous quarter. Gross margin was adversely affected by low
manufacturing volumes across all of Zarlink's fabrication plants as a result
of the sequential decline in sales and the company's inventory reduction
program.

Fiscal 2002 Outlook
-------------------

Zarlink continues to aggressively invest in its portfolio of wired,
wireless and optical communications products and ultra low-power medical
devices. The company is also obsessively pursuing time-to-market process
improvements. Together, these measures will ensure that compelling new
products are created and launched faster than at any time in Zarlink's
history.

As well, during the second quarter Zarlink implemented additional cost
reductions in its fabs and expects to see the positive impact of these
measures going forward. At the same time, the company is actively exploring
alternate ownership possibilities of its manufacturing plants as Zarlink
moves toward a fabless model of operation.

During the latter part of the second fiscal quarter, the company saw
improving new orders for near-in delivery. Consequently, Zarlink expects a
modest rise in revenues for the third quarter of Fiscal 2002 to $80 million,
resulting in a reduced Adjusted Net Loss of $0.20 per share.

About Zarlink Semiconductor
---------------------------

Zarlink employs its formidable analog, digital and mixed-signal
capabilities to offer compelling products for wired, wireless and optical
connectivity markets and ultra low-power medical applications. For more
information, visit www.zarlink.com.

((x)) As a supplementary measure to assess financial performance,
management utilizes Adjusted Net Income (Loss) and Adjusted Net Income (Loss)
per common share which exclude the impact of amortization of acquired
intangibles, impairment and special charges, non-cash debt issue and other
costs expensed on an early partial debt repayment, and discontinued
operations.

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 risks discussed in documents filed by the Company
with the Securities and Exchange Commission. Investors are encouraged to
consider the risks detailed in those filings.

An open conference call for analysts will be held today from 8:30-9:30am
ET. Dial 1-800-482-2225 or 303-224-6998. The replay number is 1-800-625-5288
or 303-804-1855, passcode 1285747 and it will be available until November 9.
Zarlink's analyst call will also be webcast via CCBN's
www.companyboardroom.com. CCBN's registered institutional investors can also
access the webcast at www.streetevents.com.


                         Zarlink Semiconductor Inc.
                         CONSOLIDATED BALANCE SHEETS
                      (in millions of Canadian dollars)
                                 (Unaudited)

                                                   Sept. 28,     March 30,
                                                     2001          2001
                                                  -----------   ----------
    ASSETS

    Current assets:
     Cash and cash equivalents                    $   209.1      $   283.7
     Accounts receivable                               56.3           85.5
     Inventories                                       84.3          133.9
     Investment tax credits recoverable                   -           15.8
     Future income tax assets                           5.5            1.9
     Prepaid expenses and other                        23.3           23.5

                                                  -------------------------
                                                      378.5          544.3

    Long-term receivables                              24.6           15.8
    Long-term investments                              26.3           24.8
    Fixed assets                                      209.8          207.0
    Acquired intangible assets                         17.7           38.1
    Other assets                                        2.5            5.6

                                                  -------------------------
                                                  $   659.4      $   835.6
                                                  -------------------------
                                                  -------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY

    Current liabilities:
     Accounts payable and accrued liabilities     $   123.6      $   146.5
     Income and other taxes payable                     2.9            7.1
     Future income tax liabilities                        -            7.3
     Deferred revenue                                   6.4            5.9
     Current portion of long-term debt                  7.3            9.2
                                                  -------------------------
                                                      140.2          176.0
    Long-term debt                                      4.0            7.6
    Pension liability                                  17.4           17.2
    Future income tax liabilities                      15.8            7.2
                                                  -------------------------
                                                      177.4          208.0
                                                  -------------------------

    Shareholders' equity:
     Capital stock
      Preferred shares                                 36.0           36.6
      Common shares                                   638.4          635.2
     Contributed surplus                                9.1            9.2
     Deficit                                         (208.5)         (57.7)
     Translation account                                7.0            4.3
                                                  -------------------------
                                                      482.0          627.6
                                                  -------------------------
                                                  $   659.4      $   835.6
                                                  -------------------------
                                                  -------------------------


                         Zarlink Semiconductor Inc.
                  CONSOLIDATED STATEMENTS OF INCOME (LOSS)
         (in millions of Canadian dollars, except per share amounts)
                                 (Unaudited)

