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 29, 2001

                                       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

                                Mitel Corporation
                      -----------------------------------------
                     (Former name, if Changed Since Last Report)

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 July 31, 2001 was 126,262,973.


<PAGE>

                           ZARLINK SEMICONDUCTOR INC.

                                      INDEX

PART I. FINANCIAL INFORMATION (Unaudited)

ITEM 1. FINANCIAL STATEMENTS

            Consolidated Balance Sheets -
            June 29,  2001 and March 30,  2001 .............................   3

            Consolidated Statements of Retained Earnings (Deficit) -
            Three months ended June 29, 2001 and June 30, 2000 .............   4

            Consolidated Statements of Income (Loss) -
            Three months ended June 29, 2001 and June 30, 2000 .............   5

            Consolidated Statements of Cash Flows -
            Three months ended June 29, 2001 and June 30, 2000 .............   6

            Notes to the Consolidated Financial Statements .................   7

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS ................................  15

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
        MARKET  RISK .......................................................  23

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ...................................  24


                                       2
<PAGE>

                           Zarlink Semiconductor Inc.
                     (incorporated under the laws of Canada)
                           CONSOLIDATED BALANCE SHEETS
                        (in millions of Canadian dollars)
                                   (Unaudited)

                                                            June 29,   March 30,
                                                              2001        2001
                                                            --------   ---------
ASSETS

Current assets:
  Cash and cash equivalents                                $  237.1    $  283.7
  Accounts receivable                                          67.5        85.5
  Inventories (note 4)                                         89.8       133.9
  Investment tax credits recoverable                           11.8        15.8
  Future income tax assets                                      5.5         1.9
  Prepaid expenses and other                                   18.6        23.5
                                                           --------    --------
                                                              430.3       544.3

Long-term receivables (note 5)                                 15.5        15.8
Long-term investments (note 6)                                 27.2        24.8
Fixed assets (note 7)                                         200.1       207.0
Acquired intangible assets (note 8)                            23.0        38.1
Other assets                                                    2.5         5.6
                                                           --------    --------

                                                           $  698.6    $  835.6
                                                           ========    ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable and accrued liabilities (note 9)        $  148.5    $  146.5
  Income and other taxes payable                                9.0         7.1
  Future income tax liabilities                                  --         7.3
  Deferred revenue                                              6.0         5.9
  Current portion of long-term debt                             8.3         9.2
                                                           --------    --------
                                                              171.8       176.0
Long-term debt                                                  4.9         7.6
Pension liability                                              16.1        17.2
Future income tax liabilities                                   6.7         7.2
                                                           --------    --------
                                                              199.5       208.0
                                                           --------    --------
Shareholders' equity:
  Capital stock (note 10)
     Preferred shares                                          36.2        36.6
     Common shares                                            635.8       635.2
  Contributed surplus                                           9.2         9.2
  Deficit                                                    (174.6)      (57.7)
  Translation account (note 11)                                (7.5)        4.3
                                                           --------    --------
                                                              499.1       627.6
                                                           --------    --------
                                                           $  698.6    $  835.6
                                                           ========    ========

        (See accompanying notes to the consolidated financial statements)


                                       3
<PAGE>

                           Zarlink Semiconductor Inc.
             CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
                        (in millions of Canadian dollars)
                                   (Unaudited)

                                                            Three Months Ended
                                                           June 29,    June 30,
                                                             2001        2000
                                                           --------    --------

Retained earnings (deficit), beginning of period           $  (57.7)   $  262.6

Net income (loss) for the period                             (116.1)       21.5
                                                           --------    --------
                                                             (173.8)      284.1

Dividends on preferred shares (note 12)                        (0.8)       (0.8)
                                                           --------    --------

Retained earnings (deficit), end of period                 $ (174.6)   $  283.3
                                                           ========    ========

        (See accompanying notes to the consolidated financial statements)


                                       4
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                  Three Months Ended
                                                                                June 29,       June 30,
                                                                                  2001           2000
                                                                                ----------     ---------
<S>                                                                             <C>            <C>
Revenue                                                                         $   105.0      $   183.8
                                                                                ---------      ---------

Cost of sales:
  Cost of sales other than amortization (note 4)                                     91.4           73.4
  Amortization of manufacturing assets                                                7.4           13.4
                                                                                ---------      ---------
                                                                                     98.8           86.8
                                                                                ---------      ---------
Gross margin                                                                          6.2           97.0
                                                                                ---------      ---------

Expenses:
  Selling and administrative                                                         26.0           29.6
  Research and development (net) (note 13)                                           31.4           24.5
  Special charge (note 14)                                                           53.6             --
  Amortization of acquired intangibles  (note 8)                                     15.8            0.1
                                                                                ---------      ---------
                                                                                    126.8           54.2
                                                                                ---------      ---------
Operating income (loss) from continuing operations                                 (120.6)          42.8
Equity loss from investment in Optenia, Inc.                                         (0.8)            --
Interest income                                                                       3.2            3.0
Interest expense                                                                     (0.3)          (5.3)
Debt issue costs                                                                       --           (0.6)
                                                                                ---------      ---------
Income (loss) from continuing operations before income taxes                       (118.5)          39.9
Income tax recovery (expense)                                                         2.4          (12.4)
                                                                                ---------      ---------
Net income (loss) from continuing operations                                       (116.1)          27.5
                                                                                ---------      ---------
Loss from discontinued operations                                                      --           (6.0)
                                                                                ---------      ---------

Net income (loss) for the period                                                $  (116.1)     $    21.5
                                                                                =========      =========

Net income (loss) attributable to common shareholders
 after preferred share dividends                                                $  (116.9)     $    20.7
                                                                                =========      =========

Net income (loss) per common share from continuing operations (note 10):
      Basic                                                                     $    (0.94)    $     0.23
                                                                                =========      =========
      Diluted                                                                   $    (0.94)    $     0.22
                                                                                =========      =========

Net income (loss) per common share (note 10):
      Basic                                                                     $    (0.94)    $     0.18
                                                                                =========      =========
      Diluted                                                                   $    (0.94)    $     0.17
                                                                                =========      =========

Weighted average number of common shares outstanding (millions):
      Basic                                                                         124.6          114.2
                                                                                =========      =========
      Diluted                                                                       127.6          119.3
                                                                                =========      =========
</TABLE>

        (See accompanying notes to the consolidated financial statements)


                                       5
<PAGE>

                                            Zarlink Semiconductor Inc.

