http://www.zarlink.com

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q

            |X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                  OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 28, 2002

                                       OR

            |_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                  OF THE SECURITIES EXCHANGE ACT OF 1934

                          Commission file number 1-8139

                           ZARLINK SEMICONDUCTOR INC.
             (Exact name of registrant as specified in its charter)

            CANADA                                                  NONE
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

         400 March Road
    Ottawa, Ontario, Canada                                        K2K 3H4
     (Address of principal                                      (Postal Code)
       executive offices)

       Registrant's telephone number, including area code: (613) 592-0200

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

Yes |X| No |_|

The number of common shares outstanding as at August 2, 2002 was 127,191,316.


                                  Page 1 of 38

<PAGE>

                           ZARLINK SEMICONDUCTOR INC.

                                      INDEX

PART I.   FINANCIAL INFORMATION (Unaudited)

ITEM 1.   CONSOLIDATED FINANCIAL STATEMENTS

              Consolidated Balance Sheets (Unaudited) -
              June 28, 2002 and March 29, 2002 ..............................  3

              Consolidated Statements of Loss (Unaudited) -

              Three months ended June 28, 2002 and June 29, 2001 ............  4

              Consolidated Statements of Cash Flows (Unaudited) -

              Three months ended June 28, 2002 and June 29, 2001 ............  5

              Notes to the Consolidated Financial Statements (Unaudited) ....  6

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION  AND RESULTS OF OPERATIONS .............................. 13

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
          MARKET RISK ....................................................... 22

PART II.  OTHER INFORMATION

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............... 22

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K .................................. 22


                                       2
<PAGE>

PART I - FINANCIAL INFORMATION (Unaudited)

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

                           Zarlink Semiconductor Inc.
                           CONSOLIDATED BALANCE SHEETS
                    (in millions of U.S. dollars, U.S. GAAP)

                                                          June 28,     March 29,
                                                            2002         2002
                                                          --------     ---------
                                                         (Unaudited)
ASSETS
Current assets:
  Cash and cash equivalents                                $ 30.9       $ 75.6
  Short-term investments                                    122.2         78.8
  Accounts receivable                                        32.3         32.4
  Inventories                                                32.0         32.6
  Deferred income tax assets - net                            1.3          4.1
  Prepaid expenses and other                                 10.3         11.3
                                                           ------       ------
                                                            229.0        234.8
Fixed assets - net                                           63.3         60.3
Deferred income tax assets - net                             11.3         11.0
Long-term investments                                        15.3         14.1
Other assets - net of deferred
  gain of $14.9 (March 29, 2002 - $14.7)                      3.7          3.0
                                                           ------       ------
                                                           $322.6       $323.2
                                                           ======       ======

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable and accrued liabilities                 $ 67.3       $ 67.9
  Income and other taxes payable                              4.3          4.1
  Deferred revenue                                            2.0          2.0
  Current portion of long-term debt                           1.6          2.1
                                                           ------       ------
                                                             75.2         76.1
Long-term debt                                                0.5          0.7
Pension liability                                            19.4         17.4
Deferred income tax liabilities - net                         3.4          6.3
                                                           ------       ------
                                                             98.5        100.5
                                                           ------       ------
Redeemable preferred shares, unlimited
  shares authorized; 1,558,700 shares
  issued and outstanding (March 29, 2002
  - 1,558,700
                                                             20.4         20.6
                                                           ------       ------
Shareholders' equity:
  Common shares, unlimited shares
    authorized; no par value; 127,175,941
    shares issued and outstanding
    (March 29, 2002 - 127,082,123)
                                                            768.1        767.6
  Additional paid-in capital                                  2.0          4.1
  Deferred stock compensation                                (0.3)        (0.8)
  Deficit                                                  (532.1)      (522.9)
  Accumulated other comprehensive loss                      (34.0)       (45.9)
                                                           ------       ------
                                                            203.7        202.1
                                                           ------       ------
                                                           $322.6       $323.2
                                                           ======       ======

        (See accompanying notes to the consolidated financial statements)


                                       3
<PAGE>

                           Zarlink Semiconductor Inc.
                         CONSOLIDATED STATEMENTS OF LOSS
       (in millions of U.S. dollars, except per share amounts, U.S. GAAP)
                                   (Unaudited)

                                                           Three Months Ended
                                                         June 28,       June 29,
                                                          2002            2001
                                                         --------       --------
Revenue                                                  $  48.0        $  67.8
Cost of revenue                                             25.9           62.7
                                                         -------        -------
Gross margin                                                22.1            5.1
                                                         -------        -------
Expenses:
  Research and development                                  20.7           23.5
  Selling and administrative                                11.8           13.1
  Stock compensation expense (recovery)                     (1.6)           3.9
  Special charge                                              --           34.6
  Amortization of acquired intangibles                        --            1.4
                                                         -------        -------
                                                            30.9           76.5
                                                         -------        -------
Operating loss                                              (8.8)         (71.4)
Other income - net                                           0.5            7.9
Interest expense                                            (0.1)          (0.2)
                                                         -------        -------
Loss before income taxes                                    (8.4)         (63.7)
Income tax (expense) recovery                               (0.3)           3.2
                                                         -------        -------
Net loss for the period                                  $  (8.7)       $ (60.5)
                                                         =======        =======
Net loss attributable to common
  shareholders after preferred
  share dividends                                        $  (9.2)       $ (61.0)
                                                         =======        =======
Net loss per common share:
  Basic and diluted                                      $ (0.07)       $ (0.49)
                                                         =======        =======
Weighted average number of common
  shares outstanding (millions):
  Basic and diluted                                        126.6          124.6
                                                         =======        =======

        (See accompanying notes to the consolidated financial statements)


                                       4
<PAGE>

                           Zarlink Semiconductor Inc.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    (in millions of U.S. dollars, U.S. GAAP)
                                   (Unaudited)

                                                            Three Months Ended
                                                           June 28,     June 29,
                                                             2002        2001
                                                           --------     --------
CASH PROVIDED BY (USED IN)
Operating activities:
  Net loss for the period                                   $ (8.7)     $(60.5)
  Depreciation and amortization
    of fixed and other assets                                  3.4         7.6
  Stock compensation expense (recovery)                       (1.6)        3.9
  Special charges, non-cash                                     --         1.1
  Loss on disposal of fixed assets                              --         0.4
  Inventory write-down                                          --        29.1
  Deferred income taxes                                         --        (5.1)
  Change in pension liability                                   --         0.1
  Equity loss in investment                                     --         0.5
  Decrease (increase) in working capital:
    Accounts receivable                                        1.9         9.9
    Inventories                                                2.8        (3.4)
    Accounts payable and accrued liabilities                  (4.6)        9.3
    Deferred revenue                                          (0.1)        0.2
    Other                                                      1.9        (3.7)
                                                            ------      ------
  Total                                                       (5.0)      (10.6)
                                                            ------      ------

Investing activities:
  Purchased short-term investments                           (86.0)         --
  Matured short-term investments                              46.8          --
  Expenditures for fixed and other assets                     (2.7)      (14.6)
  Increase in long-term investments                           (0.4)       (2.0)
  Proceeds from sale of discontinued
    operations - net                                            --         1.3
                                                            ------      ------
    Total                                                    (42.3)      (15.3)
                                                            ------      ------

Financing activities:
  Repayment of long-term debt                                   --        (0.9)
  Repayment of capital lease liabilities                      (0.7)       (1.4)
  Dividends on preferred shares                               (0.5)       (0.5)
  Issue of common shares                                       0.6         0.4
  Repurchase of preferred shares                              (0.2)       (0.3)
                                                            ------      ------
    Total                                                     (0.8)       (2.7)
                                                            ------      ------

