SigmaTel Reports Record First Quarter Revenues and Profits; Quarterly

SigmaTel Reports Record First Quarter Revenues and Profits; Quarterly Revenues Up by 215 Percent Year-Over-Year

    Business Editors/Technology Writers

    AUSTIN, Texas--(BUSINESS WIRE)--April 19, 2005--SigmaTel, Inc. (NASDAQ:SGTL), a leader in analog-intensive mixed-signal integrated circuits, today announced results for the quarter ended March 31, 2005. First quarter revenues were $99.3 million, a sequential increase of 26% from fourth quarter 2004 revenues of $78.6 million and up 215% from revenues of $31.5 million in the first quarter of 2004. Pro forma adjusted net income for the first quarter of 2005 was $25.4 million, representing earnings of $0.67 per diluted share, compared to $7.9 million or $0.21 per diluted share in the first quarter of 2004 and a 20% increase from the fourth quarter pro forma adjusted net income results of $21.0 million or $0.56 per diluted share.

    Financial Results

    Under generally accepted accounting principles (GAAP), net income for the first quarter of 2005 was $25.5 million or $0.68 per diluted share, compared to $6.9 million, or earnings per diluted share of $0.18, in the first quarter of 2004 and $19.5 million or $0.52 per diluted share in the fourth quarter of 2004. This GAAP net income includes non-cash charges related to deferred stock-based compensation for all periods and a tax-effected $250,000 adjustment in the first quarter of 2005 to the charge taken in 2004 related to the relocation of the company's Austin, Texas operations. These charges are set forth in the reconciliation of GAAP to non-GAAP financial measures table included below. The first quarter 2005 results included income taxes at an effective tax rate of 34% which compares to an effective tax rate of 2% in the first quarter of 2004 and 23% in the fourth quarter of 2004.
    As of March 31, 2005, SigmaTel reported cash and short-term investments of $150.7 million, which is up from the December 31, 2004 balance of $141.7 million.
    "We are particularly pleased to present another quarter of record results for our shareholders," said Ron Edgerton, chief executive officer and president of SigmaTel. "Our focus on 'Integration via Innovation' has continued to bring design wins through our superior power management techniques, industry-leading firmware and mixed-signal expertise. Our 3500 family of solutions has elevated our company to this level and we are confident that our new generation of multimedia products will continue the rapid pace of adoption that our current products have enjoyed."

    Business Summary

    SigmaTel's sales during the quarter of over 14 million portable SoC solutions into flash and hard-drive MP3 players, as well as continuing new design wins, validates SigmaTel customers' conviction that the 3500 solution is leading the industry. To enhance this growth, several features were added recently to the 3500 including support for JPEG playback capabilities and for large block MLC flash memory, delivering lower cost per bit. Furthermore, with the implementation of Microsoft's new DRM technology, typically referred to as Janus/MTP, the 3500 is the only product presently able to deliver support for both PD DRM and Janus/MTP in a single solution for the flash player market. To further strengthen and broaden its leadership in the portable multimedia SoC market, SigmaTel has taped out its next generation solution, the 3600. The company has been working with select Alpha customers on product development. "The ARM9 architecture adopted for the 3600 family will allow our customers more flexibility, enabling new features such as video and PDA-like functionality, providing an enduring platform that will remain compatible for generations to come," said Edgerton.
    The company's audio codec area continues to gain momentum. The introduction of SigmaTel's first 8-channel high-fidelity codecs for PC and convergent media applications provides the highest audio quality levels in the industry today including theater quality surround sound for high end PC applications. These products were also selected and featured within next-generation Intel development platforms unveiled at the recent Spring Intel Developer Forum. Also SigmaTel expects to report new design wins in the branded desktop and notebook PC market to complement the company's existing healthy notebook PC position.
    In mid-March SigmaTel filed a formal complaint with the International Trade Commission against Actions Semiconductor, based in China, seeking to halt the infringement of SigmaTel's intellectual property rights. The company is also requesting that the ITC order a halt of shipments to the U.S. of products containing Actions' infringing technology. One of Actions' customers has already agreed to stop using the Actions technology, will pay royalties on the past shipments and agreed to use SigmaTel's product over the next 2 years. SigmaTel's CEO stated, "We are committed to taking whatever measures are necessary to protect the integrity of our intellectual property and the investment of our customers and stakeholders."
    SigmaTel added 75 employees to its workforce during the first quarter of 2005, primarily in the area of research and development. As of March 31, 2005, SigmaTel had 318 full-time equivalent employees, compared with 243 at the end of the year. This increase also reflects the expansion of the company's engineering center in Hong Kong, as well as new offices in Taiwan and Singapore. By providing local SigmaTel support to customers, the company is able to emphasize its already strong commitment to the area.