                                       CONSOLIDATED STATEMENTS OF CASH FLOWS

                                         (in millions of Canadian dollars)

                                                    (Unaudited)

<TABLE>
<CAPTION>
                                                                                 Three Months Ended
                                                                                June 29,     June 30,
                                                                                  2001         2000
                                                                                --------     --------
<S>                                                                             <C>          <C>
CASH PROVIDED BY (USED IN)

Operating activities:
  Net income (loss) for the period                                              $ (116.1)    $   21.5
  Amortization of capital and other assets                                          28.7         31.1
  Loss on disposal of capital assets                                                 0.6          2.0
  Loss related to equity investment                                                  0.8           --
  Investment tax credits                                                             4.0           --
  Future income taxes                                                              (11.3)        (2.5)
  Change in pension liability                                                        0.2          0.1
  Decrease (increase) in working capital (note 17)                                  75.0        (51.5)
                                                                                --------     --------

    Total                                                                          (18.1)         0.7
                                                                                --------     --------

Investing activities:
  Change in short-term investments                                                    --        (38.7)
  Expenditures for capital and other assets                                        (21.0)       (26.9)
  Proceeds from disposal of capital assets                                            --          0.6
  Proceeds from sale of prior year discontinued operations - net                     2.0           --
  Increase in long-term investments                                                 (3.1)          --
                                                                                --------     --------

     Total                                                                         (22.1)       (65.0)
                                                                                --------     --------

Financing activities:
  Repayment of long-term debt                                                       (1.4)       (27.1)
  Repayment of capital lease liabilities                                            (2.1)       (12.0)
  Dividends on preferred shares                                                     (0.8)        (0.8)
  Issue of common shares (note 10)                                                   0.6          2.6
  Repurchase of preferred shares (note 10)                                          (0.4)          --
                                                                                --------     --------

     Total                                                                          (4.1)       (37.3)
                                                                                --------     --------

Effect of currency translation on cash                                              (2.3)         0.1
                                                                                --------     --------

Decrease in cash and cash equivalents                                              (46.6)      (101.5)

Cash and cash equivalents, beginning of period                                     283.7        195.5
                                                                                --------     --------

Cash and cash equivalents, end of period                                        $  237.1     $   94.0
                                                                                ========     ========
</TABLE>

        (See accompanying notes to the consolidated financial statements)


                                       6
<PAGE>

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

1.    In  the  opinion  of  Management,  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  29,  2001  and the  results  of  operations  and the  changes  in
      financial  position  for the three month  periods  ended June 29, 2001 and
      June 30, 2000, in accordance with Canadian generally  accepted  accounting
      principles. (See also Note 16).

      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 30,  2001.  The  Company's
      fiscal year-end is the last Friday in March.

      Due to the cyclical nature of the business,  the results of operations for
      the periods presented are not necessarily  indicative of the results to be
      expected for the full year.

2.    Name change

      On  May  29,  2001,  the  Company  adopted  Zarlink  Semiconductor  as its
      operating  name. On July 25, 2001, the Company  formally  changed its name
      from Mitel  Corporation to Zarlink  Semiconductor  Inc.  ("Zarlink") after
      receiving shareholder approval at its annual general shareholders' meeting
      on that date.

3.    Change in accounting policy

      Effective  March 31,  2001,  the  beginning  of Fiscal  2002,  the Company
      adopted the new  recommendations of Section 3500 of the Canadian Institute
      of Chartered  Accountants  ("CICA") Handbook  "Earnings Per Share" and has
      applied the  provisions  retroactively  with  restatement  of earnings per
      share for all periods presented. The adoption of these recommendations had
      no impact on the earnings per share in Fiscal 2002.

      The  new   recommendations,   which  are  essentially   aligned  with  the
      requirements of the U.S.  Financial  Accounting  Standards Board Statement
      No. 128 on this  subject,  require the use of the  treasury  stock  method
      instead of the imputed  earnings method for calculating  diluted  earnings
      per share.

4.    Inventories:

                                                    June 29,        March 30,
                                                      2001             2001
                                                    --------        ---------

      Raw materials                                 $   22.8        $   19.7
      Work-in-process                                   46.6            73.0
      Finished goods                                    20.4            41.2
                                                    --------        --------
                                                    $   89.8        $  133.9
                                                    ========        ========

      During the quarter ended June 29, 2001, the Company reviewed its inventory
      requirements   during  the  next  12  months  in  light  of  the   current
      semiconductor industry-wide slow down and higher channel inventories. As a
      result of this  review in the first  quarter of Fiscal  2002,  the Company
      recorded an excess  inventory  charge to cost of sales  amounting to $45.0
      for inventories estimated to be beyond its needs for the next 12 months.


                                       7
<PAGE>

5.    Long-term receivables

<TABLE>
<CAPTION>
                                                                                           June 29,      March 30,
                                                                                            2001           2001
                                                                                           --------      ---------

<S>                                                                                        <C>             <C>
      Investment tax credits recoverable                                                   $  7.8         $  7.8
      Promissory  note,  bearing  interest at 8%, payable  annually,  due in June
      2004 (see  below)  and  against  which a first  deed on real  property  was             6.8
      pledged as security                                                                                    7.1
      Other long-term receivables                                                             0.9            0.9
                                                                                           ------         ------
                                                                                           $ 15.5         $ 15.8
                                                                                           ======         ======
</TABLE>

      The promissory note was fully repaid in advance on July 12, 2001.

6.    Long-term investments

                                                         June 29,    March 30,
                                                           2001        2000
                                                         -------     ---------
      Investments held at cost:
        Mitel Networks Corporation                       $  17.2     $  17.2

        Other investments                                    3.1          --
                                                         -------     -------
                                                            20.3        17.2

      Equity investment in Optenia, Inc.                     6.9         7.6
                                                         -------     -------
                                                         $  27.2     $  24.8
                                                         =======     =======

7.    Fixed assets

                                                    June 29,       March 30,
                                                      2001           2001
                                                    --------       ---------

      Cost                                          $  579.7       $  586.6
      Accumulated amortization                        (379.6)        (379.6)
                                                    --------       --------
                                                    $  200.1       $  207.0
                                                    ========       ========

8.    Acquired intangible assets

                                                       June 29,     March 30,
                                                         2001         2001
                                                       --------     ---------
      Cost:
        In-process technology                          $    7.6     $    7.6
        Developed technology                               34.8         34.8
        Customer base and work force                         --          3.1
        Goodwill                                             --        233.9
                                                       --------     --------
                                                           42.4        279.4
                                                       --------     --------
      Less accumulated amortization:
        In-process technology                               3.5          2.5
        Developed technology                               15.9         11.6
        Customer base and work force                         --          1.2
        Goodwill                                             --        226.0
                                                       --------     --------
                                                           19.4        241.3
                                                       --------     --------
                                                       $   23.0     $   38.1
                                                       ========     ========

      During the first quarter of Fiscal 2002, the Company  determined  that the
      balance of the acquired intangibles  associated with the customer base and
      work force and goodwill amounting to $7.5


                                       8
<PAGE>

      was  impaired  due to the effects of the Fiscal 2002  workforce  reduction
      program (see also Note 14).  The write down of $7.5 was included  with the
      regular amortization of acquired  intangibles on the income statement.  In
      addition,  fully  amortized  acquired  intangible  assets of  $237.8  were
      removed from the accounts of the Company at June 29, 2001.

