Agere Systems Reports Results for the Fourth Quarter and Fiscal Year 2004 Company reports year-over-year improvement in revenues, gross margin, earnings per share and cash ALLENTOWN, Pa., Oct. 26 /PRNewswire-FirstCall/ -- Agere Systems (NYSE:AGR.ANYSE:AGR.B) today reported that revenues for the fourth quarter of fiscal 2004, ended September 30, were $439 million, at the high end of the guidance range provided by the company in July. The company's revenues were $495 million in the June quarter and $504 million in the year-ago quarter. (Logo: http://www.newscom.com/cgi-bin/prnh/20040618/AGERELOGO ) For the full fiscal year 2004, the company reported revenues of $1.91 billion, an increase of 4 percent over revenues of $1.84 billion for fiscal year 2003. For the September quarter, the company reported a GAAP net loss of $127 million or $0.07 per share, including $132 million in net restructuring and other charges. The company reported a GAAP net income of $2 million or breakeven per share in the June quarter, and a GAAP net income of $11 million or $0.01 per share in the year-ago quarter. Pro forma net income was $6 million or breakeven per share in the September quarter, compared to pro forma net income of $10 million, or $0.01 per share in the June quarter, and pro forma net income of $64 million or $0.04 per share in the year-ago quarter. For the full fiscal year 2004, the company reported a GAAP net loss of $90 million, or $0.05 per share, compared to a GAAP net loss of $338 million, or $0.20 per share in fiscal 2003. The company reported pro forma net income of $49 million, or $0.03 per share, compared to pro forma net loss of $148 million, or $0.09 per share in fiscal 2003. Pro forma net income excludes gain or loss from the sale of, and income or loss from, discontinued operations; restructuring-related charges included in costs, primarily increased depreciation; certain other non-cash charges; net restructuring and other charges; purchased in-process research and development charges; amortization of acquired intangible assets; net gain or loss from the sale of operating assets; certain tax adjustments; cumulative effect of an accounting change and certain non-recurring charges. The company reported gross margin of 45 percent for the fiscal year 2004, an improvement of 14 percentage points over fiscal year 2003 gross margin of 31 percent. The company posted its fifth consecutive quarter of positive cash flow from operations, less capital expenditures, generating $13 million in cash in the September quarter. The company also improved its cash and cash in trust by $12 million to $797 million. "We are encouraged by the progress we have made over the last year: we increased revenues and gross margin, improved our bottom-line performance, and strengthened our cash position," said John Dickson, president and CEO, Agere Systems. "While the market remains somewhat uncertain, we are confident that we have the growth strategy in place to take advantage of the opportunities ahead. We expect to continue to build on our success in storage; expand our footprint in mobility from 2.5G/EDGE to 3G and multimedia solutions; leverage our traffic management and network processor expertise to deliver multiservice and voice-over-IP solutions; and aggressively pursue such growth areas as Gigabit Ethernet and home and enterprise storage networks. "We believe that the actions we have taken to reduce costs and sharpen product focus will allow us to increase our revenues and improve profitability as we move through fiscal 2005." Revenue by End-User Application Quarter Ended Year Ended Sep 30, Jun 30, Sep 30, Sep 30, 2004 2004 2004 2003 Storage $155 $133 $635 $623 Mobility 100 154 496 417 Enterprise & Networking 120 127 513 560 Telecommunication 64 81 268 239 $439 $495 $1,912 $1,839 The table above shows Agere's revenue by end user application. Each application includes