Ottawa, Canada, July 23, 2008 -- Zarlink Semiconductor Inc. (NYSE/TSX: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 http://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 http://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: 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 http://www.marketwire.com/ (Marketwire) or from the Company's website at http://www.zarlink.com/. 

For further information:

Ed Goffin
Media Relations
613 270-7112
edward.goffin@zarlink.com

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