    Business Outlook

    "Our portfolio of design-winning products has grown significantly and the financial success from these solutions has allowed the company to enhance our current offerings and examine other areas where we can use our mixed-signal expertise to integrate and innovate," said Mr. Edgerton. "We believe the dominance of our products in these target markets will continue as we introduce a new generation of multimedia chips. Carefully monitoring the various components of the competitive market conditions, as well as the needs of our customers, our goal remains at a minimum to maintain, if not enhance, our substantial technological lead and the resulting financial performance. The continuing development of new and existing customer relationships should positively impact our results through the end of the year. We have carefully considered all of these issues along with expected business developments and factored them into our guidance for the second quarter."

    Specific guidance for the second quarter of 2005:

--	Revenues are expected to be between $86.0 million and $95.0 million, up 135% to 160% when compared to the $36.6 million of revenues in the second quarter of 2004.
--	Gross margin is expected to be approximately 56 percent. SigmaTel's gross margin percentage varies primarily with product mix, pricing, and unit costs.
--	Pro forma net income is expected to be between $18.3 million and $21.5 million including a provision for income taxes at a rate of 34 percent. This excludes the amortization of non-cash deferred stock-based compensation of approximately $0.2 million.
--	GAAP net income is expected to be between $18.1 million and $21.3 million, including a provision for income taxes at a rate of 34 percent.
--	Pro forma diluted EPS is expected to be between $0.48 and $0.57.

    Conference Call Today

    A conference call will be held today, April 19, 2005, beginning at 3:30 P.M. Central Time. This call will be simulcast via SigmaTel's website at www.sigmatel.com/investor.relations. Replays of the call will be available at this web address and via telephone at 800-633-8284 (U.S.) and 402-977-9140 (international) by entering reservation number 21236389. These replays will be available through May 19, 2005.

    About SigmaTel:

    SigmaTel, Inc., a fabless semiconductor company headquartered in Austin, Texas, designs, develops, and markets proprietary, analog intensive, mixed-signal ICs for a variety of products in the consumer electronics and computing markets, including portable compressed audio players, such as MP3 players, notebook and desktop PCs, DVD players, digital televisions, and set-top boxes. SigmaTel provides complete, system-level solutions that include highly-integrated ICs, customizable firmware and software, software development tools, reference designs, and applications support. The Company's focus is on providing system-level solutions that enable customers to rapidly introduce and offer electronic products that are small, light-weight, power-efficient, reliable, and cost-effective. SigmaTel is ISO 9001:2000 certified and is committed to providing customers with high performance, quality products along with superior customer service.
    Readers may obtain investment information from the company's investor relations department at 512-381-3931, by sending email to investor.relations@sigmatel.com, or on the Web at www.sigmatel.com/investor.relations.

    Cautionary Language:

    This press release contains forward-looking statements based on current SigmaTel expectations. The words "expect," "will," "should," "would," "anticipate," "project," "outlook," "believe," "intend," and similar phrases as they relate to SigmaTel or future events are intended to identify such forward-looking statements. These forward-looking statements reflect the current views and assumptions of SigmaTel, but are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. A number of important factors could cause actual results to differ materially from those in the forward-looking statements, and there will be events in the future that SigmaTel is not able to accurately predict or control. Among the factors that could cause actual results to differ materially from those in the forward-looking statements are the following: risks that SigmaTel may not be able to maintain its high growth rate; risks that adverse changes in the global economy may reduce demand for SigmaTel's products; risks that shortages of supply for other components of MP3 players may limit customer demand to purchase SigmaTel's portable audio SoCs; quarterly fluctuations in revenue and operating results due to seasonal fluctuations in demand for consumer electronics products and other factors; risks that SigmaTel's foundry suppliers may not allocate to it sufficient silicon wafers to meet its demand due to SigmaTel's lack of long term supply contracts with foundries and tightening foundry capacity; risks that SigmaTel may not be able to successfully manage strains associated with its growth; risks that SigmaTel's new products under development may not be completed in a timely fashion and may not achieve market acceptance; risks with managing international activities; intellectual property litigation risk; dependence on a limited number of products; the semiconductor industry's cyclical nature; geographic concentration of foundries, assembly and test facilities, distributors, and customers in the Pacific Rim, subjecting SigmaTel to risks of natural disasters, epidemics (such as SARS), and political unrest; and other factors. For a discussion of these and other factors that could impact SigmaTel's financial results and cause actual results to differ materially from those in the forward-looking statements, please refer to recent SigmaTel filings with the SEC, particularly the 424(b)(4) final prospectuses filed September 19, 2003 and February 19, 2004, the Form 10-Qs that were filed on October 29, 2003, April 20, 2004, July 20, 2004 and October 19, 2004, the Form 10-K that was filed on February 17, 2004, and the Form 10-K that SigmaTel filed February 8, 2005 covering the annual period ended December 31, 2004, and the Form 10-Q that SigmaTel anticipates filing shortly covering the quarterly period ended March 31, 2005.

    Non-GAAP Financial Measurements

    In addition to the GAAP results provided by this document, the company has provided non-GAAP financial measurements that present net income and net income per share on a basis excluding certain non-cash charges. Details of these excluded items are presented in the table below, which reconciles the GAAP results to non-GAAP financial measurements described in this press release. Also, this press release and the reconciliation from GAAP results to these and other additional non-GAAP financial measurements that may be discussed in the Q1 2005 earnings conference call can be found on the company's website at www.sigmatel.com/investor.relations.

    SigmaTel is a registered trademark of SigmaTel, Inc. All other products and brand names as they appear in this release are trademarks or registered trademarks of their respective holders. All specifications may be changed without notice.

SIGMATEL, INC. PRO FORMA VS. GAAP RESULTS (in thousands)

Three Months Ended March 31, ----------------------- 2005 2004 -------------------------------------------- ----------- ----------- Net income, as reported $25,530 $6,931 Pro forma adjustments:

Deferred stock-based compensation (tax effected) 117 975

Partial reversal of lease abandonment charge (tax effected) (250) -- ----------- ----------- Pro forma net income $25,397 $7,906 =========== ===========

Diluted weighted average shares outstanding 37,756 38,446

Diluted net income per share, as reported $0.68 $0.18 =========== ===========

Diluted net income per share, pro forma $0.67 $0.21 =========== ===========

SIGMATEL, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)

Three Months Ended March 31, ------------------------ 2005 2004 ------------ ----------- Revenues, net $99,338 $31,500 Cost of goods sold 42,294 14,784 ------------ ----------- Gross Profit 57,044 16,716

Operating Expenses: Research and development 11,870 6,083 Selling, general and administrative 7,114 2,899 Amortization of deferred stock-based compensation 180 995 ------------ ----------- Total operating expenses 19,164 9,977 ------------ ----------- Operating income 37,880 6,739

Interest income, net 822 333 ------------ -----------

Income before income taxes 38,702 7,072

Income tax expense 13,172 141 ------------ -----------

Net income $25,530 $6,931 ============ ===========

BASIC NET INCOME PER SHARE $0.72 $0.20 ============ =========== DILUTED NET INCOME PER SHARE $0.68 $0.18 ============ ===========

WEIGHTED AVERAGE SHARES USED TO COMPUTE: Basic net income per share 35,398 34,487 Diluted net income per share 37,756 38,446

SIGMATEL, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands) (unaudited)

