Exhibit 99.1

                           Zarlink Semiconductor Inc.
                     (incorporated under the laws of Canada)
                           CONSOLIDATED BALANCE SHEETS
                     (in millions of U.S. dollars, CDN GAAP)

                                                            June 27,   March 28,
                                                              2003       2003
                                                          -----------  ---------
ASSETS                                                    (Unaudited)

Current assets:
  Cash and cash equivalents                                  $ 39.2     $ 23.5
  Short-term investments                                       62.3       89.5
  Restricted cash                                               6.2        6.2
  Trade accounts receivable - net                              27.8       20.3
  Other receivables                                             3.6        4.2
  Inventories                                                  23.2       24.0
  Future income tax assets                                      1.3        1.0
  Prepaid expenses and other                                   10.3        7.4
                                                             ------     ------
                                                              173.9      176.1
Fixed assets - net                                             55.7       58.4
Long-term receivables                                          31.9       31.8
Other assets                                                    4.5        4.5
                                                             ------     ------
                                                             $266.0     $270.8
                                                             ======     ======
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Trade accounts payable                                     $ 13.6     $ 10.1
  Employee-related payables                                    14.5       15.5
  Income and other taxes payable                               13.8       13.0
  Provisions for exit activities                                3.4        4.2
  Other accrued liabilities                                    11.4       12.6
  Deferred credits                                              0.7        1.1
  Current portion of long-term debt                             0.4        0.6
                                                             ------     ------
                                                               57.8       57.1
Long-term debt                                                  0.1        0.2
Pension liabilities                                            15.4       14.3
Future income tax liabilities                                   7.8        7.4
                                                             ------     ------
                                                               81.1       79.0
                                                             ------     ------
Commitments (Note 11))

Shareholders' equity:
  Redeemable preferred shares, unlimited
    shares authorized; 1,451,600 shares issued                 20.6       20.9
    and outstanding (March 28, 2003 - 1,451,600)
  Common shares, unlimited shares authorized;
    no par value; 127,273,898 shares issued                   407.8      407.8
    and outstanding (March 28, 2003 - 127,265,316)
  Contributed surplus                                           5.6        5.8
  Deficit                                                    (262.7)    (256.3)
  Translation account                                          13.6       13.6
                                                             ------     ------
                                                              184.9      191.8
                                                             ------     ------
                                                             $266.0     $270.8
                                                             ======     ======

        (See accompanying notes to the consolidated financial statements)


                                       27
<PAGE>

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

                                                           Three Months Ended
                                                        June 27,        June 28,
                                                          2003            2002
                                                        -----------------------
Revenue                                                 $  53.7         $  48.0
Cost of revenue                                            28.3            25.9
                                                        -----------------------
Gross margin                                               25.4            22.1
                                                        -----------------------
Expenses:
  Research and development                                 19.2            20.4
  Selling and administrative                               11.8            13.2
                                                        -----------------------
                                                           31.0            33.6
                                                        -----------------------
Operating loss                                             (5.6)          (11.5)
Other income (expense)- net                                (0.2)            0.4
Interest expense                                             --            (0.1)
                                                        -----------------------
Loss before income taxes                                   (5.8)          (11.2)
Income tax expense                                          0.1             0.2
                                                        -----------------------
Net loss for the period                                 $  (5.9)        $ (11.4)
                                                        =======================
Net loss attributable to common
  shareholders after preferred
  share dividends
                                                        $  (6.4)        $ (11.9)
                                                        =======================
Net loss per common share:
      Basic and diluted                                 $ (0.05)        $ (0.09)
                                                        =======================
Weighted average number of common
  shares outstanding (millions):
      Basic and diluted                                   127.3           126.6
                                                        =======================

        (See accompanying notes to the consolidated financial statements)


                                       28
<PAGE>

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

                                                             Three Months Ended
                                                            June 27,    June 28,
                                                              2003        2002
                                                            --------------------
Cash flows from operating activities:
  Net loss for the period                                   $  (5.9)    $ (11.4)
  Amortization of fixed assets                                  3.8         4.1
  Amortization of other assets                                  0.3         0.3
  Future income taxes                                           0.1          --
  Change in pension liabilities                                 1.1          --
  Decrease (increase) in working capital:
      Accounts receivable                                      (7.4)        1.9
      Inventories                                               0.8         2.8
      Prepaid expenses and other                               (3.5)        2.0
      Accounts payable and accrued liabilities                  1.3        (4.6)
      Deferred credits                                         (0.2)       (0.1)
                                                            --------------------
    Total                                                      (9.6)       (5.0)
                                                            --------------------