Effect of currency translation on
  cash and cash equivalents                                    3.4         4.9
                                                            ------      ------

Decrease in cash and cash equivalents                        (44.7)      (23.7)

Cash and cash equivalents, beginning
  of period                                                   75.6       179.9
                                                            ------      ------

Cash and cash equivalents, end
  of period                                                 $ 30.9      $156.2
                                                            ======      ======

        (See accompanying notes to the consolidated financial statements)


                                       5
<PAGE>

                           ZARLINK SEMICONDUCTOR INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
       (in millions of U.S. dollars, except per share amounts, U.S. GAAP)
                                   (Unaudited)

1.    Basis of presentation

      In the opinion of management of Zarlink  Semiconductor Inc.  ("Zarlink" or
      the "Company"),  the unaudited  consolidated  financial statements reflect
      all adjustments,  which consist only of normal and recurring  adjustments,
      necessary to present  fairly the  financial  position at June 28, 2002 and
      the  results of  operations  and cash flows of the  Company  for the three
      month periods  ended June 28, 2002 and June 29, 2001,  in accordance  with
      U.S. GAAP, applied on a consistent basis.


      These  financial  statements  should  be  read  in  conjunction  with  the
      financial  statements and notes thereto  contained in the Company's Annual
      Report  on Form 10-K for the year  ended  March 29,  2002.  The  Company's
      fiscal year-end is the last Friday in March.

      The results of operations  for the periods  presented are not  necessarily
      indicative of the results to be expected for the full year.

      All information is presented in U.S. dollars, unless otherwise stated.

2.    Change in accounting policies

      In July 2001, the Financial  Accounting  Standards  Board ("FASB")  issued
      Statement of Financial Accounting Standard No. 141 ("SFAS 141"), "Business
      Combinations"  and  Statement  of  Financial  Accounting  Standard No. 142
      ("SFAS 142"), "Goodwill and Other Intangible Assets". In October 2001, the
      FASB issued  Statement  of  Financial  Accounting  Standard No. 144 ("SFAS
      144"), "Accounting for the Impairment or Disposal of Long-Lived Assets".

      a)    SFAS 141 requires that business  combinations be accounted for under
            the  purchase   method  of  accounting  and  addresses  the  initial
            recognition and measurement of assets acquired,  including  goodwill
            and intangibles,  and liabilities assumed in a business combination.
            The Company adopted SFAS 141 on a prospective  basis effective March
            30, 2002, the beginning of Fiscal 2003. The adoption of SFAS 141 did
            not have a material  effect on the Company's  financial  statements,
            but will impact the accounting treatment of future acquisitions.

      b)    SFAS 142 requires  goodwill to be allocated to, and assessed as part
            of, a reporting unit. Further, SFAS 142 specifies that goodwill will
            no longer be  amortized  but instead  will be subject to  impairment
            tests  at  least  annually.  The  Company  adopted  SFAS  142  on  a
            prospective  basis  at  the  beginning  of  Fiscal  2003.  As at the
            beginning of Fiscal  2003,  the Company did not have any goodwill or
            intangible  assets  with  indefinite  lives  recorded on the balance
            sheet. Accordingly,  no transition impairment charge is necessary to
            be recognized under SFAS 142, nor was there a material impact on the
            Company's financial statements on adoption of the new rules.

            As there was no goodwill on the balance  sheet at the  beginning  of
            Fiscal 2002, the comparative prior period's  financial results would
            not have been affected if SFAS 142 was adopted in Fiscal 2002.

      c)    SFAS 144 supersedes  Statement of Financial  Accounting Standard No.
            121 ("SFAS  121"),  "Accounting  for the  Impairment  of  Long-Lived
            Assets  and  for  Long-Lived  Assets  to Be  Disposed  Of"  and  the
            accounting and reporting  provisions of Accounting  Principles Board
            ("APB") Opinion No. 30 for the disposal of a business segment.  SFAS
            144 establishes a single  accounting  model,  based on the framework
            established in SFAS 121, for long-lived  assets to be disposed of by
            sale. SFAS 144 broadens the


                                       6
<PAGE>

            presentation  of discontinued  operations to include  disposals of a
            component  of  an  entity  and  provides  additional  implementation
            guidance   with   respect  to  the   classification   of  assets  as
            held-for-sale and the calculation of an impairment loss. The Company
            adopted SFAS 144 at the  beginning  of Fiscal 2003.  The adoption of
            SFAS 144 did not have a material  impact on the Company's  financial
            statements.

3.    Recently issued accounting standards

      In July 2002, the FASB issued Statement No. 146 ("SFAS 146"),  "Accounting
      for Costs  Associated with Exit or Disposal  Activities",  which addresses
      financial  accounting  and  reporting  for costs  associated  with exit or
      disposal  activities  and  nullifies  EITF  Issue  No.  94-3,   "Liability
      Recognition for Certain Employee  Termination  Benefits and Other Costs to
      Exit an Activity  (including  Certain Costs Incurred in a Restructuring)."
      SFAS 146 requires that a liability for a cost  associated  with an exit or
      disposal  activity be  recognized  when the  liability is incurred.  Under
      Issue 94-3, a liability for an exit cost was  recognized at the date of an
      entity's  commitment to an exit plan.  SFAS 146 concludes that an entity's
      commitment to a plan, by itself,  does not create a present  obligation to
      others  that meets the  definition  of a  liability.  Therefore,  SFAS 146
      eliminates the definition and  requirements  for recognition of exit costs
      in Issue 94-3. SFAS 146 also  establishes that fair value is the objective
      for initial  measurement of the liability.  SFAS 146 will be effective for
      exit or disposal  activities  initiated after December 31, 2002 and had no
      impact  on  the  Company's  financial  statements,  but  will  impact  the
      accounting  treatment  of future exit or disposal  activities  should they
      occur.

4.    Inventories

                                                           June 28,    March 29,
                                                             2002        2002
                                                           --------    --------
      Raw materials                                        $   2.6     $   2.4
      Work-in-process                                         21.6        20.8
      Finished goods                                           7.8         9.4
                                                           -------     -------
                                                           $  32.0     $  32.6
                                                           =======     =======

5.    Fixed Assets

                                                           June 28,    March 29,
                                                             2002        2002
                                                           --------    --------
      Cost                                                 $ 166.3     $ 153.1
      Accumulated depreciation                              (103.0)      (92.8)
                                                           -------     -------
                                                           $  63.3     $  60.3
                                                           =======     =======

      The comparative  gross amounts of cost and accumulated  depreciation  have
      each been adjusted by $57.9 to properly reflect the disposition of certain
      fixed  assets.  There was no impact to the  previously  reported net fixed
      assets.

6.    Long-term investments

      As at June 28, 2002, the Company had investments in private companies with
      a  carrying   value  of  $15.3  (March  29,  2002  -  $14.1).   Management
      periodically  reviews  these  investments  to  determine if there has been
      other than a temporary  decline in the market  value of these  investments
      below the carrying value. When management  performs future  assessments of
      these investments in the coming quarters,  a decline in the value of these
      companies may require the Company to recognize impairment on the remaining
      value of its investments which could be material.