March 31, December 31, 2005 2004 ------------ ------------- ASSETS Current Assets: Cash and cash equivalents $30,221 $27,246 Short-term investments 120,527 114,451 Accounts receivable, net 62,090 34,195 Inventories, net 37,106 19,411 Deferred tax asset, net 8,375 7,613 Prepaid expenses and other assets 4,689 4,241 ------------ ------------- Total current assets 263,008 207,157

Property, equipment and software, net 8,638 7,116 Intangible assets, net 4,729 4,357 Other assets 1,139 1,285 ------------ -------------

Total assets $277,514 $219,915 ============ =============

LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $35,134 $23,016 Accrued compensation 2,350 3,884 Other accrued expenses 2,292 2,459 Income taxes payable 1,587 239 Deferred revenue 13,604 7,286 Current portion of long-term obligations 903 1,223 ------------ ------------- Total current liabilities 55,870 38,107

Non-current income taxes payable 6,646 -- Other liabilities 491 892 ------------ ------------- Total liabilities 63,007 38,999 ------------ -------------

Stockholders' equity: Common stock, $0.0001 par value; 170,000 shares authorized; shares issued and outstanding: 35,735 and 35,645 at 2005 and 35,205 and 35,115 at 2004, respectively 4 4 Additional paid-in capital 181,470 173,480 Notes receivable from stockholders (7) (7) Deferred stock-based compensation (1,207) (1,278) Treasury stock, 90 common shares at cost (741) (741) Accumulated surplus 34,988 9,458 ------------ -------------

Total stockholders' equity 214,507 180,916 ------------ -------------

Total liabilities and stockholders' equity $277,514 $219,915 ============ =============

SIGMATEL, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)

Three Months Ended March 31, --------------------- 2005 2004 ---------- ---------- Cash flows from operating activities: Net income $25,530 $6,931 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,413 1,005 Amortization of deferred stock-based compensation 180 995 Amortization of premium and accretion of discount on securities 80 94 Deferred income tax benefit (569) -- Lease abandonment adjustments (385) -- Tax benefit related to exercise of employee stock options 5,355 -- Other non-cash (benefit) expense (188) 50

Changes in assets and liabilities: Accounts receivable, net (27,895) (428) Inventories, net (17,695) (624) Prepaid expenses and other assets (495) (1,084) Accounts payable 12,118 (2,386) Accrued expenses (1,681) (338) Income taxes payable 7,994 (59) Deferred revenue and other liabilities 5,975 902 ---------- ---------- Net cash provided by operating activities 9,737 5,058 ---------- ----------

Cash flows from investing activities: Proceeds from maturities of short-term investments 29,275 -- Purchase of short-term investments (35,431) (42,410) Purchase of property, equipment, software and intangible assets (3,307) (2,878) ---------- ---------- Net cash used in investing activities (9,463) (45,288) ---------- ----------

Cash flows from financing activities: Payments on capital lease obligations (13) (11) Proceeds from notes receivable from stockholders -- 104 Proceeds from issuance of common stock, net of issuance costs 2,714 8,113 ---------- ---------- Net cash provided by financing activities 2,701 8,206 ---------- ----------

Net increase (decrease) in cash and cash equivalents 2,975 (32,024) Cash and cash equivalents, beginning of period 27,246 61,841 ---------- ---------- Cash and cash equivalents, end of period $30,221 $29,817 ========== ==========

--30--BD/sa*

CONTACT: SigmaTel, Inc., Austin Investor Relations: Debbie Laudermilk, 512-381-3931 investor.relations@sigmatel.com or Press Contact: Nate Long, 512-381-3913 nlong@sigmatel.com

KEYWORD: TEXAS TAIWAN HONG KONG CHINA SINGAPORE INTERNATIONAL ASIA PACIFIC INDUSTRY KEYWORD: ELECTRONIC GAMES/MULTIMEDIA MANUFACTURING SOFTWARE HARDWARE COMPUTERS/ELECTRONICS CONFERENCE CALLS EARNINGS SOURCE: SigmaTel, Inc.

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