9.    Accounts payable and accrued liabilities

                                                           June 29,  March 30,
                                                             2001       2001
                                                           --------  ---------

      Trade payables                                       $  11.0   $  32.3
      Employee-related payables                               19.2      17.5
      Goods received not invoiced                              5.6      13.7
      Provision for disposal of discontinued operations       19.0      20.2
      Restructuring provisions (note 14)                      41.9      10.5
      Other accrued liabilities                               51.8      52.3
                                                           -------   -------
                                                           $ 148.5   $ 146.5
                                                           =======   =======

10.   Capital stock:

       a)                                        June 29,        March 30,
                                                   2001            2001
                                               -----------     -----------

      Shares outstanding:
        Preferred shares - R&D Series            1,582,000       1,593,900
        Common shares                          126,227,276     126,136,799

      There were 11,900  preferred  shares  repurchased  during the three months
      ended June 29, 2001.

      On June 7, 2001,  the Company  announced  its  intention  to continue  its
      normal  course  issuer bid program for up to  6,308,907  common  shares (5
      percent of  126,178,148  common shares issued and  outstanding  at May 28,
      2001) between June 9, 2001 and June 8, 2002. All  repurchased  shares will
      be  cancelled.  In the  quarter  ended  June  29,  2001,  no  shares  were
      repurchased under the normal course issuer bid.

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

                                                  Three Months Ended
                                              June 29,          June 30,
                                                2001              2000
                                             -----------        ---------
      Outstanding options:
      Balance, beginning of period             9,464,693        9,017,262
      Granted                                  1,382,000          284,500
      Exercised                                  (90,477)        (335,937)
      Forfeited                                 (449,142)        (168,788)
                                              ==========        =========
      Balance, end of period                  10,307,074        8,797,037
                                              ==========        =========

      Available  for grant at June 29,  2001 were  1,046,612  (March 30,  2001 -
      1,979,470) common shares. The exercise prices on stock options outstanding
      range from $1.10 to $37.35 per share with  exercise  periods  extending to
      June 2008.

      c)    The net income per common share figures were calculated based on net
            income 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


                                       9
<PAGE>

            accordance  with the treasury  stock method and based on the average
            number of common shares and dilutive common share equivalents.  (See
            also note 3).

11.   The following table summarizes changes in the translation account:

                                                          Three Months Ended
                                                         June 29,   June 30,
                                                           2001       2000
                                                         --------   --------
      Balance, beginning of period                       $  4.3     $  (3.4)
      Increase:
        Movements in exchange rates -
           United Kingdom Pound Sterling                   (5.7)      (17.2)
           United States Dollar                            (3.6)        5.7
           Swedish Krona                                   (1.5)        1.5
           Other currencies                                (1.0)       (0.1)
                                                         ------     -------
      Balance, end of period                             $ (7.5)    $ (13.5)
                                                         ======     =======

12.   The Company has not declared or paid any  dividends on its common  shares.
      During the first quarter, a $0.50 per share dividend was declared and paid
      on the preferred shares.

13.   Research and development

      The research and development expenses from continuing  operations were net
      of $1.2 in R&D government assistance,  including ITCs, for the three month
      period ended June 29, 2001 (three months ended June 30, 2000 - $1.0).

14.   Special charge

      On May 10, 2001, the Company's Board of Directors approved a restructuring
      program to reduce the Company's manufacturing costs and operating expenses
      in  response  to  adverse  market  conditions.  Accordingly,  the  Company
      recorded a pre-tax  special charge of $53.6 related to that program in the
      quarter  ended June 29,  2001.  The special  charge  comprises a workforce
      reduction charge of approximately  $41.4 primarily relating to the cost of
      severance and benefits for the termination of approximately  439 employees
      throughout  the world in Fiscal  2002.  In  addition,  the special  charge
      includes  the cost of lease  and  contract  settlements  of  approximately
      $12.2. The Company will employ  approximately 2,000 people worldwide after
      the  restructuring  is completed in Fiscal 2002. As at June 29, 2001,  the
      balance of the  restructuring  provision  included in accounts payable and
      accrued liabilities amounted to $41.9 (March 30, 2001 - $10.5).

15.   Information on business segments

      The Company's reportable business segments from continuing  operations 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.   The  Communications
      business also includes  custom  products that involve the design of custom


                                       10
<PAGE>

      applications-specific  integrated  circuits  ("ASICs")  as well as  custom
      foundry services for external parties.

      The Medical  business  provides 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 from continuing  operations,
      which excludes any  intersegment  sales of products and services.  Zarlink
      does not allocate  amortization of intangibles,  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 capital assets is allocated to the segments based
      on the asset usage. The accounting policies of the reportable segments are
      the  same  as  those  described  in Note 3 to the  consolidated  financial
      statements as at March 30, 2001.

