http://www.zarlink.com

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

                For the quarterly period ended December 26, 2003

                           Commission File No. 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 executive offices)                    (Postal Code)

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

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  [ ]

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act) Yes [X] No [ ]

As at  January  30,  2004  there  were  127,276,474  Common  Shares  of  Zarlink
Semiconductor Inc., no par value, issued and outstanding.

<PAGE>

                           ZARLINK SEMICONDUCTOR INC.

                                TABLE OF CONTENTS

Item No.                                                                Page No.
--------                                                                --------

PART I - FINANCIAL INFORMATION.................................................3

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS.....................................3
              Consolidated Balance Sheets......................................3
              Consolidated Statements of Loss (Unaudited)......................4
              Consolidated Statements of Cash Flows (Unaudited)................5
              Notes to the Consolidated Financial Statements...................6

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS............................................17

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...........27

ITEM 4.  CONTROLS AND PROCEDURES..............................................27

PART II - OTHER INFORMATION...................................................28

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K...................................28

Signatures....................................................................28


                                       2
<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

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

                                                      December 26,     March 28,
                                                          2003           2003
                                                      ------------     ---------
                                                       (Unaudited)     (Note 1)
ASSETS
Current assets:
  Cash and cash equivalents                             $   18.6      $   23.5
  Short-term investments                                    59.7          89.5
  Restricted cash                                            9.5           6.2
  Trade accounts receivable, less allowance for
    doubtful accounts of $0.5 (March 28, 2003 - $1.1)       29.4          20.3
  Other receivables                                          2.9           4.2
  Note receivable - net of deferred gain of $16.8
    (March 28, 2003 - $15.8)                                 0.1            --
  Inventories                                               23.6          24.0
  Deferred income tax assets - net                           1.2           1.0
  Prepaid expenses and other                                10.1           7.3
                                                        --------      --------
                                                           155.1         176.0
Fixed assets - net                                          43.3          56.4
Deferred income tax assets - net                            11.7          10.4
Other assets                                                 4.5           4.7
Note receivable - net of deferred gain of $16.8
  (March 28, 2003 - $15.8)                                    --           0.1
                                                        --------      --------
                                                        $  214.6      $  247.6
                                                        ========      ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Trade accounts payable                                $   18.0      $   10.1
  Employee-related accruals                                 11.6          15.5
  Income and other taxes payable                            14.0          13.0
  Provisions for exit activities                             3.9           4.2
  Other accrued liabilities                                 10.8          12.6
  Deferred credits                                           1.0           1.1
  Current portion of long-term debt                          0.2           0.6
                                                        --------      --------
                                                            59.5          57.1
Long-term debt                                               0.1           0.2
Pension liabilities                                         17.1          14.3
Deferred income tax liabilities - net                        2.2           2.0
                                                        --------      --------
                                                            78.9          73.6
                                                        --------      --------
Redeemable preferred shares, unlimited shares
  authorized; 1,377,400 shares issued and
  outstanding (March 28, 2003 - 1,451,600)                  17.6          18.9
                                                        --------      --------
Commitments (Note 11)

Shareholders' equity:
  Common shares, unlimited shares authorized;
    no par value; 127,275,933 shares issued and
    outstanding (March 28, 2003 - 127,265,316)             768.3         768.3
  Additional paid-in capital                                 2.2           2.1
  Deficit                                                 (620.7)       (582.8)
  Accumulated other comprehensive loss                     (31.7)        (32.5)
                                                        --------      --------
                                                           118.1         155.1
                                                        --------      --------
                                                        $  214.6      $  247.6
                                                        ========      ========

        (See accompanying notes to the consolidated financial statements)


