Agere Systems Reports Results for Third Quarter Fiscal 2004

ALLENTOWN, Pa.-- July 21, 2004 -- Agere Systems (NYSE: AGR.A, AGR.B) today reported that revenues for the third quarter of fiscal 2004, ended June 30, were $495 million, up 9 percent over the year-ago quarter, and 7 percent sequentially, driven by growth in sales of chips for mobile phones and wireless infrastructure, as well as an increase in revenues from intellectual property licensing.

The company’s Infrastructure Systems business reported revenues of $146 million, up 11 percent from the year-ago quarter and 14 percent sequentially. The company’s Client Systems business reported revenues of $349 million, up 8 percent from the year-ago quarter, and 4 percent sequentially.

The company reported a GAAP net income of $2 million or breakeven per share, compared with the year-ago net loss of $78 million or $0.05 per share. March quarter net income was $74 million, or $0.04 per share, including an $82 million tax benefit.

The company reported a pro forma net income of $12 million, or $0.01 per share, compared with a pro forma net loss of $74 million, or $0.04 per share in the year-ago quarter. In the March quarter, the company reported a pro forma net income of $83 million, or $0.05 per share, including an $82 million tax benefit.

Pro forma net income excludes gain or loss from the sale of, and income or loss from, discontinued operations; net restructuring and other charges; purchased in-process research and development charges related to acquisitions; amortization of acquired intangible assets; net gain or loss from the sale of operating assets and cumulative effect of an accounting change.

The company reported its fourth consecutive quarter of positive cash flow from operations, less capital expenditures, generating $8 million in the June quarter. The company reduced its total debt by $15 million sequentially, while also improving cash and cash in trust by $6 million to $785 million.

“We grew our revenues, increased our gross margins and reported another quarter of profitability,” said John Dickson, president and CEO, Agere Systems. “We posted our strongest quarter of revenues from chips for mobile phones, and also saw good growth in chips for wireless infrastructure. As we had indicated previously, our storage sales were impacted by pricing and customer inventory issues; however, we remain the number one supplier of chips for hard disk drives and well-positioned to grow in both desktop and one-inch portable drives.”

Agere Reorganization

The company also announced it will simplify its organization structure to focus more sharply on its four key markets: mobility, storage, enterprise and networking, and telecommunications. The four business divisions will report directly to Dickson, eliminating the Infrastructure Systems and Client Systems structure, which removes a layer of management.

The Mobility division, which will include the company’s mobile phone, Wi-Fi, voice over IP and mobile entertainment device ICs, will be led by Luc Seraphin, who has spearheaded the company’s growth in mobile phones. The Storage division will continue to be led by Joe O’Hare, who has expanded Agere’s storage IC leadership into one-inch drives. Enterprise and Networking will include custom solutions, modem ICs and computer I/O products and will be led by Necip Sayiner, who has successfully grown the company’s custom silicon business. Telecommunications, which will include all standard solutions for wireless and wireline infrastructure, will be led by Denis Regimbal, who has extensive experience in programmable devices and DSPs.

Concurrent with the organization change, Sohail Khan, who led the Infrastructure Systems Group, will assume a new role as Chief Strategy and Development Officer. His team will provide strategic support across the businesses, including identifying new business opportunities and developing technology platforms that can be leveraged across different applications. Ron Black, who led the Client Systems Group, is leaving Agere to pursue other business interests.

“Simplifying our structure will ensure we are better aligned to pursue the market segments with the most growth potential,” said Dickson. “It also will improve how we engage with customers, develop technology platforms across applications and deliver products.”

Product and Customer Highlights

Recent company highlights include:

• Introduction of Unbreakable Access™, a new network processor technology for improving quality of service in Voice-over-IP telephony via broadband access systems. This technology was co-developed with global communications carrier British Telecom and endorsed by networking equipment leaders Marconi and Fujitsu.
• Announcement that power amplifier maker Danam Communications Inc. of Korea is using Agere’s RF Power solutions in Samsung’s CDMA basestations, which will be deployed by Shanghai Bell, PT Telekom, Mobile 8 and Hutchison Whampoa.
• Introduction of two breakthrough system-on-a-chip (SoC) product families for existing and next-generation access and broadband network systems. The Datamapper™ and MARS™ T-PHY are the industry’s most integrated mapper and framer chips, respectively. Several leading equipment manufacturers have selected these chips for access and metro equipment platforms.
• Introduction of a new Gigabit Ethernet controller, the industry’s first native PCI Express MAC+PHY device. This chip provides PC makers with PCI Express compatibility, significantly lower power consumption, smaller packaging and better design-in and software support.
• Introduction of a suite of new hard disk drive (HDD) chips specifically tailored to meet the performance requirements of individual storage applications, including portable devices. In addition, Agere is developing a new hard disk controller that will enable highly integrated, lower cost storage solutions.
• Announcement that Cornice is using Agere’s low-power read-channel in the company’s 2.0 gigabyte storage device.
• Introduction of the WaveLAN™ 802.11g mini-module for personal digital assistants (PDAs), media players, Smartphones, handheld video game devices, digital cameras and camcorders. This module sets the industry benchmark for power consumption.

Outlook

In the September quarter, the company expects to report revenues in the range of $420 million to $445 million. The majority of the sequential decline is related to 3G chipsets, with some additional decreases in wireless infrastructure and intellectual property licensing revenues. The company expects both GAAP and pro forma results to be in the range of breakeven to a loss of $0.02 per share.

“Our forecast for the September quarter is primarily linked to issues at three major customers,” said Dickson. “We firmly believe that the markets we are pursuing--storage, mobility, enterprise networking and wireless and wireline infrastructure--will drive growth for Agere moving forward. We are confident that we have the product leadership and customer relationships for success in these markets.”

Click for Financial Statements of Third Quarter 2004

Earnings Webcast

Agere Systems will host a conference call today at 8:30 a.m. EDT to discuss its financial results and outlook. To listen to the conference call via the Internet, visit http://www.agere.com/webcast. Subsequent to the conference call, a replay will be available at the same web address.

Agere Systems is a global leader in semiconductors for storage, wireless data, and public and enterprise networks. The company's chips and software power a broad range of computing and communications applications, from cell phones, PCs, PDAs, hard disk drives and gaming devices to the world’s most sophisticated wireless and wireline networks. Agere's customers include the top manufacturers of consumer electronics, communications and computing equipment. Agere's products connect people to information and entertainment at home, at work and on the road -- making personal broadband a reality.