The loss from continuing operations was $1.6 million, or $0.10 per share, compared to income of $2.4 million, or $0.14 per share, in the year-ago quarter. For the first quarter of 2002, income (loss) from continuing operations includes a gain of $0.04 per share, versus $0.10 per share for the year-ago quarter, from sales of securities and real estate.

The discontinued operations loss in the first quarter of fiscal 2002 was $0.02 per share and represents legal expenses associated with certain businesses previously disposed by SMSC. Similar or slightly larger charges of this nature are likely in the remaining quarters of the current fiscal year. In the first quarter of fiscal 2001, SMSC sold most of its investment in Standard MEMS, Inc. and realized an after-tax gain of $4.8 million, or $0.29 per share, which was reported as a discontinued operations gain. The net loss for the first quarter of fiscal 2002 was $1.9 million, or $0.12 per share, compared to net income of $7.2 million, or $0.43 per share, in the first quarter of fiscal 2001.

Gross margins for the first quarter of fiscal 2002 were 38.2%, versus 41.2% in the year-ago quarter, principally due to the impact of the general economic decline on SMSC’s Embedded business. SMSC’s higher margin Embedded product revenues were down significantly from the fourth quarter of fiscal 2001 as the current soft economic conditions have spread more broadly. SMSC’s Embedded products service an exceptionally wide customer and applications base, including ATM’s, industrial controls, communications and wireless markets.

Research and development expenses totaled $8.4 million for the first quarter of fiscal 2002, compared to $7.2 million in the first quarter of fiscal 2001. Selling, general and administrative expenses for the first fiscal quarter were $7.8 million, down $0.6 from the same period last year.

SMSC’s balance sheet remains very strong. Cash and short-term investments at the end of the fiscal quarter totaled $107 million, up from $91 million at the end of the prior year’s first quarter and the Company has no debt. The current ratio was 7.5:1 at the end of the first quarter.

As expected, the current economic environment has continued to significantly impact semiconductor industry demand, said Steven J. Bilodeau, Chairman and Chief Executive Officer. However, in line with guidance, SMSC’s first quarter revenue results were fairly similar to the fourth quarter. We believe the PC market has stabilized, as evidenced by the growth of bookings during the quarter. Though shipments have not yet returned to healthy levels, the book-to-bill ratio for the quarter was well above one. We may have reached a bottom in this market and are looking forward to sequential improvement in revenue and operating income over the next couple of quarters.

Mr. Bilodeau continued, Our Embedded product line posted weak results during the first quarter as we absorbed significant order cancellations and pushouts in response to slowing economic conditions. Nevertheless, we maintain a high level of design activity and, with product life cycles being long, we believe that even a modest economic stabilization in the second half will serve to measurably improve results from this group. We expect the second fiscal quarter to also be slow for Embedded product sales but believe that it should be the trough, leading to the start of a recovery in the third quarter.

During the quarter, SMSC announced a cost reduction plan to ameliorate the near term effects of the economic downturn, which includes the following:

Two week shut down of its test facility in Hauppauge, New York

Mandatory paid vacation for U.S. employees during the second fiscal quarter

Closure of its Massachusetts design center

Sale of two underutilized facilities

Reduction in the growth of research and development spending

Our determination of expense reductions was undertaken with care and discretion, said Mr. Bilodeau. Specifically, our core infrastructure has not been impaired, and we have maintained research and development spending on key product initiatives. We believe that these measures will further strengthen the Company, and preserve our ability to effectively capitalize on its targeted growth opportunities when the industry returns to better times.

SOURCE: COMPANY PRESS RELEASE