<TABLE>
<CAPTION>
                                                                                                            Unallocated
Three Months Ended June 29, 2001                                           Communications        Medical       Costs         Total
                                                                           --------------        -------    -----------    --------
<S>                                                                          <C>                 <C>         <C>           <C>
      Revenue                                                                $  90.6             $  14.4     $     --      $  105.0
      Amortization of buildings and equipment                                   12.8                 0.1           --          12.9
      Amortization of acquired intangibles                                        --                  --         15.8          15.8
      Excess inventory charge to cost of sales                                    --                  --         45.0          45.0
      Special charge                                                              --                  --         53.6          53.6
      Segment's operating income (loss) from continuing
      operations                                                                (9.9)                3.7       (114.4)       (120.6)

                                                                                                            Unallocated
Three Months Ended June 30, 2000                                           Communications        Medical       Costs         Total
                                                                           --------------        -------    -----------    --------

Revenue                                                                       $ 172.2            $ 11.6       $   --         $ 183.8
Amortization of buildings and equipment                                          21.4               0.2           --            21.6
Amortization of acquired intangibles                                               --                --          0.1             0.1
Segment's operating income from continuing
operations                                                                       40.6               2.3         (0.1)           42.8
</TABLE>

16.   United States accounting principles

      The  consolidated  financial  statements  have been prepared in accordance
      with Canadian generally accepted  accounting  principles  (Canadian GAAP),
      which, in the case of the Company,  conform in all material  respects with
      those in the United States (U.S.  GAAP) and with the  requirements  of the
      Securities and Exchange  Commission  (SEC),  except as fully  described in
      Note 23 to the consolidated financial statements as at March 30, 2001.

      The following  table  reconciles  the net income (loss) as reported on the
      consolidated  statements  of income  (loss) to the net income  (loss) that
      would have been  reported had the  financial  statements  been prepared in
      accordance with U.S. GAAP and the requirements of the SEC:


                                       11
<PAGE>

<TABLE>
<CAPTION>
                                                                                               Three Months Ended
                                                                                            June 29,        June 30,
                                                                                              2001            2000
                                                                                           ---------        --------

<S>                                                                                        <C>              <C>
      Net income (loss) from continuing operations for the period in                       $  (116.1)       $  27.5
      accordance with Canadian GAAP
      Acquirer's redundancy provisions                                                           1.3            0.5
      Amortization of acquired in-process technology                                             0.9             --
      Amortization of goodwill                                                                  12.7             --
      Depreciation of capital assets                                                             2.1             --
      Stock compensation expense                                                                (6.0)            --
      Income tax expense                                                                         1.7             --
      Effect of deferral accounting related to foreign exchange contracts                        9.7            7.6
      Translation of foreign currency denominated debt                                            --           (3.5)
                                                                                           ---------        -------

      U.S. GAAP and SEC requirements:
      Net income (loss) from continuing operations for the period                              (93.7)          32.1
      Loss from discontinued operations                                                           --           (5.5)
                                                                                           ---------        -------
      Net income (loss) for the period                                                         (93.7)          26.6
      Less: dividends on cumulative preferred shares                                            (0.8)          (0.8)
                                                                                           ---------        -------
      Net income (loss) attributable to common shareholders                                $   (94.5)       $  25.8
                                                                                           =========        =======

      Net income (loss) per common share from continuing operations:
         Basic                                                                             $    (0.76)      $   0.27
                                                                                           ==========       ========
         Diluted                                                                           $    (0.76)      $   0.26
                                                                                           ==========       ========

      Net income (loss) per common share:
         Basic                                                                             $    (0.76)      $   0.23
                                                                                           ==========       ========
         Diluted                                                                           $    (0.76)      $   0.22
                                                                                           ==========       ========

      Weighted average shares for basic EPS (millions)                                          124.6          114.2
      Weighted average shares on conversion of stock options (millions)                           1.5            5.1
      Weighted average issued shares subject to restrictions (millions)                           1.5             --
                                                                                           ----------       --------
      Adjusted weighted average shares and share equivalents (millions)                         127.6          119.3
                                                                                           ==========       ========
</TABLE>

      The  following   options  were  excluded  in  the   computation  of  share
      equivalents  because the  options'  exercise  price  exceeded  the average
      market price of the common shares:

      i)    Options  outstanding  for the three  months  ended June 29,  2001 to
            purchase  6,177,630  shares of common  stock at an average  price of
            $16.19 per share;

      ii)   Options  outstanding  for the three  months  ended June 30,  2000 to
            purchase  158,500  shares of  common  stock at an  average  price of
            $35.27 per share.

      U.S. GAAP earnings  included foreign exchange gains of $10.7 for the three
      months ended June 29, 2001 (three months ended June30, 2000 -$3.7).


                                       12
<PAGE>

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

<TABLE>
<CAPTION>
                                                                   Three Months Ended
                                                                 June 29,      June 30,
                                                                   2001          2000
                                                                ---------      --------
<S>                                                             <C>            <C>
       Net income (loss) for the period                         $  (93.7)      $  26.6
       Other comprehensive loss:
         Unrealized net derivative losses on cash flow hedges       (1.8)           --
         Change in foreign currency translation adjustment         (11.8)        (10.1)
                                                                --------         -----

      Comprehensive income (loss) for the period                $ (107.3)      $  16.5
                                                                ========       =======
</TABLE>

      Balance  sheet items,  which vary,  in  conformity  with U.S. GAAP and SEC
      requirements:

                                                          June 29,    March 30,
                                                            2001         2001
                                                          --------    ---------
      Prepaid expenses and other                          $   15.6    $    12.7
      Future income taxes                                 $    5.5    $     1.2
      Fixed assets                                        $  150.6    $   154.2
      Acquired intangible assets                          $    4.8    $     6.2
      Income and other taxes payable                      $    9.0    $     8.1
      Redeemable preferred shares                         $   33.4    $    33.8
      Shareholders' equity:
        Common shares                                     $ 1,082.9   $ 1,076.8
        Contributed surplus                               $     --    $      --
        Accumulated other comprehensive
          income (loss)                                   $    (9.3)  $     4.3
        Deficit                                           $  (678.5)  $  (584.0)

      Effective April 1, 2001, the Company adopted SFAS No. 133, "Accounting for
      Derivative   Instruments  and  Hedging   Activities,"   and  SFAS  No.138,
      "Accounting  for  Certain  Derivative   Instruments  and  Certain  Hedging
      Activities - An  Amendment  of FASB  Statement  No.  133".  The  standards
      require the Company to recognize all  derivatives  on the balance sheet at
      fair value. Derivatives that are not considered hedges must be adjusted to
      their fair value  through an  adjustment  to income.  If a  derivative  is
      considered a hedge,  depending on the nature of the hedge,  changes in its
      fair value will be either  offset  against the change in the fair value of
      the hedged assets,  liabilities or firm commitments  through earnings,  or
      recognized  in  other  comprehensive  income  until  the  hedged  item  is
      recognized in earnings. The change in a derivative's fair value related to
      the ineffective portion of a hedge, if any, will be immediately recognized
      in earnings.

      The  Company's   objectives   and   strategies  for  holding  and  issuing
      derivatives are to manage its foreign exchange  exposure by minimizing the
      economic impact of unfavorable foreign currency movements to the Company's
      consolidated statements of income (loss).  Currently, the Company does not
      enter into fair value hedges.