                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                     Three Months Ended          Nine Months Ended
                                                   ----------------------      ----------------------
                                                   Dec. 26,      Dec. 27,      Dec. 26,      Dec. 27,
                                                    2003          2002           2003          2002
                                                   ------        ------         ------        ------
<S>                                                <C>           <C>            <C>           <C>
Revenue                                            $ 47.0        $ 46.8         $147.3        $141.0
Cost of revenue                                      26.0          25.6           81.3          77.0
                                                   ------        ------         ------        ------
Gross margin                                         21.0          21.2           66.0          64.0
                                                   ------        ------         ------        ------
Expenses:
  Research and development                           19.5          23.5           57.9          66.8
  Selling and administrative                         11.8          11.8           37.6          35.6
  Asset impairment and other                          1.7            --            7.0            --
  Stock compensation expense (recovery)               0.1            --            0.1          (1.4)
                                                   ------        ------         ------        ------
                                                     33.1          35.3          102.6         101.0
                                                   ------        ------         ------        ------
Loss from operations                                (12.1)        (14.1)         (36.6)        (37.0)
Other income (expense) - net                         (0.2)          1.0           (0.5)          4.5
Interest expense                                     (0.3)         (0.3)          (0.6)         (0.7)
                                                   ------        ------         ------        ------
Loss before income taxes                            (12.6)        (13.4)         (37.7)        (33.2)
Income tax (expense) recovery                         1.4          (0.3)           1.4          (1.2)
                                                   ------        ------         ------        ------
Net loss for the period                            $(11.2)       $(13.7)        $(36.3)       $(34.4)
                                                   ======        ======         ======        ======
Net loss attributable to common shareholders
 after preferred share dividends                   $(11.8)       $(14.2)        $(37.9)       $(35.9)
                                                   ======        ======         ======        ======
Net loss per common share:
      Basic and diluted                            $(0.09)       $(0.11)        $0.30)        $(0.28)
                                                   ======        ======         ======        ======
Weighted average number of common shares
  outstanding (millions):
      Basic and diluted                             127.3         127.2          127.3         127.0
                                                   ======        ======         ======        ======
</TABLE>

        (See accompanying notes to the consolidated financial statements)


                                       4
<PAGE>

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

<TABLE>
<CAPTION>
                                                                     Three Months Ended           Nine Months Ended
                                                                   ----------------------       ----------------------
                                                                   Dec. 26,      Dec. 27,       Dec. 26,       Dec. 27,
                                                                    2003          2002            2003           2002
                                                                   ------        ------          ------         ------
<S>                                                                <C>           <C>            <C>            <C>
CASH PROVIDED BY (USED IN)
Operating activities:
  Net loss for the period                                          $(11.2)       $ (13.7)       $ (36.3)       $ (34.4)
  Depreciation of fixed assets                                        2.8            3.1            9.7            9.6
  Amortization of other assets                                        0.4            0.3            1.2            0.9
  Other non cash changes in operating activities                      2.3           (0.5)           9.3           (2.0)
  Stock compensation expense (recovery)                               0.1             --            0.1           (1.4)
  Deferred income taxes                                              (0.4)           0.1           (1.2)           0.1
  Decrease (increase) in working capital
      Trade accounts and other receivables                           (2.8)           3.9           (8.4)           6.4
      Inventories                                                    (1.8)           5.6            0.5           12.9
      Prepaid expenses and other                                      0.2            1.6           (2.5)           3.6
      Trade accounts payable and other accrued liabilities            2.8           (5.8)           2.7          (20.3)
      Deferred credits                                                0.3            3.7            0.1            4.0
                                                                   ------        -------        -------        -------
Total                                                                (7.3)          (1.7)         (24.8)         (20.6)
                                                                   ------        -------        -------        -------
Investing activities:
      Purchased short-term investments                              (59.7)        (103.1)        (144.7)        (252.7)
      Matured short-term investments                                 35.2           62.3          174.5          228.3
      Proceeds from disposal of fixed and other assets                0.2             --            0.8            0.4
      Expenditures for fixed and other assets                        (1.5)          (1.4)          (4.7)          (5.7)
      Increase in long-term investments                                --             --             --           (0.4)
      Proceeds from sale of long-term investments                     0.6            4.2            0.6            4.2
                                                                   ------        -------        -------        -------
Total                                                               (25.2)         (38.0)          26.5          (25.9)
                                                                   ------        -------        -------        -------
Financing activities:
      Repayment of capital lease liabilities                         (0.1)          (0.4)          (0.5)          (1.8)
      Payment of dividends on preferred shares                       (0.6)          (0.5)          (1.6)          (1.5)
      Issue of common shares                                           --             --             --            0.5
      Repurchase of preferred shares                                 (0.7)          (0.9)          (1.2)          (1.3)
      Increase in hypothecation of cash under letters
      of credit                                                      (3.9)            --           (3.3)            --
                                                                   ------        -------        -------        -------
Total                                                                (5.3)          (1.8)          (6.6)          (4.1)
                                                                   ------        -------        -------        -------
Effect of currency translation on cash and cash equivalents            --            1.4             --            2.8
                                                                   ------        -------        -------        -------