                                       7
<PAGE>

7.    Accounts payable and accrued liabilities

                                                          June 28,     March 29,
                                                            2002         2002
                                                           -------     ---------
      Trade payables                                       $ 10.4       $ 11.5
      Employee-related payables                              10.7         10.5
      Restructuring provisions                                7.1          7.9
      Provision for disposal of discontinued operations       5.5          5.8
      Provision for disposal of foundry businesses            5.7          6.1
      Goods received not invoiced                             4.9          3.1
      Other accrued liabilities                              23.0         23.0
                                                           ------       ------
                                                           $ 67.3       $ 67.9
                                                           ======       ======

8.    Redeemable preferred shares

      There were 15,900 preferred shares purchased during the three months ended
      June 28, 2002 for cash consideration of $0.2. The shares will be cancelled
      by the transfer agent in the second quarter of Fiscal 2003.

      During  the first  quarter,  a $0.32  (Cdn$0.50)  per share  dividend  was
      declared and paid on the redeemable preferred shares.

9.    Capital stock

      a)    The Company has not  declared  or paid any  dividends  on its common
            shares.

      b)    On June 6, 2002, the Company announced its intention to continue its
            normal course  issuer bid program for up to 6,358,203  common shares
            (5 percent of  127,164,078  common shares issued and  outstanding at
            May  31,  2002)  between  June  10,  2002  and  June  9,  2003.  All
            repurchased shares will be cancelled.  In the quarter ended June 28,
            2002, no shares were repurchased  under the normal course issuer bid
            program.

      c)    A summary of the Company's stock option activity is as follows:

                                                         Three Months Ended
                                                       June 28,       June 29,
                                                         2002           2001
                                                      ----------     ----------
                 Outstanding options:
                 Balance, beginning of period         10,914,962      9,464,693
                 Granted                                  63,300      1,382,000
                 Exercised                               (93,818)       (90,477)
                 Forfeited                               (37,287)      (449,142)
                                                      ----------     ----------
                 Balance, end of period               10,847,157     10,307,074
                                                      ==========     ==========

            Available for grant at June 28, 2002 were 3,784,897  (March 29, 2002
            - 3,810,910) common shares.  The exercise price on outstanding stock
            options ranges from $1.77 to $24.95 per share with exercise  periods
            extending  to June 2008.  The  exercise  price of stock  options was
            based on prices in Canadian  dollars  translated at the U.S.  dollar
            exchange rate on June 28, 2002.

      d)    The net loss per common share figures were  calculated  based on net
            loss after the deduction of preferred  share dividends and using the
            weighted  monthly  average number of shares  outstanding  during the
            respective  periods.  Diluted  earnings  per  share is  computed  in
            accordance  with the  treasury  stock  method  based on the  average
            number of common shares and dilutive common share equivalents.

      The  following  common  share   equivalents  have  been  excluded  in  the
      computation for diluted earnings per share because they were anti-dilutive
      due to the reported net loss for the periods presented.


                                       8
<PAGE>

      i)    774,049  weighted  average  common  shares  on  conversion  of stock
            options for the three months ended June 28, 2002 (three months ended
            June 29, 2001 - 1,476,485 weighted average common shares).

      ii)   570,897  weighted  average common shares subject to restrictions for
            the three  months  ended June 28, 2002 (three  months ended June 29,
            2001 - 1,634,947 weighted average common shares).

      The  following  options were excluded in the  computation  of common share
      equivalents  because the  options'  exercise  price  exceeded  the average
      market price of the common shares, thus they are anti-dilutive:

      i)    Options  outstanding  for the three  months  ended June 28,  2002 to
            purchase  7,789,298  shares of common  stock at an average  price of
            $10.69 per share;

      ii)   Options  outstanding  for the three  months  ended June 29,  2001 to
            purchase  6,177,630  shares of common  stock at an average  price of
            $10.67 per share.

      Pro Forma financial  information has been determined as if the Company had
      accounted  for its employee  stock options  using the  Black-Scholes  fair
      value option pricing model with the following weighted-average assumptions
      for the three month fiscal periods ended June 28, 2002 and June 29, 2001:

                                                             Three Months Ended
                                                            --------------------
                                                            June 28,    June 29,
                                                              2002        2001
                                                            --------    --------
      Pro Forma net loss attributable to
        common shareholders after
        preferred dividends                                 $ (12.5)    $ (64.0)

      Pro Forma net loss per common share:
      Basic and diluted                                     $ (0.10)    $ (0.51)

      Weighted average fair value price
        of the options                                      $  3.43     $  3.51

      Risk-free interest rate                                  4.68%       5.55%
      Dividend yield                                            Nil         Nil
      Volatility factor of the expected
        market price of the Company's
        common stock                                          0.561       0.556
      Weighted-average expected life
        of the options                                    3.5 years   4.0 years

      The  Black-Scholes  option  valuation  model  was  developed  for  use  in
      estimating  the  fair  value  of  traded  options  that  have  no  vesting
      restrictions  and are fully  transferable.  In addition,  option valuation
      models require the input of highly  subjective  assumptions  including the
      expected  stock price  volatility.  Because the Company's  employee  stock
      options have characteristics  significantly different from those of traded
      options,  and because  changes in the  subjective  input  assumptions  can
      materially affect the fair value estimate,  in management's  opinion,  the
      existing  models do not  necessarily  provide a reliable single measure of
      the fair value of its employee stock options.

      For purposes of Pro Forma  disclosures,  the  estimated  fair value of the
      options is  amortized to expense  over the  options'  vesting  period on a
      straight-line basis.


                                       9
<PAGE>

10.   Accumulated other comprehensive income (loss)

      The components of other comprehensive income (loss) were as follows:

                                                             Three Months Ended
                                                            June 28,    June 29,
                                                             2002        2001
                                                            --------    --------
Net loss for the period                                     $  (8.7)    $ (60.5)
Other comprehensive income (loss):
  Unrealized net derivative losses on
    cash flow hedges                                           (0.4)       (1.2)
  Change in cumulative translation adjustment                  12.3         3.4
                                                            -------     -------
Other comprehensive income (loss) for the period            $   3.2     $ (58.3)
                                                            =======     =======

      The changes to accumulated other comprehensive income (loss) for the three
      months ended June 28, 2002 were as follows:

                                 Cumulative    Minimum   Unrealized Net
                                Translation    Pension      Loss on
                                  Account     Liability   Derivatives     Total
                                -----------   ---------  --------------  -------
Balance, March 29, 2002           $(43.0)       $(2.5)       $(0.4)      $(45.9)
Change during the three
  months ended June 28, 2002        12.3           --         (0.4)        11.9
                                  ------        -----        -----       ------
Balance, June 28, 2002            $(30.7)       $(2.5)       $(0.8)      $(34.0)
                                  ======        =====        =====       ======

      The Company  recorded a loss to other  comprehensive  income (loss) in the
      three months ended June 28, 2002 of $0.4 (three months ended June 29, 2001
      - $1.2) which was  attributable  to the change in the value of outstanding
      foreign  currency  forward  contracts  related  to the  Company's  hedging
      program that were  designated as cash flow hedges.  The Company  estimates
      that $0.8 of net derivative  loss included in other  comprehensive  income
      (loss) will be reclassified into earnings within the next 12 months.

11.   Inventory write-down and special charge

      First Quarter of Fiscal 2002
      ----------------------------

      In the first  quarter of Fiscal 2002,  the Company  reviewed its inventory
      requirements  for the  future  12  months  in light  of the  semiconductor
      industry-wide slowdown and higher channel inventories. As a result of this
      review,  the Company  recorded an excess inventory charge to cost of sales
      amounting  to $29.1 for  inventories  estimated to be beyond its needs for
      the following 12 months.