      The  Company  has  entered  into a  number  of  foreign  currency  forward
      contracts and has designated  such  contracts as hedges against  potential
      foreign  currency  sales and  purchases.  Forward  contracts used to hedge
      future revenue and expenditure streams are designated as cash flow hedges,
      and by fiscal  year-end will hedge the foreign  currency  exposure for the
      entire fiscal year. The change in fair value of these  designated  foreign
      currency  forward  contracts is recorded as a gain (loss) in the Company's
      statements of income (loss) when the contracts mature.


                                       13
<PAGE>

      The  initial  adoption  of SFAS 133 did not have a material  effect on the
      financial  position or results of  operations  of the Company.  During the
      quarter,  the  Company  recorded  a $1.2 net  reduction  in the  quarter's
      earnings,  representing a loss of $1.4 on hedge ineffectiveness and a gain
      of $0.2 on the change in the value of the derivative  instruments maturing
      during  the  quarter.   The  Company  also  recorded  a  charge  to  other
      comprehensive income for the quarter of $1.8 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  Financial   Accounting  Standards  Board  has  issued  Statements  of
      Financial Accounting  Standards ("SFAS") No. 141, "Business  Combinations"
      and No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires
      all business combinations  subsequent to June 30, 2001 to be accounted for
      under the purchase method of accounting.  The pooling-of-interests  method
      is  no  longer  allowed.   SFAS  No.  142  requires  that  upon  adoption,
      amortization  of goodwill will cease and,  instead,  the carrying value of
      goodwill  will be evaluated  for  impairment  on at least an annual basis.
      SFAS No. 142 is effective for fiscal years  beginning  after  December 15,
      2001. The Company is evaluating the impact of adoption of these  standards
      and has  not yet  determined  the  effect  of  adoption  on its  financial
      position and results of operations.

17.   Net change in  non-cash  working  capital  balances  related to  operating
      activities:

                                                          Three Months Ended
                                                         June 29,    June 30,
                                                           2001       2000
                                                         --------   ---------
      Accounts receivable                                $  15.5    $  (9.1)
      Inventories                                           39.8      (14.9)
      Accounts payable and accrued liabilities              15.6      (27.2)
      Deferred revenue                                       0.3        0.2
      Other                                                  3.8       (0.5)
                                                         -------    -------
                                                         $  75.0    $ (51.5)
                                                         =======    =======

18.   Comparative figures

      Certain of the Fiscal 2001 comparative  figures have been  reclassified to
      conform to the presentation adopted in Fiscal 2002.


                                       14
<PAGE>

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(in millions of Canadian dollars, except per share amounts)

On May 29, 2001, the Company  adopted Zarlink  Semiconductor  ("Zarlink") as the
operating name of Mitel Corporation. The Company formally changed its legal name
to Zarlink  Semiconductor  Inc.  after  receiving  shareholder  approval  at the
Company's annual general  shareholders'  meeting on July 25, 2001.  Zarlink is a
global  provider of  semiconductors  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  ("ASIC")  solutions for  applications  such as  pacemakers,
hearing  aids  and  portable   instruments.   The  Company   presently   employs
approximately  2,000 people  worldwide,  including  over 500  designers,  in its
semiconductor business.

The following  discussion and analysis  explains  trends in Zarlink's  financial
condition  and results of  operations  for the three months ended June 29, 2001,
compared with the corresponding  period in the previous 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 30, 2001.

RECENT SIGNIFICANT EVENTS
-------------------------

Recent Industry Slow Down

Beginning  late  in  the  third  quarter  of  Fiscal  2001,  the  communications
semiconductor  industry experienced a significant downturn in sales.  Management
believes that a variety of factors have combined to create market  uncertainties
that will likely  extend  through  most of the 2002 fiscal year.  These  factors
include a large inventory build-up in the  telecommunications and data equipment
sectors,  a reduced  demand  for  infrastructure  equipment  from the  telephone
companies,  especially by Competitive Local Exchange  Carriers  ("CLECs") in the
United States,  and a slowing of the growth rate of the U.S. and world economies
in general.

Special and Excess Inventory Charges Recorded in the First Quarter of
Fiscal 2002

During the quarter ended June 29, 2001, the Company recorded pre-tax special and
excess  inventory  charges to income  amounting to $106.1.  The  associated  tax
recovery on these charges  amounted to $6.5.  These charges are described in the
paragraphs that follow.

On May 10,  2001,  the  Company's  Board of Directors  approved a  restructuring
program to reduce the Company's  manufacturing  costs and operating  expenses in
response to adverse  market  conditions.  Accordingly,  the  Company  recorded a
pre-tax  special  charge of $53.6  related to that program in the quarter  ended
June 29, 2001.  The special  charge  comprises a workforce  reduction  charge of
approximately $41.4 primarily relating to the cost of severance and benefits for
the termination of  approximately  439 employees  throughout the world in Fiscal
2002. In addition,  the special  charge  includes the cost of lease and contract
settlements of approximately  $12.2. The Company will employ approximately 2,000
people worldwide after the restructuring is completed in Fiscal 2002.


                                       15
<PAGE>

In the quarter ended June 29, 2001, the Company  determined  that the balance of
the acquired  intangibles  associated  with the customer base and work force and
goodwill  amounting to $7.5 was impaired.  The impairment was due to the effects
of the Fiscal 2002 workforce  reduction  program on the former Vertex  Networks,
Incorporated  ("Vertex")  operations  that were  acquired on July 28, 2000.  The
write  down of $7.5 was  included  with the  regular  amortization  of  acquired
intangibles on the income statement.  The carrying value of acquired  intangible
assets was $23.0 as at June 29, 2001.  Management believes the carrying value of
the acquired  intangibles will be recovered from estimated  future  undiscounted
cash flows by directing Vertex's acquired technology to research and development
("R&D") programs focused on the convergence of Internet Protocol ("IP") and time
division multiplex ("TDM") switching.

In keeping with Zarlink's  drive to concentrate its R&D resources on high-growth
opportunities,  the R&D team in Irvine,  California,  which  originated from the
Vertex acquisition last year, will become a Design Center supporting the Network
Access convergence  strategy.  The Irvine Design Center will focus its expertise
in IP  switching  technology  and  Quality of Service  ("QoS") on  speeding  the
development of products that support IP traffic in converged, multi-format, wide
area networks. Management believes that this step strengthens the ability of the
Network  Access group to compete in the WAN  convergence  market,  where Zarlink
already  competes  in such areas as  network  timing  and  synchronization,  TDM
switching,  voice echo  cancellation,  inverse  multiplexing  for ATM (IMA), and
SARs.