Cash flows from investing activities:
  Purchased short-term investments                            (62.3)      (86.0)
  Matured short-term investments                               89.5        46.8
  Expenditures for fixed and other assets                      (1.2)       (2.7)
  Proceeds from disposal of fixed and
    other assets                                                0.4          --
  Increase in long-term investments                              --        (0.4)
                                                            --------------------
     Total                                                     26.4       (42.3)
                                                            --------------------

Cash flows from financing activities:
  Repayment of capital lease liabilities                       (0.2)       (0.7)
  Dividends on preferred shares                                (0.5)       (0.5)
  Issue of common shares                                         --         0.6
  Repurchase of preferred shares                               (0.4)       (0.2)
                                                            --------------------
     Total                                                     (1.1)       (0.8)
                                                            --------------------

Effect of currency translation on
  cash and cash equivalents                                      --         3.4
                                                            --------------------
Increase (decrease) in cash and
  cash equivalents                                             15.7       (44.7)

Cash and cash equivalents, beginning
  of period                                                    23.5        75.6
                                                            --------------------
Cash and cash equivalents, end of period                    $  39.2     $  30.9
                                                            ====================

        (See accompanying notes to the consolidated financial statements)


                                       29
<PAGE>

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

1.    Basis of Presentation

      These  unaudited  interim  consolidated  financial  statements  have  been
      prepared by Zarlink  Semiconductor  Inc.  ("Zarlink" or the  "Company") in
      United States (U.S.) dollars,  unless otherwise stated,  and in accordance
      with  accounting  principles  generally  accepted  in Canada  for  interim
      financial statements and with the instructions to Form 10-Q and Regulation
      S-X pertaining to interim financial statements. Accordingly, these interim
      consolidated  financial  statements  do not  include all  information  and
      footnotes required by generally accepted  accounting  principles  ("GAAP")
      for complete  financial  statements.  In the opinion of  management of the
      Company, the unaudited interim  consolidated  financial statements reflect
      all adjustments,  which consist only of normal and recurring  adjustments,
      necessary to present  fairly the  financial  position at June 27, 2003 and
      the  results of  operations  and cash flows of the  Company  for the three
      month  periods  ended June 27, 2003 and June 28,  2002,  respectively,  in
      accordance  with  Canadian  GAAP,  applied  on  a  consistent  basis.  The
      consolidated  financial statements include the accounts of Zarlink and its
      wholly owned  subsidiaries.  Intercompany  transactions  and balances have
      been eliminated. Separate U.S. GAAP financial statements are also prepared
      and presented to shareholders.

      These  financial  statements  should  be  read  in  conjunction  with  the
      financial   statements  and  notes  thereto   contained  in  the  Canadian
      Consolidated  Financial  Statements for the year ended March 28, 2003. 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 or future
      periods.

2.    Change in functional currency

      Since the third  quarter of Fiscal  2002,  the Company has  presented  its
      financial   statements  in  U.S.   dollars.   However,   the  Company  has
      historically   measured  the  parent  company's  financial  statements  in
      Canadian  dollars  and its  subsidiaries'  financial  statements  in their
      respective  local  currencies.  Effective March 29, 2003, the beginning of
      Fiscal 2004, as a result of the Company's  increased  economic  activities
      denominated  in U.S.  dollars,  the U.S.  dollar has become the functional
      currency across the Company's operations.

      Prior  to  March  29,  2003,  the  financial  statements  of  the  foreign
      subsidiaries  were  measured  using the local  currency as the  functional
      currency.  All balance  sheet amounts were  translated  using the exchange
      rates in effect at the applicable period end, and income statement amounts
      were  translated  using  the  weighted  average  exchange  rates  for  the
      applicable  period.  Any gains and losses  resulting  from the  changes in
      exchange rates from year to year were reported as a separate  component of
      other comprehensive loss included in Shareholders' Equity.

