SigmaTel Reports Third Quarter 2005 Results; Quarterly Revenues Increase 55 Percent Year-Over-Year

AUSTIN, Texas—(BUSINESS WIRE)—Oct. 25, 2005— SigmaTel, Inc. (NASDAQ: SGTL), a leader in mixed-signal multimedia semiconductors, today announced third quarter 2005 results for the period ended September 30, 2005. Third quarter revenues were $74.4 million, an increase of 55% from third quarter 2004 revenues and a sequential increase of 7% from second quarter 2005 revenues. Under generally accepted accounting principles (GAAP), SigmaTel incurred a net loss for the third quarter of 2005 of $4.8 million or $0.13 per diluted share, compared to net income of $17.3 million, or $0.46 per diluted share, in the third quarter of 2004 and net income of $10.9 million or $0.29 per diluted share in the second quarter of 2005. Pro forma adjusted net income for the third quarter of 2005 was $7.1 million, representing pro forma earnings of $0.19 per diluted share, compared to $13.7 million or $0.37 per diluted share in the third quarter of 2004.

The GAAP loss was driven by acquisition related charges for in-process research and development costs of $11.4 million, as well as amortization of other intangible assets acquired totaling approximately $400,000. The third quarter 2005 results include an income tax expense despite a pretax loss, due to the acquisition activity during the third quarter. This compares to income tax expense at an effective tax rate of 37% in the second quarter of 2005. During the third quarter of 2004, the Company recorded an income tax benefit of $3.8 million, primarily due to the reversal of valuation allowances against the Company's net deferred tax asset.

Revenues for the nine months ended September 30, 2005 were $243.3 million, an increase of 109% from the nine months ended September 30, 2004. Pro forma net income for the nine months ended September 30, 2005 was $43.5 million or $1.16 per diluted share, up from pro forma net income for the nine months ended September 30, 2004 of $30.8 million or $0.81 per diluted share. The year-over-year pro forma diluted earnings per share growth was 43% year to date.

As of September 30, 2005, SigmaTel reported cash and short-term investments of $107 million, which is down from $179 million on June 30, 2005. The Company used $88 million of its cash during the third quarter as consideration paid for acquisitions.

"Throughout the year we have been focused on building a foundation for growth and believe the company now has the technology and design teams in place for SigmaTel to maintain its competitive edge as a diversified mixed signal, multimedia semiconductor company," said Ron Edgerton, President and CEO of SigmaTel. "The company remains focused on execution in its core-markets and growing in new markets providing new opportunities for our customers to be successful."

Business Summary

During the third quarter of 2005, SigmaTel completed the acquisitions of Protocom and Oasis Semiconductor and acquired the software, patents and engineering resources associated with the Rio(R) portable audio product line from D&M Holdings, Inc. The three acquisitions were a key strategic component of SigmaTel's long-term business strategy to diversify its product portfolio and strengthen its intellectual property (IP) base.

SigmaTel's Portable SoC Group continued to win new designs in the third quarter. Several customers introduced new portable digital audio products in the third quarter of 2005. Dell introduced its first flash-based MP3 player, the Dell DJ Ditty, and SHARP introduced a SHARP listening machine, a business-card-sized listening handset that includes MP3 capabilities and recorded special content for English listening study and provides users the ability to learn English in their native voice. Building on the company's brand sales strategy, several global brands like Disney and MGA Entertainment's Bratz brand also entered the growing portable digital audio market with stylish MP3 players targeted at kids. Disney introduced its Disney Mix Stick Player and MGA introduced the Bratz(TM) Plugged in Liptune(TM) MP3 Player.

The company taped-out and received working first silicon for its first FM tuner product during the quarter which interfaces with both the STMP3600 and the STMP3500 family of products, providing SigmaTel with a highly competitive offering. This new level of integration will not only provide customers with the best quality at the lowest system cost, but will also provide stability to gross margins in the portable SoC product segment. The Software Development Kit (SDK) 4.1 for the STMP3600 in flash applications was released during the quarter.

The Integrated Components Group (ICG) continued its momentum in the third quarter of 2005. In September, SigmaTel announced the use of its 8-channel High Definition Audio codecs in a new line of Sony VAIO(R) desktop computers that provide music enthusiasts and home studio users with the world's first consumer PC capable of recording and playback in the Sony DSD format, opening up the world of professional sound creation to main stream consumers. Additionally, SigmaTel announced a new family of high fidelity, high definition audio codecs, the STAC9202, STAC9250 and STAC9251 allowing for digital microphone capabilities and the ability to implement integrated audio and modem functionality directly on the PC motherboard. These new solutions enable notebook PC manufacturers to add advanced capabilities while lowering system costs.

Even though Protocom and Oasis were not a part of SigmaTel for the full quarter, their product contribution was meaningful. Shipments of production quantities of the Protocom 818 solution to Samsung began during the quarter. The Protocom 818 powers the Samsung Mini-Ket Mega, a six-in-one product that combines Digital Video Camera, Digital Still Camera, Internet Camera, MP3 Player, Voice Recorder and Data Storage device into a single compact device. With the Oasis Semiconductor acquisition, SigmaTel entered the Multi-Function Peripheral (MFP) market and during the quarter the company shipped its DC2150, a fully integrated high speed MFP controller chip including LCD and camera card support to customers.

Business Outlook

"SigmaTel is focused on capitalizing on the synergies of all of its products to develop best-in-class solutions and provide customer support through its expanding global infrastructure. With compelling product roadmaps, SigmaTel sees tremendous market opportunities with its STMP3600 product, its upcoming FM Tuner and new products and technologies that are a result of the company's acquisitions," said Mr. Edgerton.

Specific guidance for the fourth quarter of 2005:

-- Revenues are expected to be between $81 million and $91 million, compared to the $78.6 million of revenues in the fourth quarter of 2004.

-- Gross margin is expected to be 53%, plus or minus a couple of percentage points. SigmaTel's gross margin percentage varies primarily with product mix, pricing, and unit costs.

-- GAAP operating expenses are expected to be between $38.5 million and $39.0 million which includes litigation costs of approximately $2.8 million.

-- Pro forma adjusted net income is expected to be between $5.3 million and $7.6 million. This excludes the amortization of non-cash deferred stock-based compensation of approximately $700,000, as well as the projected write-off of approximately $200,000 of in-process R&D costs and amortization of intangible assets from acquisitions of approximately $1.2 million.

-- GAAP net income is expected to be between $3.9 million and $6.1 million.

-- Pro forma adjusted EPS is expected to be between $0.14 and $0.20. Included in this guidance is approximately $.05 per diluted share for projected litigation costs.

The management team of SigmaTel will be making company presentations at two conferences in the fourth quarter. Ron Edgerton, President and CEO will be presenting at the AeA Classic Financial Conference at the Manchester Grand Hyatt in San Diego, California on November 7th and 8th, 2005. Ross Goolsby, Vice President of Finance and Chief Financial Officer will be making a company presentation at the Lehman Brothers Global Technology Conference at the Fairmount Hotel in San Francisco, California on December 7, 2005 at 4:30 pm PT. These presentations will be simulcast and webcast, audio only and available at for 30 days following each conference.

The updated SigmaTel corporate presentation is now available on its corporate website, This presentation incorporates the company's new financial data.

Conference Call Today

SigmaTel will hold a conference call today, October 25, 2005, beginning at 3:30 P.M. Central Time. This call will be simulcast via SigmaTel's website at . A replay will be available after the call at the websites listed above or by calling 888-203-1112 (U.S.) or 1-719-457-0820 (international) and entering reservation number 9457409. These replays will be available through November 25, 2005.

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