During the quarter  ended June 29,  2001,  the Company  reviewed  its  inventory
requirements  during  the next 12 months in light of the  current  semiconductor
industry-wide  slow down and  higher  channel  inventories.  As a result of this
review and in the first quarter of Fiscal 2002,  the Company  recorded an excess
inventory  charge to cost of sales amounting to $45.0 for inventories  estimated
to be beyond its needs for the next 12 months.

Common Share Repurchase Program

On June 7, 2001, the Company announced its Board of Directors had authorized the
continuation  of its normal  course  issuer  bid  program  to  repurchase  up to
6,308,907  common shares,  representing  5 percent of 126,178,148  common shares
issued and  outstanding  at May 28, 2001.  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 9, 2001 and ending on June 8, 2002, 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.

RESULTS OF CONTINUING OPERATIONS
--------------------------------

Business Segment Review
-----------------------

Zarlink's continuing  operations as a semiconductor company are comprised of two
reportable  business  segments  Communications  and Medical.  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  and  integration  requirements,  the stage of
product  introduction,  geographic presence and location of markets,  and volume
levels.

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  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


                                       16
<PAGE>

(for example,  set top boxes and digital TV). The  Communications  business also
includes  custom  products  that  involve the design of custom  ASICs as well as
custom foundry services for external parties.

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

<TABLE>
<CAPTION>
                                                                 Three Months Ended
                                                               June 29,       June 30,
      (millions Cdn$, except per share amounts)                  2001          2000
                                                              ---------      ---------
<S>                                                           <C>            <C>
      Consolidated revenue from continuing operations         $   105.0      $   183.8
      Communications segment revenue                               90.6          172.2
      Medical segment revenue                                      14.4           11.6

      Operating income (loss) from continuing operations         (120.6)          42.8
      Communications segment operating income (loss)               (9.9)          40.6
      Medical segment operating income                              3.7            2.3

      Net income (loss) from continuing operations               (116.1)          27.5
      Net income (loss) per common share from
      continuing operations - Basic                               (0.94)          0.23
      Net income (loss)                                          (116.1)          21.5
      Net income (loss) per common share - Basic                  (0.94)          0.18
      Weighted average common shares outstanding (millions)
        - Basic                                                   124.6          114.2
</TABLE>

Revenue from  continuing  operations  for the quarter  totaled  $105.0,  down 43
percent from $183.8 in the first quarter of Fiscal 2001.

Sales  continue  to be  adversely  affected by  customer  and channel  inventory
adjustments  in the  Company's  network and user access  business,  a trend that
began during the second half of Fiscal 2001. The Company,  and the semiconductor
communications  industry in general,  has  experienced a reduction in the orders
normally  booked  and  shipped  in  the  same  quarter   ("turns"),   and  order
re-scheduling and cancellations, both resulting from market uncertainties. Since
the fourth  quarter of Fiscal 2001,  the Company has  experienced  a significant
decrease in order  cancellations  and delays with customers instead only placing
orders to meet their short-term  needs.  Management  believes that these adverse
industry trends may continue through most of Fiscal 2002.

During this slowdown, the Company continued to secure design wins and introduced
new products to the market.

In the  quarter  ended  June 29,  2001,  the  Company  recorded  a net loss from
continuing  operations of $116.1, or $0.94 per share, after excess inventory and
other charges to cost of sales of $45.0, a pre-tax restructuring charge of $53.6
and the  amortization  of acquired  intangibles  of $15.8.  This compares to net
income from  continuing  operations of $27.5,  or $0.23 per share,  in the first
quarter of Fiscal 2001, after the amortization of acquired intangibles of $0.1.


                                       17
<PAGE>

Communications Segment

                                                       Three Months Ended
                                                      June 29,     June 30,
(millions of Canadian dollars)                          2001         2000
                                                      --------     --------
      Communications revenue by product:
        Network Access                                $   40.0     $  84.7
        User Access                                       20.0        28.4
        Custom Products                                   30.6        59.1
                                                      --------     -------
      Total Communications                            $   90.6     $ 172.2
                                                      ========     =======

      Communications revenue mix by product:
        Network Access                                    44%         49%
        User Access                                       22%         17%
        Custom Products                                   34%         34%
                                                      --------     -------
      Total Communications                               100%        100%
                                                      ========     =======

      Communications operating income (loss)          $   (9.9)    $  40.6
                                                      ========     =======

Communications  sales  for the  quarter  ended  June  29,  2001  reached  $90.6,
representing  a decrease  of 47 percent  over the $172.2  achieved  in the first
quarter  of  Fiscal  2001.  The  increase  was  principally  due to the  factors
described  elsewhere in this  Management's  Discussion and Analysis under Recent
Significant Events - Recent Industry Slowdown.

In the first  quarter of Fiscal 2002,  Communications  operating  loss was $9.9,
compared to operating income of $40.6 recorded last year in the same period. The
loss was due to the lower sales volumes across the segment.

Medical Segment

                                                        Three Months Ended
                                                      June 29,     June 30,
(millions of Canadian dollars)                         2001         2000
                                                      --------     --------
      Revenue:
        Medical                                        $ 14.4       $ 11.6
                                                       ======       ======
      Medical operating income                         $  3.7       $  2.3
                                                       ======       ======

For the quarter ended June 29, 2001,  sales reached $14.4, a 24 percent increase
over the  $11.6  achieved  in the same  quarter  of Fiscal  2001 due to  growing
markets and new product introductions.  For the first quarter,  Medical recorded
an  operating  income of $3.7 up from  $2.3  last  year as a result of  improved
margins resulting from favorable manufacturing yields.

Geographic Revenue

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


                                       18
<PAGE>

<TABLE>
<CAPTION>
                                                Three Months                 Three Months
                                                    Ended          % of          Ended          % of
                                                June 29, 2001      Total     June 30, 2000      Total
                                                -------------    --------    -------------     -------
<S>                                               <C>               <C>        <C>                <C>
      United States                               $  33.5           32%        $   71.6           39%
      Europe                                         38.0           36             53.5           29
      Asia - Pacific                                 23.1           22             50.7           28
      Canada                                          7.4            7              5.7            3
      Other Regions                                   3.0            3              2.3            1
                                                  -------          ---         --------          ---
                                                  $ 105.0          100%        $  183.8          100%
                                                  =======          ===         ========          ===
</TABLE>

For the quarter ended June 29, 2001, the net movement in exchange rates from the
same period in Fiscal 2001  negatively  impacted  total revenue from  continuing
operations  by 1 percent  ($0.9).  The  negative  foreign  exchange  impact  was
primarily a result of changes in the UK pound  sterling  and the  Swedish  Krona
exchange rates, partially offset by positive changes in the U.S. dollar exchange
rate.