      In the  first  quarter  of Fiscal  2002 and in  response  to the  industry
      downturn,  the Company  implemented  a  cost-containment  plan in order to
      preserve cash resources.  The  cost-containment  plan included a workforce
      reduction of the Company's total employee base by 439 employees,  globally
      across all job categories,  which was completed by the end of Fiscal 2002.
      The total  cost of the  first  quarter  Fiscal  2002  workforce  reduction
      program was estimated to be $26.7.

      As a result of the workforce  reduction program and  consolidating  design
      activity,  the Company took steps to provide for excess leased  facilities
      in Canada,  the United States,  the United Kingdom,  and the Far East. The
      cost of the lease and contract  settlements  amounted to $7.9 in the first
      quarter of Fiscal 2002.

      The total of these pre-tax special charges  amounted to $34.6 in the first
      quarter of Fiscal 2002. In the fourth quarter of Fiscal 2002,  $3.1 of the
      first quarter  special charge was reversed due to savings on the workforce
      reduction  program and to the  subsequent  sub-letting  of vacant space in
      Irvine, California.


                                       10
<PAGE>

      The following  summarizes the activity in the March 29, 2002 restructuring
      liability during the first quarter of Fiscal 2003:

                             Provision                               Provision
                              balance                                 balance
                               as at                     Cash          as at
                          March 29, 2002   Reversals   Drawdowns   June 28, 2002
                          --------------   ---------   ---------   -------------
Restructuring activities:
   Workforce reduction        $  2.9        $  --       $ (0.5)        $  2.4
   Excess lease costs            5.0           --         (0.3)           4.7
                              ------        -----       ------         ------
Total restructuring           $  7.9        $  --       $ (0.8)        $  7.1
                              ======        =====       ======         ======

      All of the liability relating to the workforce  reduction is in respect of
      the fourth quarter Fiscal 2002 restructuring program.

12.   Other income - net

                                                              Three Months Ended
                                                              ------------------
                                                              June 28,  June 29,
                                                                2002      2001
                                                              --------  --------

      Interest income                                          $  0.9   $   2.1
      Foreign exchange gain (loss)                               (0.4)      6.3
      Equity loss in Optenia, Inc.                                 --      (0.5)
                                                               ------   --------
      Other income - net                                       $  0.5   $   7.9
                                                               ======   ========

13.   Information on business segments

      The  Company's   reportable   business   segments  are  comprised  of  the
      Communications and Medical groups.  Reportable segments are business units
      that offer  different  products and  services  and are managed  separately
      because of these differences.

      The  Communications   business   specializes  in  broadband   connectivity
      solutions  over wired,  wireless  and optical  media.  The  Communications
      business includes network access products that provide connectivity to the
      network's  core  backbone  such as feeder,  aggregation  and  transmission
      applications  and those  that  address  the  multi-protocol  physical  and
      network layers.  In addition,  the  Communications  business includes user
      access products that allow users to connect to the network. These products
      include  wireless and infotainment  applications.  Network access products
      accounted  for $28.4 in revenue in the three  months  ended June 28,  2002
      (three months ended June 29, 2001 - $35.8). User access products accounted
      for $12.6 in revenue in the three months ended June 28, 2002 (three months
      ended June 29, 2001 - $22.7).

      The  Medical  business   provides  ultra  low  power  ASIC  solutions  for
      applications such as pacemakers, hearing aids and portable instruments.

      The  Company  evaluates  the  performance  of each  business  segment  and
      allocates  resources  based  on  operating  income,   which  excludes  any
      intersegment sales of products and services. The Company does not allocate
      stock compensation  expense,  special charges or gains, interest income or
      interest expense or income taxes to its reportable segments.  In addition,
      total assets are not allocated to each segment;  however,  depreciation of
      fixed assets is allocated  to the segments  based on the asset usage.  The
      accounting  policies of the  reportable  segments are the same as those of
      the Company as reflected in the consolidated financial statements.


                                       11
<PAGE>

<TABLE>
<CAPTION>
                                                                                                          Unallocated
Three Months Ended June 28, 2002                                       Communications       Medical          Costs            Total
                                                                       --------------       -------       -----------        -------
<S>                                                                       <C>                <C>            <C>              <C>
Revenue                                                                   $ 41.0             $ 7.0          $   --           $ 48.0
Depreciation of buildings and equipment                                      3.2                --              --              3.2
Stock compensation recovery                                                   --                --            (1.6)            (1.6)
Segment's operating income (loss)                                          (10.4)               --             1.6             (8.8)
</TABLE>

<TABLE>
<CAPTION>
                                                                                                           Unallocated
Three Months Ended June 29, 2001                                       Communications        Medical          Costs           Total
                                                                       --------------        -------       -----------       -------
<S>                                                                       <C>                <C>            <C>              <C>
Revenue                                                                   $ 58.5             $ 9.3          $   --           $ 67.8
Depreciation of buildings and equipment                                      6.0               0.1              --              6.1
Amortization of acquired intangibles                                         1.4                --              --              1.4
Stock compensation expense                                                    --                --             3.9              3.9
Special charge                                                                --                --            34.6             34.6
Segment's operating income (loss)                                          (35.3)              2.4           (38.5)           (71.4)
</TABLE>

14.   Comparative figures

      Certain of the Fiscal 2002 comparative  figures have been  reclassified to
      conform to the presentation adopted in Fiscal 2003.


                                       12
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS

(in millions of U.S. dollars,  except per share amounts,  and in accordance with
U.S. GAAP)

      Zarlink is a global provider of microelectronics for voice, data and video
networks and for medical applications.  Zarlink's  semiconductor  Communications
business specializes in broadband  connectivity  solutions over wired,  wireless
and  optical  media.   Zarlink's   semiconductor   Medical   business   provides
applications  specific  integrated  circuit  solutions for applications  such as
pacemakers, hearing aids and portable instruments. At June 28, 2002, the Company
employed  approximately  1,500 people  worldwide,  including  approximately  500
designers.

      The  following  discussion  and  analysis  explains  trends  in  Zarlink's
financial  condition and results of  operations  for the three months ended June
28, 2002,  compared with the  corresponding  period in the previous fiscal year.
This discussion is intended to help  shareholders  and other readers  understand
the dynamics of Zarlink's  business and the key factors underlying its financial
results.  This discussion  should be read in conjunction  with the  consolidated
financial statements and notes thereto included elsewhere in this Form 10-Q, and
with the Company's audited  consolidated  financial statements and notes thereto
for the fiscal year ended March 29, 2002.

      Certain   statements  in  this  Quarterly  Report  on  Form  10-Q  contain
forward-looking statements that are based on current expectations, estimates and
projections  about the  industries in which the Company  operates,  management's
beliefs and assumptions made by management.  These statements are not guarantees
of future performance and involve certain risks,  uncertainties and assumptions,
which are  difficult to predict.  Accordingly,  actual  outcomes and results may
differ materially from results  forecasted or suggested in such  forward-looking
statements.

      Such risks,  uncertainties  and  assumptions  include,  among others,  the
following:  increasing  price and  product/service  competition  by foreign  and
domestic competitors,  including new entrants; rapid technological  developments
and changes; the ability to continue to introduce  competitive new products on a
timely,  cost-effective  basis;  delays  in  product  development;  the  mix  of
products/services;  changes in  environmental  and other  domestic  and  foreign
governmental   regulations;   protection   and  validity  of  patent  and  other
intellectual  property  rights;  import  protection  and  regulation;   industry
competition;  industry  capacity and other industry  trends;  the ability of the
Company to  attract  and retain key  employees;  demographic  changes  and other
factors  referenced in the  Company's  Annual Report on Form 10-K for the fiscal
year ended March 29, 2002.

