SigmaTel Reports Highest Quarterly Revenues to Date, up 86 percent over the Second Quarter of 2003

Business Wire, July 20, 2004

AUSTIN, Texas -- SigmaTel, Inc. (Nasdaq:SGTL), a leader in analog intensive, mixed-signal integrated circuits, today announced second quarter results for the period ended June 30, 2004. Quarterly revenues were $36.6 million, up 86 percent from revenues of $19.7 million in the same period in the fiscal year 2003. Pro forma adjusted net income for the second quarter of 2004 was $9.2 million, representing earnings of $0.24 per diluted share, compared to $1.6 million or $0.05 per diluted share in the second quarter of 2003.

Financial Results

Under generally accepted accounting principles (GAAP), net income attributable to common stockholders for the second quarter of 2004 was $8.8 million, resulting in GAAP diluted earnings per share for the quarter of $0.23. This compares to net income attributable to common stockholders of $0.7 million in the second quarter of 2003. This GAAP net income attributable to common stockholders for both periods includes non-cash expenses related to deferred stock-based compensation, as well as deemed dividends on preferred stock for the second quarter of 2003, which are set forth in the reconciliation of GAAP to non-GAAP financial measures table included below.

Revenues for the six months ended June 30, 2004 were $68.1 million, up 109 percent from $32.5 million for the six months ended June 30, 2003. Pro forma net income for the six months ended June 30, 2004 was $17.1 million, up from $1.2 million for the six months ended June 30, 2003. GAAP net income for the six months ended June 30, 2004 was $15.8 million, up from $0.2 million for the six months ended June 30, 2003.

SigmaTel reported cash and short-term investments of $128.8 million as of June 30, 2004, which is up from the December 31, 2003 balance of $111.3 million and up from the March 31, 2004 balance of $121.6 million.

"During the second quarter of 2004, SigmaTel continued to return healthy increases in revenues and profits, resulting in the company's highest quarterly revenues and gross margins to date," said Ron Edgerton, Chief Executive Officer and President. "We maintained our focus on expanding our engineering teams, product development efforts and customer relationships, ensuring that SigmaTel will be a long-term success story. We are continuing to see strong demand for our products, particularly with our STMP3500 portable audio SoC solutions, which are gaining momentum in both flash and hard-drive based MP3 players. The increased sales of our portable audio SoC solutions offset some softness among our USB product offerings and complemented the stable C-Major(TM) audio codec product line business, which continues to meet internal expectations."

Business Summary

SigmaTel reports that the strong growth in its D-Major(TM) portable audio SoC business results from continued strength in the flash-based player market as well as the adoption of the STMP3500 products into numerous hard-drive based portable digital audio players. The company expects more than ten SigmaTel based hard-drive players to be introduced in the third quarter. Additionally, existing customers of SigmaTel's original STMP3400 solutions are transitioning to the feature-rich STMP3500 products. During the quarter, SigmaTel announced the continued enhancement of its portable audio SoC products with support for the latest Microsoft(R) Windows Media(R) digital rights management software as well as new development platforms and bundled software options, further streamlining the design and deployment of D-Major-based MP3 players.

The C-Major audio codec product line continues to be an important area for SigmaTel, posting solid growth. During the second quarter, SigmaTel began sampling its first product that is compliant with the Intel(R) High Definition Audio standard, also known as Azalia. This product is a two-channel device targeted at notebook computers. SigmaTel has already secured significant design wins with major customers, which the company expects to ramp in 2005. SigmaTel plans to develop a full line of Azalia codecs this year and to develop new codecs targeted at the consumer audio market.

The USB-to-Infrared product family continues to lead within its market space and is expected to retain this lead going forward. As this unique wireless market continues to grow, SigmaTel expects to maintain its position because of its unparalleled integration and rich feature set.

SigmaTel also reported that it added 32 employees to its workforce during the second quarter of 2004, primarily in the area of research and development in Austin, Texas. As of June 30, 2004, SigmaTel employed 192 people, compared with 115 at this time last year.

Business Outlook

"We are pleased to report that we continue to expect healthy business growth and exciting new product and business developments as we approach the anniversary of our first year as a public company in Q3," said Mr. Edgerton. "Our customers expect the portable digital audio player market to continue growing at a very healthy rate during the remainder of 2004 and that supply conditions in the flash market continue to improve. We anticipate solid growth in revenues and profits in the second half of 2004."