Decrease in cash and cash equivalents                               (37.8)         (40.1)          (4.9)         (47.8)

Cash and cash equivalents, beginning of period                       56.4           67.9           23.5           75.6
                                                                   ------        -------        -------        -------
Cash and cash equivalents, end of period                           $ 18.6        $  27.8        $  18.6        $  27.8
                                                                   ======        =======        =======        =======
</TABLE>

        (See accompanying notes to the consolidated financial statements)


                                       5
<PAGE>

                           Zarlink Semiconductor Inc.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
       (In millions of U.S. dollars, except per share amounts, U.S. GAAP)
                                   (Unaudited)

1.   Basis of presentation

     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 the U.S.  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 December 26, 2003,
     and the results of  operations  and cash flows of the Company for the three
     and nine month  periods  ended  December  26, 2003 and  December  27, 2002,
     respectively,  in accordance with U.S. 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  Canadian GAAP  financial  statements  are also
     prepared and presented to shareholders.

     The  balance  sheet at March 28,  2003 has been  derived  from the  audited
     consolidated  financial statements at that date but does not include all of
     the information  and footnotes  required by generally  accepted  accounting
     principles for complete financial  statements.  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 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.


                                       6
<PAGE>

3.   Recently issued accounting pronouncements

     On April 30,  2003,  the FASB  issued  Statement  of  Financial  Accounting
     Standard No. 149 ("SFAS  149"),  "Amendment  of Statement 133 on Derivative
     Instruments and Hedging  Activities".  The amendments set forth in SFAS 149
     improve  financial  reporting by requiring that  contracts with  comparable
     characteristics be accounted for similarly.  In particular,  this statement
     clarifies  under  what   circumstances  a  contract  with  an  initial  net
     investment  meets the  characteristic  of a derivative as discussed in SFAS
     133. In  addition,  it  clarifies  when a  derivative  contains a financing
     component that warrants  special  reporting in the statement of cash flows.
     SFAS 149 amends certain other existing  pronouncements.  Those changes will
     result in more  consistent  reporting of contracts that are  derivatives in
     their entirety or that contain  embedded  derivatives that warrant separate
     accounting.  This  Statement is  effective  for  contracts  entered into or
     modified  after June 30,  2003,  except as stated  below,  and for  hedging
     relationships  designated after June 30, 2003. The guidance will be applied
     prospectively.  The  provisions of this  Statement that relate to Statement
     133 Implementation Issues that have been effective for fiscal quarters that
     began prior to June 15,  2003,  will  continue to be applied in  accordance
     with their  respective  effective  dates. In addition,  certain  provisions
     relating to forward  purchases or sales of when-issued  securities or other
     securities that do not yet exist,  should be applied to existing  contracts
     as well as new contracts  entered into after June 30, 2003. The adoption of
     SFAS  149  did  not  have a  material  impact  on the  Company's  financial
     statements.