                              Three Months Ended         Six Months Ended
                             Sept. 28,   Sept. 29,    Sept. 28,   Sept. 29,
                               2001        2000         2001        2000
                             ------------------------------------------------
    Revenue                   $  77.5     $ 194.3      $ 182.5     $ 378.1
                             ------------------------------------------------


    Cost of sales:
     Cost of sales other
      than amortization          48.9        82.1        140.3       155.5
     Amortization of
      manufacturing assets        4.9        12.6         12.3        26.0
                             ------------------------------------------------
                                 53.8        94.7        152.6       181.5
                             ------------------------------------------------
    Gross margin                 23.7        99.6         29.9       196.6
                             ------------------------------------------------

    Expenses:
     Selling and
      administrative             24.0        33.7         50.0        63.3
     Research and
      development (net)          28.7        27.5         60.1        52.0
     Special charge                 -           -         53.6           -
     Amortization of acquired
      intangibles                 5.4        23.9         21.2        24.0
                             ------------------------------------------------
                                 58.1        85.1        184.9       139.3
                             ------------------------------------------------

    Operating income (loss)
     from continuing
     operations                 (34.4)       14.5       (155.0)       57.3
    Equity loss from
     investment in Optenia,
     Inc.                        (1.4)          -         (2.2)          -
    Interest income               2.3         3.4          5.5         6.4
    Interest expense             (0.3)       (4.8)        (0.6)      (10.1)
    Debt issue costs                -           -            -        (0.6)
                             ------------------------------------------------
    Income (loss) from
     continuing operations
     before income taxes        (33.8)       13.1       (152.3)       53.0
    Income tax recovery
     (expense)                    0.7       (11.9)         3.1       (24.3)
                             ------------------------------------------------

    Net income (loss) from
     continuing operations      (33.1)        1.2       (149.2)       28.7
                             ------------------------------------------------

    Income (loss) from
     discontinued operations        -         5.4            -        (0.6)
                             ------------------------------------------------

    Net income (loss) for
     the period               $ (33.1)    $   6.6      $(149.2)    $  28.1
                             ------------------------------------------------
                             ------------------------------------------------


    Net income (loss)
     attributable to common
     shareholders after
     preferred share
     dividends                $ (33.9)    $   5.8      $(150.8)   $  26.5
                             ------------------------------------------------
                             ------------------------------------------------

    Net income (loss) per
     common share from
     continuing operations:
      Basic                   $ (0.27)    $      -     $ (1.20)   $  0.23
                             ------------------------------------------------
                             ------------------------------------------------
      Diluted                 $ (0.27)    $      -     $ (1.20)   $  0.22
                             ------------------------------------------------
                             ------------------------------------------------

    Net income (loss) per
     common share:
      Basic                   $ (0.27)    $   0.05     $ (1.20)    $ 0.23
                             ------------------------------------------------
                             ------------------------------------------------
      Diluted                 $ (0.27)    $   0.05     $ (1.20)    $ 0.22
                             ------------------------------------------------
                             ------------------------------------------------

    Weighted average number
     of common shares
     outstanding (millions):
      Basic                     125.6        121.3       125.4     117.7
                             ------------------------------------------------
                             ------------------------------------------------
      Diluted                   127.8        127.1       127.6     122.8
                             ------------------------------------------------
                             ------------------------------------------------

    Percentage of sales:
    Gross margin (excluding
     excess inventory
     charge of $45.0 in
     Q1 FY02)                      31%          51%         41%       52%
    Selling and
     administrative                31%          17%         27%       17%
    Research and development
     (net)                         37%          14%         33%       14%



                         Zarlink Semiconductor Inc.
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                      (in millions of Canadian dollars)
                                 (Unaudited)

                                                        Six Months Ended
                                                   Sept. 28,     Sept. 29,
                                                     2001          2000

    CASH PROVIDED BY (USED IN)                    -------------------------

    Operating activities:
     Net income (loss) for the period             $  (149.2)    $     28.1
     Amortization of capital and other assets          44.3           83.4
     Investment tax credits                               -            5.2
     Loss on disposal of capital assets                 0.5            2.4
     Loss related to equity investment                  2.2              -
     Future income taxes                               (1.6)          (3.4)
     Change in pension liability                        0.4            0.3
     Decrease (increase) in working capital            61.5          (49.4)
                                                  -------------------------
       Total                                          (41.9)          66.6
                                                  -------------------------