      The above  factors  are  representative  of the risks,  uncertainties  and
assumptions that could affect the outcome of the forward-looking  statements. In
addition,  such  statements  could be  affected by general  industry  and market
conditions  and  growth  rates,  general  domestic  and  international  economic
conditions  including  interest rate and currency exchange rate fluctuations and
other risks, uncertainties and assumptions, as described in the Company's Annual
Report on Form 10-K for the fiscal year ended March 29,  2002,  including  those
identified  under  "Forward-Looking  Statements and Risk  Factors".  The Company
undertakes  no  obligation  to update  publicly any  forward-looking  statements
whether as a result of new information, future events or otherwise.


                                       13
<PAGE>

RESULTS OF OPERATIONS

Summary of Results from Operations
----------------------------------

(millions of U.S. dollars,                              Three Months Ended
except per share amounts)                          June 28, 2002  June 29, 2001
                                                   -------------  -------------
Consolidated revenue                                  $  48.0        $  67.8
   Communications segment revenue                        41.0           58.5
   Medical segment revenue                                7.0            9.3

Operating loss                                           (8.8)         (71.4)
   Communications segment operating loss                (10.4)         (35.3)
   Medical segment operating income                        --            2.4
   Unallocated recoveries (costs)                         1.6          (38.5)

Net loss                                                 (8.7)         (60.5)
Net loss per common share - basic
  and diluted                                           (0.07)         (0.49)
Weighted average common shares
  outstanding - millions                                126.6          124.6

      Revenue in the first quarter of Fiscal 2003 was $48.0,  a decrease of 29%,
or $19.8,  from the first  quarter of Fiscal 2002.  Semiconductor  sales volumes
continue  to  be  affected  by  the   prolonged   slump   impacting  the  entire
semiconductor  industry.  Higher channel inventory levels and lower end-customer
demand continue to keep sales levels suppressed.

      In the first  quarter of Fiscal 2003,  the Company  recorded a net loss of
$8.7, or $0.07 per share,  including a stock compensation recovery of $1.6. This
compares  to a net loss of $60.5,  or $0.49 per share,  in the first  quarter of
Fiscal 2002, after a special inventory  write-down of $29.1,  special charges of
$34.6 related to workforce  restructuring,  amortization of acquired intangibles
of $1.4, and a stock compensation expense of $3.9.

      Zarlink's  operations are comprised of two reportable  business segments -
Communications  and Medical.  Zarlink targets the  communications  industry with
offerings  that  specialize  in  broadband  connectivity  solutions  over wired,
wireless and optical media.  Zarlink's Medical business provides ultra low power
ASIC solutions for  applications  such as pacemakers,  hearing aids and portable
instruments.  Zarlink  sells its  products  through  both  direct  and  indirect
channels of distribution.  Factors affecting the choice of distribution include,
among others,  end-customer type, the level of product complexity,  the stage of
product  introduction,  geographic presence and location of markets,  and volume
levels.

Communications                                     Three Months Ended
                                        ----------------------------------------
                                        June 28,     % of    June 29,     % of
(millions of U.S. dollars)                2002      Total      2001       Total
                                        --------   -------   --------    -------
Revenue:
Network Access                          $  28.4       69%    $  35.8        61%
User Access                                12.6       31%       22.7        39%
                                        -------      ---     -------       ---
Total Communications                    $  41.0      100%    $  58.5       100%
                                        =======      ===     =======       ===
As a % of total revenue                               85%                   86%

Communications operating  loss          $ (10.4)             $ (35.3)
                                        =======              =======

      Zarlink's  Communications  business specializes in broadband  connectivity
solutions over wired, wireless and optical media. Network access and user access
products  represent the two major growth  categories  in this business


                                       14
<PAGE>

segment. Network access products include products that provide connectivity to a
network's   core  backbone  such  as  feeder,   aggregation   and   transmission
applications and products that address the  multi-protocol  physical and network
layers. In simple terms, network access  semiconductor  products connect network
equipment together.  User access products allow users to connect to the network.
These  products   include   wireless  (for  example,   cellular   chipsets)  and
infotainment applications (for example, set-top boxes and digital TV).

      Revenue for the first quarter of Fiscal 2003 totaled $41.0,  down 30% from
$58.5 for the same  period in Fiscal  2002.  Revenue was  adversely  affected by
customer and channel  inventory  adjustments in the Company's network access and
user access  business,  a trend that began during the second half of Fiscal 2001
and is continuing into Fiscal 2003. Revenue also decreased in Fiscal 2003 due to
the loss of foundry  revenue  resulting  from the disposal of two  complementary
metal oxide semiconductor  ("CMOS") fabrication facilities in the fourth quarter
of Fiscal 2002.

      With customers  currently  placing orders to meet their short-term  needs,
the "turns" business  (customers  placing orders for shipment in the same fiscal
quarter) has been steadily increasing since the second quarter of Fiscal 2002 to
represent approximately 30% of the orders shipped in the first quarter of Fiscal
2003.

      The segment's  operating  loss  decreased to $10.4 in the first quarter of
Fiscal 2003 from an operating loss of $35.3 in the first quarter of Fiscal 2002.
The results from the first quarter of Fiscal 2002  included an excess  inventory
charge to cost of sales  amounting  to $29.1  for  inventories  estimated  to be
beyond the Company's needs, as well as amortization of intangibles  amounting to
$1.4. Excluding these items, the operating loss was greater in the first quarter
of Fiscal 2003 by $5.6.  The lower  results were due to the reduced sales volume
in the first  quarter of Fiscal 2003 due in part to lower User Access  sales and
the loss of foundry  revenue  following  the disposal of the  Company's two CMOS
fabrication facilities in the fourth quarter of Fiscal 2002.

Medical                                            Three Months Ended
                                        ----------------------------------------
                                        June 28,     % of    June 29,     % of
(millions of U.S. dollars)                2002      Total      2001       Total
                                        --------   -------   --------    -------
Revenue:
Medical                                  $ 7.0       100%     $ 9.3        100%
                                         =====                =====
As a % of total revenue                               15%                   14%

Medical operating income                 $  --                $ 2.4
                                         =====                =====

      Zarlink's  Medical  business  provides  ultra low power ASIC solutions for
applications such as pacemakers, hearing aids and portable instruments.

      Revenue decreased in the first quarter of Fiscal 2003 to $7.0 from $9.3 in
the first quarter of Fiscal 2002 due to higher customer  inventories and reduced
demand by customers in the analog audiologic business.

      The segment's  operating  results  declined from the same period last year
chiefly as a result of lower revenues.


                                       15
<PAGE>

Geographic Revenue

      Revenue, based on the geographic location of customers, was distributed as
follows:

                                                   Three Months Ended
                                        ----------------------------------------
                                        June 28,     % of    June 29,     % of
(millions of U.S. dollars)                2002      Total      2001       Total
                                        --------   -------   --------    -------
Asia/Pacific                             $ 16.7       35%     $ 14.9       22%
Europe                                     16.3       34        24.5       36
United States                               9.8       20        21.7       32
Canada                                      4.2        9         4.8        7
Other Regions                               1.0        2         1.9        3
                                         ------      ---      ------      ---
Total                                    $ 48.0      100%     $ 67.8      100%
                                         ======      ===      ======      ===

      For the quarter  ended June 28, 2002,  the net movement in exchange  rates
from the corresponding period in Fiscal 2002 favorably impacted total revenue by
1% ($0.5).  The favorable foreign exchange impact in the first quarter of Fiscal
2003 was primarily a result of changes in the U.K.  pound  sterling  against the
U.S. dollar exchange rate.