GROSS MARGIN
------------

                                                             Three Months Ended
                                                             June 29,   June 30,
       (millions Cdn$)                                         2001      2000
                                                             --------   --------

     Gross margin                                              $6.2     $97.0
     As a percent of revenue                                    6%       53%
     As a percent of revenue, excluding excess inventory
     and other charges of $45.0                                49%       53%

During the quarter  ended June 29,  2001,  the Company  reviewed  its  inventory
requirements  during  the next 12 months in light of the  current  semiconductor
industry-wide  slow down and  higher  channel  inventories.  As a result of this
review in the first  quarter of Fiscal  2002,  the  Company  recorded  an excess
inventory  charge to cost of sales amounting to $45.0 for inventories  estimated
to be beyond its needs for the next 12 months.

Excluding  the effect of the excess  inventory  and other  charge of $45.0,  the
Company's  gross margin as a percent of revenue was 49 percent.  The lower gross
margin in the first  quarter  of Fiscal  2002  compared  to the same  quarter of
Fiscal  2001  was  principally  attributable  to  lower  sales  volumes  in  the
communications  segment  and the  associated  negative  manufacturing  variances
resulting from lower manufacturing plant utilization.

OPERATING EXPENSES
------------------

Selling and Administrative ("S&A")

                                                          Three Months Ended
                                                         June 29,     June 30,
      (millions Cdn$)                                      2001         2000
                                                         --------     --------

      S&A expenses                                         $26.0       $29.6
      As a percent of revenue                               25%         16%

S&A expenses from continuing  operations increased as a percentage of revenue in
the first  quarter of Fiscal 2002 from the previous  year due to the lower sales
volumes in Fiscal 2002.  However,  actual S&A expenses  decreased from last year
primarily due to cost  reduction  programs and the effects of the


                                       19
<PAGE>

restructuring  program  implemented  mid-way  through the quarter ended June 29,
2001.   Since  the  fourth  quarter  of  Fiscal  2001,  S&A  expenses   declined
sequentially by $9.6.

Research and Development

                                                             Three Months Ended
                                                            June 29,    June 30,
      (millions Cdn$)                                         2001        2000
                                                            --------    --------

      R&D expenses                                            $31.4       $24.5
      As a percent of revenue                                  30%         13%

First quarter R&D expenses from continuing operations in Fiscal 2002 were net of
$1.2 in R&D government  assistance,  including  investment tax credits (June 30,
2001 - $1.0).

In the communication segment's 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 TDM/ATM to IP;
      o     Supporting  high-speed access using digital  subscriber line ("DSL")
            solutions;
      o     Providing high quality voice in packet  switching  applications  via
            QoS solutions and,
      o     Very Short Reach  ("VSR")  parallel  optical  solutions  targeted at
            terabit speeds and higher.

In the  communication  segment's  user access product line, the focus was in the
following areas:

      o     Providing  a single  chip  solution  incorporating  multiple  tuners
            (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 wearable and implantable devices, including:

      o     Digital  hearing aids for improved  sound quality that is matched to
            the patient;
      o     Pacemakers  with the ability to record and track the  performance of
            the heart; and,
      o     Application-specific standard products ("ASSPs") as opposed to ASICs
            for portable and pacing applications.

The  increased  R&D  expenses  in the first  quarter  of Fiscal  2002 was due to
incremental R&D resulting from the  consolidation of Vertex,  which was acquired
on July 28,  2000,  coupled with the  increased  R&D activity in the network and
user access product lines. Management expects that R&D spending will continue at
similar levels through Fiscal 2002.

Amortization of Acquired Intangibles

Amortization  of acquired  intangibles  increased in the first quarter of Fiscal
2002 to $15.8 from $0.1 in Fiscal  2001.  The higher  amortization  in the first
quarter of Fiscal 2002 related to regular  amortization  of $8.3 associated with
the acquisition of Vertex on July 28, 2000 as well as an incremental  write down
of  $7.5   associated  with  the  impairment  of  goodwill  and  other  acquired
intangibles (See Recent  Significant Events Special and Excess Inventory Charges
Recorded  in the First  Quarter  of Fiscal  2002).  The


                                       20
<PAGE>

Company's  policy is to  amortize  acquired  intangible  assets  over a two-year
period from the date of acquisition,  which management  believes  represents the
estimated useful life.

Other Operating Income and Expense Items

INTEREST INCOME
---------------

Interest income was $3.2 for the quarter ended June 29, 2001 as compared to $3.0
in the same period in Fiscal 2001.  The increase was due to higher  average cash
balances on hand.

INTEREST EXPENSE
----------------

Interest  expense was $0.3 for the quarter  ended June 29, 2001,  compared  with
$5.9 for the same period in Fiscal 2001.  Management expects interest expense to
decrease  in  Fiscal  2002  compared  to  Fiscal  2001 as a  result  of the full
repayment of the U.S. dollar denominated long-term debt in Fiscal 2001.

INCOME TAXES

Income tax recovery from  continuing  operations for quarter ended June 29, 2001
was $2.4,  compared  with  income tax  expense  of $12.4 for the same  period in
Fiscal 2001. The income tax recovery included recoveries of $6.6 associated with
the special and excess  inventory charge recorded in the first quarter of Fiscal
2002.  Excluding the tax recovery on these special charges, the Company recorded
a tax expense of $4.2.  The tax expense was recorded on higher taxable income in
Canada without the benefit of tax recoveries in other jurisdictions.

BACKLOG
-------

                                                         June 29,     March 30,
      (millions Cdn$)                                      2001          2001
                                                         --------     ---------

      Backlog from continuing operations                  $126.8       $177.9

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 a "turns"),  order backlog is not  necessarily  indicative of a sales outlook
for the quarter or year.  Most of the backlog is  scheduled  for delivery in the
next twelve months.

The backlog  decrease from last year was  attributable to the recent downturn in
the  communications   semiconductor   industry,   described  elsewhere  in  this
management's   discussion   and  analysis,   which  caused   cancellations   and
re-scheduling of orders, principally in the areas of broadband networking.