      Effective  March  29,  2003,  the  carrying  value  of  monetary  balances
      denominated in currencies  other than U.S.  dollars were remeasured at the
      balance sheet date rates of exchange.  The gains or losses  resulting from
      the  remeasurement of these amounts have been reflected in earnings in the
      respective  periods.  Non-monetary  items and any related  amortization of
      such items are measured at the rates of exchange in effect when the assets
      were acquired or obligations incurred.  All other income and expense items
      have been remeasured at the average rates prevailing during the period.

3.    Recently issued accounting pronouncements

      The CICA has issued CICA Handbook  Section  3475,  "Disposal of Long-Lived
      Assets and  Discontinued  Operations"  (Section  3475).  The provisions of
      Section 3475 apply to disposal  activities  initiated  by an  enterprise's
      commitment  to a plan on or  after  May 1,  2003,  with  earlier  adoption
      encouraged.  The new standard  replaces  requirements  for the disposal of
      assets and  discontinued  operations  that were contained in Section 3061,
      "Property,  Plant  and  Equipment",  and in  the  previous  Section  3475,
      "Discontinued  Operations,  and harmonizes Canadian GAAP requirements with
      the  corresponding  U.S.  GAAP  requirements  under  FASB's  Statement  of
      Financial  Accounting Standards No. 144, "Accounting for the Impairment or
      Disposal of Long-Lived Assets" (SFAS 144).  Application of the new Section
      3475 is  prospective  and  adoption  of the new  standard  will impact the
      accounting  for future  disposals of  long-lived  assets and  discontinued
      operations.


                                       30
<PAGE>

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

      The CICA has issued CICA Handbook Section 3063,  "Impairment of Long-Lived
      Assets"  (Section  3063).  Section 3063 will be effective for fiscal years
      beginning  on or after April 1, 2003,  with earlier  adoption  encouraged.
      Application  of Section 3063 is  prospective.  The new  standard  replaces
      requirements for the write-down of assets previously  contained in Section
      3061,  "Property,  Plant and  Equipment",  and  harmonizes  Canadian  GAAP
      requirements with the corresponding U.S. GAAP requirements under SFAS 144.
      The adoption of Section 3063 is not expected to have a material  impact on
      the Company's financial statements.

4.    Stock-based compensation

      Pro forma  information  regarding  net income (loss) and net income (loss)
      per share is required by CICA Handbook  Section 3870 for awards granted or
      modified  after  January 1, 2002,  as if the Company had accounted for its
      stock-based  awards to  employees  under the fair value  method of Section
      3870. The fair value of the Company's  stock-based awards to employees was
      estimated using a Black-Scholes  option pricing model.  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.

                                                        Three Months Ended
                                                        June 27,  June 28,
                                                          2003      2002
                                                        --------  --------
      Net loss, as reported                              $ (5.9)   $(11.4)
      Adjustments:
         Pro forma stock compensation expense              (3.1)     (3.3)
                                                        ------------------
      Pro forma net loss                                 $ (9.0)   $(14.7)
                                                        ------------------
      Net loss per common share, as reported
         Basic and diluted                               $(0.05)   $(0.09)
                                                        ------------------
      Pro forma net loss per common share:
         Basic and diluted                               $(0.07)   $(0.12)
                                                        ------------------

      Based  upon the fair value  method of  accounting  for stock  compensation
      expense,  the pro forma net loss for the quarter ended June 27, 2003,  was
      increased by $3.1 as compared to the net loss,  as reported  ($3.3 for the
      quarter ended June 28, 2002).

      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 27, 2003 and June 28, 2002:

                                                           Three Months Ended
                                                          June 27,    June 28,
                                                            2003        2002
                                                          --------------------
      Weighted  average fair value price
        of the options granted during the
         quarter                                          $ 2.31      $ 3.43

      Risk free interest rate                               3.19%       4.68%
      Dividend yield                                         Nil         Nil
      Volatility factor of the expected
        market price of the Company's
        common stock                                        0.682       0.561
      Weighted-average expected life
        of the options                                    3.3 years   3.5 years

      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.


