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Exar Reports Third Quarter Fiscal 1999 Operating Results

Tuesday, January 26, 1999
Fremont, Calif., Jan. 26 -- Exar Corporation (Nasdaq: EXAR) today reported operating results for the third quarter fiscal 1999. Revenue for the third quarter of fiscal 1999 was $15.8 million compared to third quarter fiscal 1998 revenue of $26.6 million. Net income for the third quarter of fiscal 1999 was $0.6 million or $0.06 per diluted share after a pre-tax restructuring charge of $0.7 million related primarily to the divestiture of the Silicon Microstructures Division. Net income for the third quarter of fiscal 1998 was $2.3 million or $0.23 per diluted share.


Third quarter fiscal 1999 revenue decreased 18.0% from $19.2 million in the preceding quarter. Net income in the third quarter of fiscal 1999 decreased by $1.2 million from net income of $1.8 million in the second quarter. Gross margin in the third quarter of fiscal 1999 was 53.9%, compared to 52.4% in the preceding quarter, and 49.4% in the third quarter of fiscal 1998.

Revenue for the nine months ended September 30, 1998 was $56.8 million, compared to $76.9 million for the first nine months of fiscal 1998. Net income for the first nine months of fiscal 1999 was $4.7 million, or $0.49 per diluted share, compared to $5.7 million, or $0.59 per diluted share, for the first nine months of fiscal 1998.

"The revenue decline in the third quarter resulted from the sudden closure of an external foundry for legacy products, the sale of the Silicon Microstructures Division, and weaker turns business (business booked and shipped in the same quarter)," said Donald L. Ciffone, president and chief executive officer, Exar Corporation. "Operating expenses were reduced during the quarter in response to these conditions, resizing support organizations to the levels needed to support the focus businesses going forward. We are maintaining a cautious outlook through the current quarter. The current outlook is for increasing demand in the first half of fiscal 2000, as new communications products ramp up and overall market conditions in Asia begin to recover."

In November of 1998, Exar announced the sale of the Silicon Microstructures Division to OSI Systems Inc. for $2.6 million, with additional contingent performance-based payments of up to $3.9 million over the next two years. With the conclusion of the sale, Exar's employee base was reduced by about 25%, and support organizations were streamlined to the levels necessary to support Exar's operating model as a 100% fabless semiconductor company.

As previously announced, the unexpected business failure and abrupt external fab closure in November at one of Exar's foundry suppliers for several older custom products negatively impacted revenue in the third quarter by about $0.7 million. This event is expected to result in a further decline in revenue from legacy product of about $1.3 million in the fourth quarter of fiscal 1999, and $1.0 million per quarter through most of fiscal year 2000.

During the quarter, the Communications division introduced two new devices for E3, DS3, and STS-1 high-speed, broadband communications applications, the XRT7300 transceiver and XRT7250 framer. With these devices, Exar now offers a single silicon source for DS3/E3 networks for both TDM and ATM applications, and the leadership product portfolio for these markets. Sampling has been initiated for the new products to leading telecommunications and networking companies worldwide, and a design win has been achieved with the world's largest data networking company.

Exar currently has approximately $8.8 million authorized for its stock buyback program.

Except for the historical information contained herein, this news release contains forward-looking statements that involve risks and uncertainties, including industry and market conditions impacting price, availability of raw materials and inventory, manufacturing costs and yields, transition issues related to transfer of the Company's test operations, competitive factors and the Company's successful execution of internal performance plans, as well as the other risks detailed from time to time in the Company's SEC reports, including the report on Form 10-K for the year ended March 31, 1998, and the report on Form 10-Q for the quarter ended September 30, 1998.

Exar Corporation designs, develops and markets innovative, system-oriented analog and mixed-signal integrated circuits for video & imaging and communications markets. The Company, based in Fremont, CA, had fiscal 1998 revenue of $102.0 million and employs about 270 people worldwide.


(In thousands, except per share amounts)


                                    Three Months Ended       Nine Months Ended
                                        December 31,            December 31,
                                       1998      1997        1998        1997

    NET SALES                       $15,808     $26,577    $56,770    $76,910

    Cost of sales                     7,292      13,455     26,504     39,737
    Research and development          3,360       3,953     10,349     11,675
    Selling, general
     and administrative               4,475       5,982     14,789     17,392
    Goodwill amortization               146         293        515        878
    Restructuring and other charges     731          --        731         --
                                     16,004      23,683     52,888     69,682

    INCOME (LOSS) FROM OPERATIONS      (196)      2,894      3,882      7,228
    OTHER INCOME, NET                 1,182         844      3,697      2,138
    INCOME BEFORE INCOME TAXES          986       3,738      7,579      9,366
    INCOME TAXES                        402       1,431      2,874      3,637
    NET INCOME                         $584      $2,307     $4,705     $5,729

    BASIC                             $0.06       $0.25      $0.50      $0.62
    DILUTED                           $0.06       $0.23      $0.49      $0.59

    BASIC                             9,303       9,365      9,418      9,289
    DILUTED                           9,435       9,933      9,674      9,734


                                (In thousands)

                                                  December 31,      March 31,
                                                      1998            1998
    Current assets:
      Cash and short-term investments                $78,152        $79,307
      Accounts receivable, net                        12,749         16,764
      Inventories                                      6,536          6,781
      Other current assets                             6,863          6,738
        Total Current Assets                         104,300        109,590
    Property and equipment, net                       27,640         26,746
    Other assets                                       6,439          7,333
                                                    $138,379       $143,669

    Total current liabilities                        $12,652        $19,195
    Non-current liabilities                              684            745
    Stockholders' equity                             125,043        123,729
                                                    $138,379       $143,669
Linda Prosser, VP, Marketing
Exar Corporation, 510-668-7000
Media Contact
Marketing Communications