Asia/Pacific

      Asia/Pacific  sales  increased by 12% in the first  quarter of Fiscal 2003
compared to the first quarter of Fiscal 2002,  due to higher user access product
sales, partially offset by reduced medical sales.

Europe

      European  sales  decreased by 33% in the first quarter of Fiscal 2003 from
the same period in Fiscal 2002 due to lower communications segment sales of both
network access and user access products.

United States

      Sales into the United  States  decreased by 55% from the first  quarter of
Fiscal 2002 to the first quarter of Fiscal 2003.  The decrease was due primarily
to lower medical and user access product sales.

Canada

      Canadian sales  decreased by $0.6 in the first quarter of Fiscal 2003 over
the same period in Fiscal 2002 due to lower communications segment sales.

GROSS MARGIN

                                                             Three Months Ended
                                                             -------------------
(millions of U.S. dollars)                                   June 28,   June 29,
                                                               2002       2001
                                                             --------   --------

Gross margin                                                  $ 22.1     $  5.1
As a percent of revenue                                           46%         8%
As a percent of revenue, excluding excess Q1
  Fiscal 2002 inventory charge of $29.1                           46%        50%

      Gross margin  decreased by four percentage  points in the first quarter of
Fiscal 2003  compared to the same period in Fiscal  2002,  excluding  the excess
inventory charge recorded in the first quarter of Fiscal 2002. The lower margin,
as adjusted,  was due to lower sales volumes and an  unfavorable  product mix in
the communications segment.


                                       16
<PAGE>

Fiscal 2002 Inventory Charge

      During the first  quarter  ended June 29, 2001,  the Company  reviewed its
inventory requirements for the following 12 months in light of the semiconductor
industry-wide  slowdown  and  higher  channel  inventories.  As a result of this
review,  the Company recorded an excess inventory charge to cost of sales in the
first quarter of Fiscal 2002 amounting to $29.1 for inventories  estimated to be
beyond its needs for the following 12 months. Excluding the effect of the excess
inventory  charge of $29.1,  the Company's  gross margin as a percent of revenue
was 50% for the quarter ended June 29, 2001.

OPERATING EXPENSES

Research and Development ("R&D")

                                                            Three Months Ended
                                                           ---------------------
(millions of U.S. dollars)                                 June 28,     June 29,
                                                             2002         2001
                                                           --------     --------
R&D expenses                                                $ 20.7       $ 23.5
As a percent of revenue                                        43%          35%

      R&D  expenses  decreased by 12%, or $2.8,  in the first  quarter of Fiscal
2003 from a year ago due to the  consolidation  of R&D  activities in mid-Fiscal
2002.  Management  expects that R&D spending will  increase  gradually in Fiscal
2003 while  investments  continue  to be made in expected  high  growth  product
offerings.

      In the Network Access product line, the focus was in the following areas:

      o     Building network timing and synchronization  products for high speed
            applications;

      o     Delivering   multi-channel   carrier-class   convergence  solutions,
            including time division  multiplex ("TDM")  switching,  asynchronous
            transfer  mode  ("ATM")  convergence,  or internet  protocol  ("IP")
            switching;

      o     Supporting  high-speed access using digital  subscriber line ("DSL")
            solutions;

      o     Providing  high quality voice in packet  switching  applications  to
            metro and enterprise markets; and

      o     Very Short Reach  ("VSR")  parallel  optical  solutions  targeted at
            terabit speeds and higher.

      In the User Access product line, the focus was in the following areas:

      o     Providing  a  multi-mode   cell  phone  chip  with  3.5   generation
            standards,  general packet radio service  ("GPRS") and enhanced data
            for GSM evolution ("EDGE").

      o     Providing a single chip solution  incorporating  multiple tuners (up
            to three  tuners on a chip)  for  terrestrial,  satellite  and cable
            digital tuning; and

      o     Delivering  chip-based  solutions to integrate  set-top box features
            for Integrated Digital TV ("iDTV").

      In Medical, the focus was on semiconductor  solutions and technologies for
      a variety of in-vivo and audiological applications, including:

      o     Implantable   pacemakers  and   defibrillators  for  cardiac  rhythm
            control, hearing aids, cochlea implants (auditory nerve stimulators)
            for  restoring   hearing  in  the   profoundly   deaf,  and  medical
            instruments   for  a   variety   of   diagnostic   and   therapeutic
            applications;

      o     Ultra low power radio  frequency  ("RF") to support  high  bandwidth
            communication   with  medical   devices  that  have  more  and  more
            diagnostic capability;

      o     Ultra low power  audio  processing  and  digital  signal  processing
            ("DSP") to support  digital  hearing aids  providing  improved sound
            quality that can be better  matched to the  patient's  hearing loss;
            and

      o     Application-specific  standard  products  ("ASSPs")  as  opposed  to
            ASICs.


                                       17
<PAGE>

Selling and Administrative ("S&A")

                                                        Three Months Ended
                                                   -----------------------------
(millions of U.S. dollars)                         June 28, 2002   June 29, 2001
                                                   -------------   -------------
S&A expenses                                           $ 11.8         $ 13.1
As a percent of revenue                                   25%            19%

      S&A expenses decreased in the first quarter of Fiscal 2003 by $1.3, or 10%
from the first quarter in Fiscal 2002 as a result of cost reductions implemented
in Fiscal 2002 in response to the industry downturn. Management expects that S&A
expenses will remain  relatively flat throughout  Fiscal 2003 in absolute dollar
amounts.

Stock Compensation

      The Company recorded stock  compensation  expense or recovery arising from
retention  conditions  associated with the stock awarded to certain employees of
Vertex  Networks,  Incorporated  ("Vertex") which was acquired in July 2000, and
from certain stock options subjected to option exchange programs.

      During the three months ended June 28, 2002, the Company  recorded a stock
compensation  expense of $0.3 (June 29, 2001 - $2.3),  related to the vesting of
restricted stock awarded to certain employees of Vertex.

      Also  recorded  during the quarter was a recovery of $1.9 (June 29, 2001 -
$1.6 expense), related to the amortization of the intrinsic value of unexercised
stock  options  modified  by the  option  exchange  programs.  The  compensation
recovery  in the  quarter  is a result of the  decrease  in market  price of the
underlying common stock at June 28, 2002. The reduced market price resulted in a
reduction  to the  intrinsic  value being  amortized  over the term of the stock
option,  and a recovery of previously  recorded  stock  compensation  expense on
outstanding options.

Special Charge Recorded in the First Quarter of Fiscal 2002

      In the  first  quarter  of Fiscal  2002 and in  response  to the  industry
downturn,  the Company implemented a cost-containment  plan in order to preserve
cash resources.  The cost-containment plan included a workforce reduction of the
Company's  total  employee  base  by 439  employees,  globally  across  all  job
categories, which was completed by the end of Fiscal 2002. The total cost of the
first quarter Fiscal 2002 workforce reduction program was estimated to be $26.7.

      As a result of the workforce  reduction program and  consolidating  design
activity,  the Company  took steps to provide for excess  leased  facilities  in
Canada, the United States,  the United Kingdom,  and the Far East. The estimated
cost of the lease and contract settlements amounted to $7.9 in the first quarter
of Fiscal 2002.

      The total of these pre-tax special charges  amounted to $34.6 in the first
quarter of Fiscal 2002. In the fourth quarter of Fiscal 2002,  $3.1 of the first
quarter  special  charge was  reversed  due to savings of $2.3 on the  workforce
reduction program and $0.8 related to the subsequent sub-letting of vacant space
in Irvine, California.