                                       31
<PAGE>

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

5.    Inventories

                                                      June 27,      March 28,
                                                        2003          2003
                                                      ----------------------
      Raw materials                                   $   2.3        $   2.6
      Work-in-process                                    18.5           18.3
      Finished goods                                      2.4            3.1
                                                      ----------------------
                                                      $  23.2        $  24.0
                                                      ======================

6.    Fixed assets

                                                      June 27,      March 28,
                                                        2003          2003
                                                      ----------------------
      Cost                                            $ 175.5        $ 174.5
      Accumulated amortization                          119.8          116.1
                                                      ----------------------
                                                      $  55.7        $  58.4
                                                      ======================

7.    Long term receivables

                                                      June 27,      March 28,
                                                        2003          2003
                                                      ----------------------
      Note receivable, non-interest bearing           $  16.2        $  15.9
      Investment tax credits recoverable                 15.7           15.9
                                                      ----------------------
                                                      $  31.9        $  31.8
                                                      ======================

8.    Other assets

                                                      June 27,      March 28,
                                                        2003          2003
                                                      ----------------------
      Patents, trademarks, and other
        intangible assets:
          Cost                                        $   9.8        $   9.5
          Accumulated amortization                       (5.3)          (5.0)
                                                      ----------------------
        Patents, trademarks, and other
          intangible assets - net                     $   4.5        $   4.5
                                                      ======================

      The  amortization  of  patents,  trademarks  and other  intangible  assets
      amounted to $0.3 for the  quarterly  period  ended June 27, 2003 (June 28,
      2002 - $0.3).

9.    Provisions for exit activities

                                                      June 27,      March 28,
                                                        2003          2003
                                                      ----------------------
      Restructuring provisions                        $   2.6        $   2.9
      Provision for disposal of discontinued
        operations                                         --            0.1
      Provision for disposal of foundry
        businesses                                        0.8            1.2
                                                      ----------------------
                                                      $   3.4        $   4.2
                                                      ======================


                                       32
<PAGE>

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

      The remaining  restructuring  provision  relates mostly to idle and excess
      space as a result of exit  activities  implemented and completed in Fiscal
      2002 and Fiscal 2001.

      The following  table  summarizes  the  continuity  of these  restructuring
      provisions for the three months ended June 27, 2003:

                                                      Lease and
                                          Workforce    contract
                                          reduction   settlement    Total
                                          -------------------------------
      Balance, March 28, 2003                $0.3        $2.6        $2.9
      Cash drawdowns during the
        quarter                              (0.1)       (0.2)       (0.3)
                                          -------------------------------
      Balance, June 27, 2003                 $0.2        $2.4        $2.6
                                          ===============================

10.   Guarantees

      Performance   guarantees  are  contracts  that  contingently  require  the
      guarantor  to make  payments  to the  guaranteed  party  based on  another
      entity's failure to perform under an obligating agreement. The Company has
      an  outstanding  performance  guarantee  related  to  a  managed  services
      agreement ("project agreement") undertaken by the Systems business,  which
      was sold to companies  controlled  by Dr.  Terence H. Matthews on February
      16, 2001 and is now operated as Mitel Networks Corporation ("Mitel"). This
      performance  guarantee remained with the Company following the sale of the
      Systems business to Dr. Matthews.  The project agreement and the Company's
      performance guarantee extend until July 16, 2012. The terms of the project
      agreement  continue to be fulfilled by Mitel. The maximum potential amount
      of future  undiscounted  payments  the  Company  could be required to make
      under the guarantee,  at June 27, 2003,  was $33.0 (20.0 British  Pounds),
      assuming  the Company is unable to secure the  completion  of the project.
      The  Company is not aware of any  factors  as at June 27,  2003 that would
      prevent the project's completion under the terms of the agreement.  In the
      event that  Mitel is unable to  fulfill  the  commitments  of the  project
      agreement,  the Company believes that an alternate third-party  contractor
      could be secured to complete the agreement requirements. At June 27, 2003,
      the carrying value of this guarantee was nil.