NET INCOME (LOSS)
-----------------

The  Company  recorded a net loss of $116.1,  or $0.94 per share in the  quarter
ended June 29, 2001.  This compares to net income of $21.5,  or $0.18 per share,
in the same period of Fiscal 2001.

The net loss in Fiscal 2002 resulted primarily from the charge for restructuring
and excess inventories of $53.6 and $45.0, respectively, and the amortization of
acquired  intangibles  of $15.8.  In the quarter ended June 30, 2000, net income
was impacted by the loss, net of taxes, from discontinued operations of $6.0.


                                       21
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

At June 29, 2001,  cash,  cash  equivalents and short-term  investment  balances
totaled $237.1,  down from $283.7 at March 30, 2001. All of the cash balances in
each  respective  period  were  held  in  either  cash  or  highly  liquid  cash
equivalents.

Cash outflow from operations  before working  capital changes  amounted to $93.1
during the first three  months of Fiscal 2002  compared to an inflow of $52.2 in
the first  quarter of Fiscal 2001 as a result of the  special and other  charges
and lower  operating  earnings  on reduced  sales.  Since  March 30,  2001,  the
Company's working capital,  as reflected in the consolidated  statements of cash
flows,  decreased  by $75.0  mostly  due to  lower  receivables  resulting  from
improved  collections and the write-down of inventories.  Management  expects to
further draw down inventory levels in Fiscal 2002 by reducing  production in the
fabs and  lowering  external  purchases.  As a standard  practice,  the  Company
maintains a minimum of critical  inventory at its foundries to ensure continuity
of supply for its manufacturing requirements.

Cash paid for capital asset additions amounted to $21.0 during the first quarter
of Fiscal 2002 (three months ended June 30, 2000 - $23.8).  The  additions  were
primarily   related  to  continuing   improvements  to  information   technology
resources, design tools and the construction of a new building for the Company's
head office in Ottawa, Canada.

Long-term debt decreased due to scheduled repayments against capital leases.

No shares were purchased under the normal course issuer bid described  elsewhere
in this management's discussion and analysis (see Recent Significant Events ).

In addition to cash,  cash  equivalent  and  short-term  investment  balances of
$237.1 as at June 29, 2001, the Company had a revolving  global credit  facility
of  approximately  $25.0,  of which $2.4 in letters of credit were  outstanding.
Accordingly,  the Company had unused and  available  demand bank lines of credit
amounting to $22.6 as at June 29, 2001.  Management believes the Company is in a
position to meet all  foreseeable  business  cash  requirements,  including  the
Fiscal 2002  restructuring  program  described  elsewhere  in this  Management's
Discussion  and  Analysis,  and debt  service  from its cash  balances  on hand,
existing financing facilities and cash flow from operations.

OTHER
-----

Foreign Currency Translation

Management periodically evaluates the financial and operational  independence of
its  foreign  operations  and the  resulting  accounting  classification  of the
foreign subsidiaries as self-sustaining enterprises. Should a foreign subsidiary
cease to be classified as  self-sustaining,  then translation gains or losses on
consolidating the foreign subsidiary's  financial statements would be charged to
operating  income instead of a separate  component of shareholders'  equity.  At
June 29, 2001, the  translation  account balance was in a debit position of $7.5
as  compared  to a  credit  position  of  $4.3 at the end of  Fiscal  2001.  The
strengthened  Canadian dollar as measured against,  principally,  the U.K. pound
sterling  and the U.S.  dollar  caused the decrease in the  translation  account
balance since the end of last year.

Recently Issued Accounting Standards

The  Financial  Accounting  Standards  Board has issued  Statements of Financial
Accounting  Standards  ("SFAS") No. 141,  "Business  Combinations"  and No. 142,
"Goodwill  and Other  Intangible  Assets".  SFAS No. 141  requires  all business
combinations  subsequent to June 30, 2001 to be accounted for under the purchase
method of accounting. The pooling-of-interests method is no longer allowed. SFAS
No. 142 requires that upon  adoption,  amortization  of goodwill will cease and,
instead,  the carrying  value of


                                       22
<PAGE>

goodwill will be evaluated for impairment on at least an annual basis.  SFAS No.
142 is effective for fiscal years beginning after December 15, 2001. The Company
is  evaluating  the  impact  of  adoption  of  these  standards  and has not yet
determined  the effect of  adoption  on its  financial  position  and results of
operations.

European Union and the Euro
---------------------------

On January 1, 1999, 11 of 15 member countries of the European Union  established
fixed conversion rates between their existing currencies  ("legacy  currencies")
and one common  currency - the Euro.  The Euro trades on currency  exchanges and
may be used in business  transactions.  The  conversion  to the Euro  eliminates
currency  exchange  rate  risk  between  the  member  countries.  The  Company's
operating  subsidiaries  that were affected by the Euro  conversion  established
plans to address the issues raised by the Euro currency conversion. These issues
included the need to adapt computer and financial systems,  competitive  impacts
of  cross-border  price  transparency,  and  recalculating  currency  risk.  The
required  system  conversion  costs were not material due to Zarlink's  existing
ability to transact in multiple  currencies.  Due to significant  uncertainties,
the Company cannot reasonably estimate the effects one common currency will have
on  pricing  and the  resulting  impact,  if  any,  on the  Company's  financial
condition or its results of operations.

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.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE 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.

Zarlink  currently uses forward contracts and foreign currency options to reduce
the exposure to foreign  exchange risk. The most  significant  foreign  exchange
exposures for Zarlink  relate to the U.S.  dollar,  U.K.  pound sterling and the
Euro. As at June 29, 2001, there were no material  changes in information  about
market risks as disclosed in the  Company's  Form 10-K for the fiscal year ended
March 30, 2001.


                                       23
<PAGE>

PART II - OTHER INFORMATION

ITEM 6. Reports on Form 8-K

a)    Reports on Form 8-K

The Company  filed a Current  Report on Form 8-K in the three  months ended June
29, 2001. The Report was dated June 7, 2001 and related to the  continuation  of
the common stock repurchase program.

                                    SIGNATURE

Pursuant to the  requirements  of the  Securities  and 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 9, 2001                                  /s/ JEAN-JACQUES CARRIER
--------------                                  --------------------------------
Date                                            Jean-Jacques Carrier
                                                Senior Vice President of Finance
                                                  and Chief Financial Officer


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