Amortization of Acquired Intangibles

      Amortization of acquired  intangibles  decreased in the three months ended
June 28,  2002 to nil  from  $1.4 in the  first  quarter  of  Fiscal  2002.  The
remaining  acquired   intangibles,   including  goodwill,   resulting  from  the
acquisition  of Vertex on July 28, 2000 were  expensed  in the third  quarter of
Fiscal 2002 to reduce the carrying  value to nil.  With the adoption of SFAS 142
in Fiscal  2003,  intangible  assets  with  indefinite  lives  will no longer be
amortized, but will be subject to periodic impairment tests.


                                       18
<PAGE>

OTHER INCOME

      Other income was comprised of interest  income,  foreign exchange gains or
losses, and, in Fiscal 2002, equity losses from the investment in Optenia, Inc.

      Interest  income  was $0.9 for the three  months  ended  June 28,  2002 as
compared to $2.1 in the first three months of Fiscal 2002. The decrease from the
first quarter of Fiscal 2002 was mainly due to lower interest rates.

      Foreign  exchange  losses in the first  quarter of Fiscal 2003 amounted to
$0.4 compared to a gain of $6.3 for the same period in Fiscal 2002.  Included in
the gain in the first quarter of Fiscal 2002 was a $7.0 net increase in earnings
due to the  marking  to  market  of  certain  forward  contracts  prior to their
designation as cash flow hedges in Fiscal 2002.

      During the three  months  ended June 29,  2001,  the  Company  recorded an
equity loss amounting to $0.5 from its investment in Optenia, Inc. In the fourth
quarter of Fiscal 2002, the  investment in Optenia,  Inc. was written off to nil
after it went into bankruptcy.

INTEREST EXPENSE

      Interest  expense  was $0.1 for the  three  months  ended  June 28,  2002,
compared  with  $0.2 for the  corresponding  quarter  in Fiscal  2002.  Interest
expense  decreased due to the repayment of long-term debt,  principally  capital
leases.

INCOME TAXES

      Income  tax  expense  for the  first  quarter  of  Fiscal  2003 was  $0.3,
principally   capital   taxes,   compared  with  a  recovery  of  $3.2  for  the
corresponding  period in Fiscal  2002.  The  income  tax  recovery  in the first
quarter of Fiscal  2002 was due  principally  to tax  allowances  on the special
inventory charge recorded at June 29, 2001.

      The Company has a valuation allowance at June 28, 2002 of $92.3 (March 29,
2002 - $75.8).  The increase  relates mainly to losses incurred in the Company's
foreign  jurisdictions  and  temporary  differences  in the  Company's  domestic
operations.  Management  has  determined  that  sufficient  uncertainties  exist
regarding the realization of certain of its deferred tax assets.

BACKLOG

(millions of U.S. dollars)                       June 28, 2002    March 29, 2002
                                                 -------------    --------------

90-Day Backlog                                      $ 28.0            $ 33.5

      Generally,  manufacturing lead times for semiconductor products are longer
because  of the  nature  of the  production  process.  However,  as  orders  are
sometimes  booked and shipped within the same fiscal quarter (often  referred to
as "turns"),  order backlog is not necessarily indicative of a sales outlook for
the quarter or year.

      The backlog  decrease  from last year was  attributable  to the  continued
downturn in the communications  semiconductor  industry,  described elsewhere in
this Management's Discussion and Analysis.

NET LOSS

      The Company  recorded a net loss of $8.7,  or $0.07 per share in the first
quarter  of Fiscal  2003.  This  compares  to a net loss of $60.5,  or $0.49 per
share, in the same period in Fiscal 2002.

      The net loss for the three  months ended June 28,  2002,  was  primarily a
result of lower revenues across the  communications  and medical  segments.  The
loss in the quarter also included a stock compensation recovery of $1.6.


                                       19
<PAGE>

      The comparative net loss for the three months ended June 29, 2001 included
a  charge  to  cost of  revenue  for  excess  inventory  of  $29.1  and  special
restructuring  charges of $34.6.  The loss also  included  a stock  compensation
expense of $3.9 and amortization of intangibles of $1.4.

LIQUIDITY AND CAPITAL RESOURCES

      At June  28,  2002,  cash,  cash  equivalents  and  short-term  investment
balances  totaled  $153.1,  down from  $154.4 at March 29,  2002.  Cash and cash
equivalents  at June 28, 2002,  included in the amount above,  amounted to $30.9
(March 29, 2002 - $75.6).

      Cash flow used in operations  before working capital  changes  amounted to
$6.9  during the first  quarter of Fiscal 2003 as compared to $22.9 in the first
quarter  of  Fiscal  2002  when  the  Company  began to  carry  out  significant
restructuring  activities.  Since March 29, 2002, the Company's working capital,
as reflected in the  consolidated  statements  of cash flows,  decreased by $1.9
mostly due to reductions in inventories  and improved cash  collections  against
trade  receivables.  Management expects to further draw down inventory levels in
Fiscal 2003 by reducing cycle times and managing inventories on a build-to-order
basis.

      Fixed and other  asset  additions  were $2.7  during the first  quarter of
Fiscal  2003,  down from $14.6 in the first  three  months of Fiscal  2002.  The
additions were primarily related to design tools and continuing  improvements to
information  technology resources.  Fiscal 2002 additions principally related to
the  construction  of the  Company's new  headquarters  in Ottawa,  Canada.  The
building was subsequently sold in the fourth quarter of Fiscal 2002.  Management
expects  quarterly  capital spending in Fiscal 2003 to remain stable compared to
the first quarter of this year.

      Long-term debt decreased due to scheduled repayments against capital lease
liabilities.  In total,  capital lease  liabilities  were reduced by $0.7 in the
first quarter of Fiscal 2003.

      During Fiscal 2002, the Company took steps to wind up the defined  benefit
pension plan in the United  Kingdom and replaced it with a defined  contribution
plan. The cost to settle the pension plan is expected to  approximate  $6.0. The
payment  is  expected  to be made in  Fiscal  2003  when the plan is  ultimately
settled after the appropriate approvals are received.

      During the first  quarter of Fiscal  2003,  the Company  declared and paid
dividends  amounting  to $0.5 on its  redeemable  preferred  shares  based  on a
Cdn$0.50 per share dividend. In addition, the Company purchased 15,900 preferred
shares under its purchase obligation during the quarter ended June 28, 2002. The
transfer  agent  will  cancel  the  repurchased  preferred  shares in the second
quarter of Fiscal 2003. The cost to repurchase the preferred  shares amounted to
$0.2.

      On June 6,  2002,  the  Company  announced  its  Board  of  Directors  had
authorized  the  continuation  of  its  normal  course  issuer  bid  program  to
repurchase up to 6,358,203  common shares,  representing  5% of the  127,164,078
common shares issued and  outstanding  at May 31, 2002.  The purchases will take
place on the open  market  through the stock  exchanges  of New York and Toronto
over a  twelve-month  period  beginning  on June 10,  2002 and ending on June 9,
2003, or on such earlier date as the Company may complete its purchases pursuant
to the notice of  intention  to make a normal  course  issuer bid filed with The
Toronto Stock  Exchange.  The Company,  which intends to cancel the  repurchased
shares,  believes that at present no director,  senior officer or insider of the
Company  intends to sell any common shares under this program.  No common shares
were repurchased under the program during the period from March 30, 2002 to June
8, 2002, nor under the renewed program for the period ended June 28, 2002.