    Investing activities:
     Change in short-term investments                     -           39.3
     Expenditures for capital and other assets        (33.7)         (44.0)
     Proceeds from disposal of capital assets           0.3            1.1
     Proceeds from repayment of note receivable         6.9              -
     Acquisitions                                         -           10.3
     Proceeds from sale of prior year
      discontinued operations - net                     2.0              -
     Increase in long-term investments                 (3.1)             -
                                                  -------------------------
       Total                                          (27.6)           6.7
                                                  -------------------------

    Financing activities:
     Repayment of long-term debt                       (1.4)         (27.1)
     Repayment of capital lease liabilities            (4.1)         (19.3)
     Dividends on preferred shares                     (1.6)          (1.6)
     Issue of common shares - net                       3.2            7.0
     Repurchase of common and preferred shares         (0.7)          (0.1)
                                                  -------------------------
       Total                                           (4.6)         (41.1)
                                                  -------------------------

    Effect of currency translation on cash             (0.5)          (0.1)
                                                  -------------------------

    Increase (decrease) in cash and
     cash equivalents                                 (74.6)          32.1

    Cash and cash equivalents,
     beginning of period                              283.7          195.5

                                                  -------------------------
    Cash and cash equivalents, end of period      $   209.1     $    227.6
                                                  -------------------------
                                                  -------------------------


                         Zarlink Semiconductor Inc.
                           SUPPLEMENTARY SCHEDULES
         (in millions of Canadian dollars, except per share amounts)
                                 (Unaudited)

Adjusted Net Income (Loss)

As a supplementary measure to assess financial performance, management
utilizes Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per common
share which excludes the impact of excess inventory and special charges,
amortization of acquired intangibles, non-cash debt issue and other costs
expensed on an early partial debt repayment, and discontinued operations. The
Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per common share
were as follows:


                                                       Three Months Ended
                                                    Sept 28,     Sept. 29,
                                                      2001         2000
                                                   ------------------------

    Net income (loss) for the period as reported    $ (33.1)    $      6.6

    Adjusted Net Income (Loss), as adjusted for:
     Amortization of acquired intangibles               5.4           23.9
     Adjustment to income tax recovery from Q1
      excess inventory charge to cost of sales          0.5              -
     Income from discontinued operations, net of
      income tax                                          -           (5.4)
                                                   ------------------------
    Adjusted Net Income (Loss) for the period       $ (27.2)    $     25.1
                                                   ------------------------

                                                   ------------------------

    Adjusted Net Income (Loss) per common share
     (after preferred share dividends) - basic      $ (0.22)    $     0.20
                                                   ------------------------
                                                   ------------------------

                                                      Six Months Ended
                                                    Sept 28,     Sept. 29,
                                                      2001         2000
                                                   ------------------------

    Net income (loss) for the period as reported    $(149.2)    $     28.1

    Adjusted Net Income (Loss), as adjusted for:
     Excess inventory charge to cost of sales          45.0              -
     Special charge                                    53.6              -
     Amortization of acquired intangibles              21.2           24.0
     Debt issue costs                                     -            0.6
     Income tax recovery from excess inventory
      charge to cost of sales                         (6.0)              -
     Loss from discontinued operations, net of
      income tax                                         -             0.6

                                                  -------------------------

    Adjusted Net Income (Loss) for the period      $ (35.4)     $     53.3
                                                  -------------------------
                                                  -------------------------

    Adjusted Net Income (Loss) per common share
     (after preferred share dividends) - basic     $ (0.30)     $     0.44
                                                  -------------------------
                                                  -------------------------


                         Zarlink Semiconductor Inc.
                           SUPPLEMENTARY SCHEDULES
                      (in millions of Canadian dollars)
                                 (Unaudited)

Product Information (Continuing Operations)

Revenue, by product, was distributed as follows:

                               Three Months Ended        Six Months Ended
                              Sept. 28,   Sept. 29,    Sept. 28,   Sept. 29,
                                2001        2000         2001        2000
                             ------------------------------------------------