      The Company  periodically  has entered into  agreements with customers and
      suppliers that include limited intellectual property indemnifications that
      are  customary in the industry.  These  guarantees  generally  require the
      Company  to  compensate  the other  party for  certain  damages  and costs
      incurred as a result of third party  intellectual  property claims arising
      from  these  transactions.   The  nature  of  the  intellectual   property
      indemnification  obligations prevents the Company from making a reasonable
      estimate  of the maximum  potential  amount it could be required to pay to
      its customers and  suppliers.  Historically,  the Company has not made any
      significant  indemnification  payments under such agreements and no amount
      has been accrued in the  accompanying  consolidated  financial  statements
      with respect to these indemnification obligations.

      In connection with the sale of the Systems  business on February 16, 2001,
      the Company provided to the purchaser  certain income tax indemnities with
      an indefinite life and with no maximum  liability for the taxation periods
      up to February  16,  2001,  the closing  date of the sale.  As at June 27,
      2003, the taxation years 2000 to February 16, 2001 are subject to audit by
      taxation authorities.

      As at June 27, 2003, the Company has guaranteed a custom bond amounting to
      $2.6 to a third party on behalf of a subsidiary.


                                       33
<PAGE>

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

      The Company records a liability based upon its historical  experience with
      warranty claims.  The table below presents a reconciliation of the changes
      in the Company's  product  warranty accrual for the quarter ended June 27,
      2003:

                                                            Three Months Ended
                                                               June 27, 2003
                                                            ------------------
      Balance, March 28, 2003                                      $   --
      Accruals for new and pre-existing warranties                    0.5
      Payments made during the quarter                                 --
                                                                   ------
      Balance, June 27, 2003                                       $  0.5
                                                                   ======

11.   Commitments

      The  Company  had  letters of credit  outstanding  as at June 27,  2003 of
      approximately  $6.2 (June 28, 2002 - $3.2).  Cash and cash  equivalents of
      $6.2 have been pledged as security against certain  outstanding letters of
      credit,  which expire  within 12 months,  and are  presented as restricted
      cash.

      As a result of the  non-cash  write-down  of the Mitel  investment  in the
      fourth  quarter  of Fiscal  2003,  the  Company  did not meet a  quarterly
      financial  covenant under the Company's  credit  facility during the first
      quarter of Fiscal 2004. A waiver was obtained  from the bank in respect of
      the financial covenant.

12.   Redeemable Preferred Shares

      There were 21,900 preferred shares purchased during the three months ended
      June 27, 2003 for cash consideration of $0.4. At June 27, 2003, there were
      31,800  repurchased  preferred shares,  including 9,900 shares repurchased
      during Fiscal 2003, that had not been cancelled by the end of the quarter.

      During the first  quarter,  the dividend paid  dividends on its redeemable
      preferred  shares of $0.5 and declared a quarterly  dividend of $0.37 (Cdn
      $0.50) per share.

13.   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. No shares were
            repurchased under the normal course issuer bid program in the period
            ended June 9, 2003. The program was not renewed.

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

                                                   Three Months Ended
                                              ---------------------------
                                               June 27,         June 28,
                                                 2003             2002
                                              ----------       ----------
      Outstanding Options:
      Balance, beginning of period            10,828,557       10,914,962
      Granted                                    106,500           63,300
      Exercised                                   (8,582)         (93,818)
      Forfeited                                 (646,022)         (37,287)
                                              ----------       ----------
      Balance, end of period                  10,280,453       10,847,157
                                              ==========       ==========

            Available for grant at June 27, 2003 were 4,253,644  (March 28, 2003
            - 3,714,122) common shares.  The exercise price of outstanding stock
            options ranges from $2.52 to $27.69 per share with exercise  periods
            extending to November  2008. The exercise price of stock options was
            based on prices in Canadian  dollars  translated at the U.S.  dollar
            exchange rate on June 27, 2003.

      d)    The net loss per common share figures were  calculated  based on the
            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.