revenue from the licensing of intellectual property. Additional historical revenue data is available at http://www.agere.com/webcast. Product and Customer Highlights Recent company highlights include: * Introduction of a new integrated reference platform for feature-rich EDGE mobile phones that supports MPEG-4 video playback and MP3 music without requiring an additional multimedia co-processor. * Introduction of a new low-power preamplifier integrated circuit specifically designed for use in 2.5-inch mobile hard disk drives. This storage chip delivers the industry's fastest operating speeds in a low-power design, equipping notebook PCs with increased storage capacity, extended battery life, and the performance needed to serve as desktop PC replacements. * Shipment of the TrueStore(TM) low-power read-channel chips to leading hard disk drive manufacturer GS Magicstor for use in new 1.8-inch drives. Agere is also providing chips for Magicstor's 1.0-inch drive, which is among the smallest form factors currently shipping in the industry. * Announcement that Agere's proposal for creating per-service and multi-tier service guarantees in converged multimedia networks was accepted by U.S. and international standards bodies, which include companies such as Lucent Technologies, Nortel Networks and Sprint. The new Application Service Resiliency mechanism proposed by Agere is utilized in the company's Unbreakable Access(TM) technology, announced in June. * Agreement with ARM to license the latest ARM11(TM) core to develop next-generation solutions for mobile phones and enterprise networking that deliver higher performance while consuming lower power. Outlook In the December quarter, the company expects to report revenues in the range of $390 million to $410 million, consistent with the company's outlook in September. The company expects GAAP net loss to be in the range of $0.04 to $0.06 per share, including restructuring-related items. Pro forma net loss is expected to be in the range of $0.01 to $0.03 per share. 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. Financial supplemental information is also available on the company's website at http://www.agere.com/webcast. 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. This press release contains forward-looking statements based on information currently available to Agere. Agere's actual results could differ materially from the results stated or implied by these forward-looking statements due to a number of risks and uncertainties. These risks and uncertainties include, but are not limited to, our ability to keep pace with technological change, our dependence on new product development, price and product competition, availability of manufacturing capacity, customer demand for our products and services, general industry and market conditions, and reliance on major customers and suppliers. For a further discussion of these and other risks and uncertainties, see our annual report on Form 10-K for the fiscal year ended September 30, 2003, and our quarterly report on Form 10-Q for the period ended June 30, 2004. Agere disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Agere Systems Inc. Unaudited Condensed Consolidated Statements of Operations (Dollars in millions except per share amounts) Quarter Ended Year Ended Sep 30 Jun 30 Sep 30 Sep 30 Sep 30 2004 2004 2003 2004 2003 Revenue $439 $495 $504 $1,912 $1,839 Costs 240 267 290 1,046 1,260 Gross profit - $ 199 228 214 866 579 Gross profit - % 45.3% 46.1% 42.5% 45.3% 31.5% Operating Expenses Selling, general and administrative 62 64 67 272 294 Research and development 118 131 107 496 467 Amortization of acquired intangible assets 2 2 1 7 8 Purchased in-process research and development -- -- -- 13 -- Restructuring and other charges - net 132 11 32 197 131 Gain on sale of operating assets - net (1) (3) (8) (4) (21) Total operating expenses 313 205 199 981 