    Communications Segment:
     Network Access           $    30.2   $   82.0     $    70.2   $  166.7
     User Access                   14.6       40.3          34.6       68.7
     Custom Products               21.4       60.5          52.0      119.6
                             ------------------------------------------------
    Total Communications
     revenue                       66.2      182.8         156.8      355.0
    Medical Segment                11.3       11.5          25.7       23.1
                             ------------------------------------------------
    Total                     $    77.5   $  194.3     $   182.5   $  378.1
                             ------------------------------------------------
                             ------------------------------------------------

Geographic Information (Continuing Operations)

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

                               Three Months              Three Months
                                  Ended       % of          Ended      % of
                              Sept. 28, 2001  Total   Sept. 29, 2000   Total
                             ---------------  -----   --------------   -----

    United States               $   24.6       32 %     $   87.8        45 %
    Europe                          26.7       34           57.5        30
    Asia - Pacific                  18.9       24           41.1        21
    Canada                           5.8        8            5.0         3
    Other Regions                    1.5        2            2.9         1
                             ---------------  -----   --------------   -----
                                $   77.5      100 %     $  194.3       100 %

                             ---------------  -----   --------------   -----

                                Six Months              Six Months
                                  Ended       % of        Ended        % of
                              Sept. 28, 2001  Total    Sept. 29, 2000  Total
                             ---------------  -----    --------------  -----

    United States               $   58.2       32 %      $  159.4       42 %
    Europe                          64.6       35           111.0       29
    Asia - Pacific                  41.9       23            91.8       24
    Canada                          13.3        8            10.7        3
    Other Regions                    4.5        2             5.2        2
                             ---------------  -----    --------------  -----
                                $  182.5      100 %      $  378.1      100 %
                             ---------------  -----    --------------  -----
                             ---------------  -----    --------------  -----


                         Zarlink Semiconductor Inc.
                           SUPPLEMENTARY SCHEDULES
                      (in millions of Canadian dollars)
                                 (Unaudited)

Information on Business Segments (Continuing Operations)

                                                        Unallocated
    Three Months Ended     Communications     Medical      Costs      Total
     Sept. 28, 2001        -------------------------------------------------


    Revenue                   $   66.2        $  11.3     $    -    $  77.5
    Amortization of
     buildings and
     equipment                    10.1            0.1          -       10.2

    Amortization of
     acquired intangibles            -              -        5.4        5.4
    Segment's operating
     income (loss)               (33.0)           4.0       (5.4)     (34.4)


                                                        Unallocated
    Three Months Ended     Communications     Medical      Costs      Total
     Sept. 29, 2000        -------------------------------------------------

    Revenue                   $  182.8        $  11.5     $    -    $ 194.3
    Amortization of
     buildings and
     equipment                    22.2            0.3          -       22.5
    Amortization of
     acquired intangibles            -              -       23.9       23.9
    Segment's operating
     income                       37.6            0.8      (23.9)      14.5



                                                        Unallocated
    Six Months Ended       Communications     Medical      Costs      Total
     Sept. 28, 2001        -------------------------------------------------

    Revenue                   $  156.8        $  25.7     $    -    $ 182.5
    Amortization of
     buildings and
     equipment                    22.9            0.2          -       23.1
    Amortization of
     acquired intangibles            -              -       21.2       21.2
    Excess inventory
     charge to cost of
     sales                           -              -       45.0       45.0
    Special charge                   -              -       53.6       53.6
    Segment's operating
     income (loss)               (42.9)           7.7     (119.8)    (155.0)


                                                        Unallocated
    Six Months Ended       Communications     Medical      Costs      Total
     Sept. 29, 2000        -------------------------------------------------

    Revenue                   $  355.0        $  23.1     $    -    $ 378.1
    Amortization of
     buildings and
     equipment                    43.6            0.5          -       44.1
    Amortization of
     acquired intangibles            -              -       24.0       24.0
    Segment's operating
     income                       78.2            3.1      (24.0)      57.3



For further information: Jacques Guerette, Corporate Communications,
613 270-7110, jacques.guerette@zarlink.com; Mike McGinn, Investor
Relations, 613 270-7210, mike.mcginn@zarlink.com