                                       34
<PAGE>

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

      The following  potentially  dilutive  common share  equivalents  have been
      excluded from the  computation of diluted loss per share because they were
      anti-dilutive due to the reported net loss for the periods presented:

                                                     Three Months Ended
                                                 -------------------------
                                                 June 27,        June 28,
                                                   2003            2002
                                                 -------         ---------
      Stock Options                              612,952           774,049
      Restricted Shares                               --           570,897
                                                 -------         ---------
      Total                                      612,952         1,344,946
                                                 =======         =========

      The following  stock options were excluded from the  computation of common
      share equivalents because the options' exercise price exceeded the average
      market price of the common shares, thereby making them anti-dilutive:

                                                    Three Months Ended
                                                 -------------------------
                                                 June 27,        June 28,
                                                   2003            2002
                                                 ---------       ---------
      Number of outstanding options              7,698,178       7,789,298
      Average exercise price per share           $   10.63       $   10.69

14.   Other income (expense) - net

                                                        Three Months Ended
                                                      ----------------------
                                                      June 27,       June 28,
                                                        2003           2002
                                                      -------        -------
      Interest income                                 $   0.8        $   0.9
      Foreign exchange loss                              (1.0)          (0.5)
                                                      -------        -------
      Other income (expense) - net                    $  (0.2)       $   0.4
                                                      =======        =======

15.   Information on business segments

      Business Segments

      The  Company's  operations  are  comprised  of three  reportable  business
      segments  - Network  Communications,  Consumer  Communications,  and Ultra
      Low-Power  Communications.  Reportable  segments are  business  units that
      offer  different  products  and  services,   employ  different  production
      processes and methods of distribution,  sell to different  customers,  and
      are managed separately because of these differences.

      The  Company  targets  the  communications  industry  with  products  that
      specialize in broadband  connectivity  solutions over wired,  wireless and
      optical  media,  as  well  as  through  Ultra   Low-Power   communications
      solutions.  The Network  Communications  business  segment offers products
      that provide  connectivity  to the  enterprise  and metro segments such as
      feeder,  aggregation  and  transmission  applications,  and products  that
      address the  multi-protocol  physical  and network  layers.  The  Consumer
      Communications  business  segment  offers  products  that  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).  The  Ultra  Low-Power  Communications  business
      provides ASIC solutions for applications such as pacemakers,  hearing aids
      and portable instruments.

      The Chief Executive Officer ("CEO") is the chief operating  decision maker
      in  assessing  the  performance  of the  segments  and the  allocation  of
      resources to the segments.  The CEO evaluates the financial performance of
      each business segment and allocates  resources based on operating  income.
      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 as they are  primarily  tracked  by legal  entity  only;  however,
      depreciation  of fixed assets is  allocated  to the segments  based on the
      estimated asset usage. The accounting  policies of the reportable segments
      are the same as those of the  Company  as  reflected  in the  consolidated
      financial statements.


                                       35
<PAGE>

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

<TABLE>
<CAPTION>
Three Months Ended June 27, 2003                 Network             Consumer        Ultra Low-Power   Unallocated
                                              Communications      Communications     Communications        Costs        Total
                                              --------------      --------------     ---------------   ------------  ------------
<S>                                              <C>                <C>                   <C>              <C>        <C>
Total external sales revenue                     $  29.3            $  13.4               $  11.0          $  --      $  53.7
Amortization of buildings and equipment              1.8                1.3                   0.7             --          3.8
Segment's operating income (loss) from
   continuing operations                            (2.6)              (4.0)                  1.0             --         (5.6)

                                                 Network             Consumer        Ultra Low-Power   Unallocated
Three Months Ended June 28, 2002              Communications      Communications     Communications        Costs        Total
                                              --------------      --------------     ---------------   ------------  ------------
Total external sales revenue                     $  28.4            $  12.6               $   7.0          $  --      $  48.0
Amortization of buildings and equipment              2.8                1.3                   0.1             --          4.2
Segment's operating loss from continuing
   operations                                       (5.8)              (5.7)                   --                       (11.5)
</TABLE>

16.   Subsequent event

      On July 16, 2003,  the Company  announced  further cost  reductions  as it
      finalizes its outsourcing programs and streamlines operations. The Company
      expects to record  additional  charges of  approximately  $8.0  related to
      reducing its global  workforce by  approximately  120 employees across all
      regions  and  business  units,   and  the  cost  of  further   outsourcing
      initiatives.

17.   Comparative figures

      Certain of the Fiscal 2003 comparative  figures have been  reclassified to
      conform to the presentation adopted in Fiscal 2004.


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