879 Operating Income (Loss) (114) 23 15 (115) (300) Other income (expense) - net 4 (1) 3 8 22 Interest expense 10 11 12 43 47 Income (loss) from continuing operations before income taxes (120) 11 6 (150) (325) Provision (benefit) for income taxes 7 9 (16) (60) 46 Income (loss) from continuing operations (127) 2 22 (90) (371) Discontinued Operations: Income (loss) from operations of discontinued business - net of taxes -- -- (11) -- 8 Gain on disposal of discontinued business - net of taxes -- -- -- -- 30 Income (loss) from discontinued operations -- -- (11) -- 38 Income (loss) before cumulative effect of accounting change (127) 2 11 (90) (333) Cumulative effect of accounting change - net of taxes -- -- -- -- (5) Net Income (Loss) $(127) $2 $11 $(90) $(338) Basic and diluted income (loss) per share information: Income (loss) from continuing operations $(0.07) $0.00 $0.01 $(0.05) $(0.22) Income (loss) from discontinued operations -- -- -- -- 0.02 Income (loss) before cumulative effect of accounting change (0.07) 0.00 0.01 (0.05) (0.20) Cumulative effect of accounting change -- -- -- -- -- Net Income (loss) $(0.07) $0.00 $0.01 $(0.05) $(0.20) Weighted average shares outstanding- -basic (in millions) 1,723 1,718 1,686 1,712 1,667 Weighted average shares outstanding- -diluted (in millions) 1,723 1,734 1,707 1,712 1,667 Agere Systems Inc. Unaudited Pro Forma Results of Operations (Dollars in millions except per share amounts) Quarter Ended Year Ended Sep 30 Jun 30 Sep 30 Sep 30 Sep 30 2004 2004 2003 2004 2003 Revenue: Mobility $100 $154 $127 $496 $417 Storage 155 133 174 635 623 Enterprise and Networking 120 127 144 513 560 Telecom 64 81 59 268 239 Total Revenue 439 495 504 1,912 1,839 Pro Forma Gross Profit - $ 199 228 230 873 682 Pro Forma Gross Profit - % 45.3% 46.1% 45.6% 45.7% 37.1% Operating Expenses Included in Pro Forma Results Pro Forma Selling, general and administrative 62 64 66 272 292 Research and development 118 131 107 496 467 Total Pro Forma Operating Income (Loss) 19 33 57 105 (77) Other income (expense) - net 4 (1) 3 8 22 Interest expense 10 11 12 43 47 Pro Forma Provision for income taxes 7 11 (16) 21 46 Pro Forma Net Income (Loss) $6 $10 $64 $49 $(148) Pro Forma Net Income (Loss) per share $0.00 $0.01 $0.04 $0.03 $(0.09) Weighted average shares outstanding--basic (in millions) 1,723 1,718 1,686 1,712 1,667 Weighted average shares outstanding--diluted (in millions) 1,723 1,734 1,707 1,712 1,667 Reconciliation of Pro Forma Gross Profit-$ to Gross Profit-$ Pro Forma Gross Profit-$ $199 $228 $230 $873 $682 Restructuring related charges, including increased depreciation -- -- 16 7 103 Gross Profit-$ $199 $228 $214 $866 $579 Reconciliation of Pro Forma Gross Profit-% to Gross Profit-% Pro Forma Gross Profit-% 45.3% 46.1% 45.6% 45.7% 37.1% Restructuring related charges, including increased depreciation (0.0)% 0.0% (3.1)% (0.4)% (5.6)% Gross Profit-% 45.3% 46.1% 42.5% 45.3% 31.5% Reconciliation of Pro Forma Selling, general & administrative to Selling, general & administrative Pro Forma Selling, general & administrative $62 $64 $66 $272 $292 Stock compensation expenses -- -- 1 -- 2 Selling, general & administrative $62 $64 $67 $272 $294 Reconciliation of Pro Forma Operating Income (Loss) to Operating Income (Loss) Pro Forma Operating Income (Loss) $19 $33 $57 $105 $(77) Restructuring related charges, including increased depreciation -- -- 16 7 103 Amortization of acquired intangible assets 2 2 1 7 8 Purchased in-process research and development -- -- -- 13 -- Restructuring and other charges - net 132 11 32 197 131 Stock compensation expenses -- -- 1 -- 2 (Gain) loss on sale of operating assets - net (1) (3) (8) (4) (21) Operating Income (Loss) $(114) $23 $15 $(115) $(300) Reconciliation of Pro Forma Provision for income taxes to Provision (benefit) for income taxes Pro Forma Provision (benefit) for income taxes $7 $11 $(16) $21 $46 Reversal