      In addition to cash, cash equivalents and short-term  investment  balances
of $153.1  as at June 28,  2002,  the  Company  had a  revolving  global  credit
facility of approximately  $16.5 (Cdn$25.0),  of which $3.2 in letters of credit
were outstanding.  Accordingly, the Company had unused and available demand bank
lines of credit amounting to $13.3 as at June 28, 2002.  Management believes the
Company is in a position to meet all foreseeable  business cash requirements and
capital  lease and  preferred  share  payments  from its cash  balances on hand,
existing financing facilities and cash flow from operations.


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<PAGE>

OTHER

Critical Accounting Policies and Significant Estimates

      The Company's consolidated financial statements are based on the selection
and application of significant accounting policies,  which require management to
make significant estimates and assumptions.  There is no change in the Company's
critical  accounting  policies included in Item 7,  Management's  Discussion and
Analysis of Financial  Condition  and Results of  Operations,  of the  Company's
Annual Report on Form 10-K for the year ended March 29, 2002.

      As at June 28, 2002, the Company had investments in private companies with
a carrying  value of $15.3  (March 29,  2002 - $14.1).  Management  periodically
reviews these  investments to determine if there has been other than a temporary
decline in the market value of these  investments below the carrying value. When
management  performs  future  assessments  of these  investments  in the  coming
quarters,  a decline in the value of these  companies may require the Company to
recognize  impairment on the remaining value of its  investments  which could be
material.

Foreign Currency Translation

      Management   periodically   evaluates  the   financial   and   operational
independence  of its foreign  operations.  Should a foreign  subsidiary's  local
currency cease to be its functional  currency,  then translation gains or losses
on consolidating the foreign subsidiary's financial statements subsequent to the
change in functional  currency would be charged to operating income instead of a
separate component of accumulated other comprehensive income.

Recently issued accounting standards

      In July 2002, the Financial  Accounting  Standards  Board ("FASB")  issued
Statement No. 146 ("SFAS 146"),  "Accounting  for Costs  Associated with Exit or
Disposal  Activities",  which addresses  financial  accounting and reporting for
costs  associated with exit or disposal  activities and nullifies EITF Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs  to  Exit  an   Activity   (including   Certain   Costs   Incurred   in  a
Restructuring)."  Statement 146 requires that a liability for a cost  associated
with an exit or disposal  activity be recognized when the liability is incurred.
Under Issue 94-3, a liability for an exit cost was  recognized at the date of an
entity's  commitment to an exit plan.  Statement 146 concludes  that an entity's
commitment to a plan, by itself,  does not create a present obligation to others
that meets the  definition of a liability.  Therefore,  SFAS 146  eliminates the
definition and  requirements  for  recognition of exit costs in Issue 94-3. SFAS
146 also establishes that fair value is the objective for initial measurement of
the  liability.  SFAS 146 will be  effective  for  exit or  disposal  activities
initiated  after December 31, 2002 and had no impact on the Company's  financial
statements,  but will impact the accounting treatment of future exit or disposal
activities should they occur.

Forward-Looking Statements

      Certain statements in this Management's Discussion and Analysis constitute
forward-looking  statements.  Such forward-looking  statements involve known and
unknown  risks,  uncertainties  and other  factors  that may  cause  the  actual
results,  performance or achievements  of Zarlink,  or industry  results,  to be
materially  different  from any  future  results,  performance  or  achievements
expressed   or  implied  by  such   forward-looking   statements.   Such  risks,
uncertainties  and  assumptions  include the  following:  general  economic  and
business  conditions;  demographic  changes;  import  protection and regulation;
rapid technology development and changes;  timing of product introductions;  the
mix of  products/services;  industry  competition,  industry  capacity and other
industry trends; and the ability of Zarlink to attract and retain key employees.


                                       21
<PAGE>

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

      Market  risk  represents  the  risk  of loss  that  may  impact  Zarlink's
financial  statements due to adverse  changes in financial  markets.  Zarlink is
exposed to market  risk from  changes in  interest  rates and  foreign  exchange
rates.  To  manage  these  risks,  Zarlink  uses  certain  derivative  financial
instruments,   including  interest  rate  swaps,  forward  contracts  and  other
derivative  instruments from time to time, that have been authorized pursuant to
board-approved policies and procedures. Zarlink does not hold or issue financial
instruments for trading or speculative purposes.

      The Company  currently  uses  forward  contracts,  and to a lesser  extent
foreign currency  options,  to reduce the exposure to foreign exchange risk. The
most  significant  foreign  exchange  exposures  for the  Company  relate to the
Canadian  dollar  and the U.K.  pound  sterling.  At June 28,  2002,  there were
unrealized losses of $0.8 on the forward contracts  relating to Fiscal 2003. The
unrealized  loss is calculated  as the  difference  between the actual  contract
rates and the  applicable  current  market rates that would be used to terminate
the forward  contracts on June 28, 2002, if it became  necessary to unwind these
contracts. Management believes that the established hedges are effective against
its known and  anticipated  cash flows,  and that  potential  future losses from
these  hedges  being  marked to market  would be largely  offset by gains on the
underlying hedged transactions.

      The Company's  primary exposure to interest rates is expected to be in the
rollover of its  short-term  investment  portfolio.  In accordance  with Company
policy,  cash  equivalents  and  short-term  investment  balances are  primarily
comprised of high-grade money market instruments with original maturity dates of
less than one year.  The Company  does not hedge the  re-investment  risk on its
short-term investments.

      Management does not foresee any significant changes in the strategies used
to manage interest and foreign exchange rate risks in the near future.

      As at June 28, 2002, there were no material  changes in information  about
market risks as disclosed in the  Company's  Annual  Report on Form 10-K for the
fiscal year ended March 29, 2002.

PART II - OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There  were no  matters  submitted  to a vote of  security  holders in the three
months ended June 28, 2002.

ITEM 6. EXHIBITS AND REPORT ON FORM 8-K

a) Exhibits

99.1  President and Chief Executive  Officer  certificate  pursuant to 18 U.S.C.
      Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
      of 2002

99.2  Senior Vice President of Finance and Chief Financial  Officer  certificate
      pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002

99.3  Selected  Consolidated   Financial  Statements  in  U.S.  Dollars  and  in
      accordance with Canadian Generally Accepted Accounting Principles

99.4  Management's Discussion and Analysis of Financial Condition and Results of
      Operations - Canadian Supplement


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<PAGE>

b) Reports on Form 8-K

There were no reports on Form 8-K filed  during the three  months ended June 28,
2002.

                                    SIGNATURE

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned thereunto duly authorized.

                                       ZARLINK SEMICONDUCTOR INC.

August 12, 2002                                 JEAN-JACQUES CARRIER
---------------                                 --------------------------------
Date                                            Jean-Jacques Carrier
                                                Senior Vice President of Finance
                                                and Chief Financial Officer


                                       23
<PAGE>

                                  EXHIBIT INDEX

EXHIBIT NO.           DESCRIPTION                                           PAGE

99.1  President and Chief Executive Officer certificate
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to Section 906 of the Sarbanes-Oxley Act of 2002                       25

99.2  Senior Vice President of Finance and Chief Financial
      Officer certificate pursuant to 18 U.S.C. Section 1350,
      as adopted pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002                                                            26

99.3  Selected Consolidated Financial Statements in U.S. Dollars
      and in accordance with Canadian Generally Accepted
      Accounting Principles                                                27-36

99.4  Management's Discussion and Analysis of Financial Condition
      and Results of Operations - Canadian Supplement                      37-38


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