of tax contingencies -- 2 -- 81 -- Provision (benefit) for income taxes $7 $9 $(16) $(60) $46 Reconciliation of Pro Forma Net Income (Loss) to Net Income (Loss) Pro Forma Net Income (Loss) $6 $10 $64 $49 $(148) Restructuring related charges, including increased depreciation -- -- 16 7 103 Amortization of acquired intangible assets 2 2 1 7 8 Purchased in-process research and development -- -- -- 13 -- Restructuring and other charges - net 132 11 32 197 131 Stock compensation expenses -- -- 1 -- 2 (Gain) loss on sale of operating assets - net (1) (3) (8) (4) (21) Income from operations of discontinued business - net of taxes -- -- (11) -- 8 Gain (loss) on disposal of discontinued business - net of taxes -- -- -- -- 30 Reversal of tax contingencies -- 2 -- 81 -- Cumulative effect of accounting change - net of taxes -- -- -- -- (5) Net Income (Loss) $(127) $2 $11 $(90) $(338) Agere Systems Inc. Unaudited Condensed Consolidated Balance Sheets (Millions) Sep 30 Jun 30 Sep 30 2004 2004 2003 ASSETS CURRENT ASSETS Cash and cash equivalents $778 $771 $744 Cash held in trust 19 14 21 Trade receivables 285 278 265 Inventories 150 147 122 Other current assets 41 57 52 TOTAL CURRENT ASSETS 1,273 1,267 1,204 Property, plant and equipment - net 682 685 778 Goodwill 120 119 109 Acquired intangible assets - net 6 8 13 Other assets 191 205 284 TOTAL ASSETS $2,272 $2,284 $2,388 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $195 $215 $245 Short-term debt 147 142 195 Other current liabilities 524 494 582 TOTAL CURRENT LIABILITIES 866 851 1,022 Long-term debt 420 423 451 Other liabilities 565 390 404 TOTAL LIABILITIES 1,851 1,664 1,877 STOCKHOLDERS' EQUITY 421 620 511 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,272 $2,284 $2,388 Agere Systems Inc. Unaudited Cash Flow Measures Three Months Ended September 30, 2004 (Millions) Restructuring Ongoing and Related Operations Activities TOTAL OPERATING ACTIVITIES Gross profit $199 $ -- $199 Total operating expenses 181 132 313 Other income - net 4 -- 4 Interest expense and provision for income taxes 17 -- 17 Net income (loss) 5 (132) (127) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Restructuring expense - net of cash payments -- 108 108 Depreciation and amortization 49 -- 49 Other operating activities 24 -- 24 NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 78 (24) 54 INVESTING ACTIVITIES Capital expenditures (41) -- (41) Other investing activities (4) -- (4) NET CASH USED BY INVESTING ACTIVITIES (45) -- (45) FINANCING ACTIVITIES Other financing activities (2) -- (2) NET CASH USED BY FINANCING ACTIVITIES (2) -- (2) Net increase (decrease) in cash and cash equivalents 31 (24) 7 Cash and cash equivalents at beginning of period 771 Cash and cash equivalents at end of period $778 Net Cash provided (used) by Operating Activities $78 $(24) $54 Capital Expenditures (41) -- (41) Net Cash provided (used) by Operating Activities and Capital Expenditures $37 $(24) $13 Agere Systems Inc. Unaudited Net Income (Loss) Per Share Guidance Quarter Ending Dec 31 2004 Reconciliation of Pro Forma Net Income (Loss) Per Share to Net Income (Loss) Per Share Pro Forma Net Loss (High End of Range) ($0.01) Pro Forma Net Loss (Low End of Range) ($0.03) Restructuring related charges included in costs, primarily increased depreciation 0.02 Restructuring and other charges - net 0.01 Amortization of acquired intangible assets -- (Gain) loss on sale of operating assets - net -- 0.03 Net Income (Loss) (High End of Range) ($0.04) Net Income (Loss) (Low End of the Range) ($0.06) http://www.newscom.com/cgi-bin/prnh/20040618/AGERELOGO http://photoarchive.ap.org/ DATASOURCE: Agere Systems CONTACT: Media Contact: Vibha Agrawal, +1-610-712-1737, or cell, +1-908-256-6234, , or Investor Contact: Sujal Shah, +1-610-712-5471, Web site: http://www.agere.com/ http://www.agere.com/webcast

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