     On May 15, 2003, the FASB issued Statement of Financial Accounting Standard
     No. 150 ("SFAS 150"),  "Accounting for Certain  Financial  Instruments with
     Characteristics  of both Liabilities and Equity".  The Statement  clarifies
     the  accounting  for certain  financial  instruments  that,  under previous
     guidance, issuers could account for as equity. SFAS 150 requires that those
     instruments  be classified as  liabilities  in the  statements of financial
     position,  whereas  previously such instruments may have been classified as
     equity or as  temporary  equity.  In addition to its  requirements  for the
     classification and measurement of financial  instruments in its scope, SFAS
     150 also  requires  disclosures  about  alternative  ways of  settling  the
     instruments and the capital structure of entities,  all of whose shares are
     mandatorily  redeemable.  Most of the guidance in SFAS 150 is effective for
     all financial  instruments entered into or modified after May 31, 2003, and
     otherwise  is  effective  at the  beginning  of the  first  interim  period
     beginning  after June 15,  2003.  The  adoption  of SFAS 150 did not have a
     material impact on the Company's financial statements.

     In  January  2003,  the FASB  issued  Interpretation  No. 46,  ("FIN  46"),
     "Consolidation of Variable Interest Entities". FIN 46 expands upon existing
     guidance  that  addresses  when a company  should  include in its financial
     statements the assets,  liabilities,  and activities of another company.  A
     variable  interest entity is any legal structure used for business purposes
     that either (a) does not have equity investors or has equity investors that
     lack  characteristics of control; or (b) the equity investment at risk does
     not provide  sufficient  financial  resources for the entity to support its
     activities.  Under FIN 46, a variable  interest entity must be consolidated
     by a company  if that  company  is  expected  to absorb a  majority  of the
     entity's  expected losses or to receive a majority of the entity's expected
     residual returns.  The consolidation  requirements are currently applicable
     to variable interests created after January 31, 2003. For variable interest
     entities  created before January 31, 2003, the  consolidation  requirements
     are  applicable  for reporting  periods ending after March 15, 2004. FIN 46
     also requires certain  disclosures  about variable  interest entities where
     those entities are not required to be consolidated. The Company has not yet
     evaluated the impact of this new pronouncement on its financial position or
     results of operations.

     In December  2003 the FASB  published a revision to  Statement of Financial
     Accounting  Standard No. 132 ("SFAS  132"),  "Employers  Disclosures  about
     Pensions  and  Other  Postretirement   Benefits".   The  revision  requires
     additional  disclosure,  including information describing the types of plan
     assets,  investment strategy,  measurement date(s), plan obligations,  cash
     flows,  and  components  of net  periodic  benefit cost  recognized  during
     interim periods.  Most of the guidance in the revision to SFAS 132 relating
     to domestic  plans is effective for year ends after  December 15, 2003, and
     the guidance  relating to foreign  plans is  effective  for year ends after
     June 15, 2004. The requirements pertaining to interim periods are effective
     for  quarters  beginning  after  December  15,  2003.  The  adoption of the
     revision  to SFAS 132 is not  expected  to have a  material  impact  on the
     Company's financial position or results of operations.


                                       7
<PAGE>

4.   Stock-based compensation

     Pro forma information regarding net income (loss) and net income (loss) per
     share is required by SFAS 123 for awards granted or modified after April 1,
     1995,  as if the  Company  had  accounted  for its  stock-based  awards  to
     employees  under the fair value  method of SFAS 123.  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.

<TABLE>
<CAPTION>
                                                        Three Months Ended           Nine Months Ended
                                                      ----------------------       ----------------------
                                                      Dec. 26,      Dec. 27,       Dec. 26,      Dec. 27,
                                                       2003          2002            2003          2002
                                                      ------        ------          ------        ------
     <S>                                              <C>           <C>            <C>           <C>
     Net loss, as reported                            $(11.2)       $(13.7)        $(36.3)       $(34.4)
     Adjustments:
        Stock compensation expense (recovery) as         0.1            --            0.1          (1.4)
        reported
        Pro forma stock compensation expense            (3.4)         (3.3)          (9.6)        (10.0)
                                                      ------        ------         ------        ------
     Pro forma net loss                               $(14.5)       $(17.0)        $(45.8)       $(45.8)
                                                      ------        ------         ------        ------
     Net loss per common share, as reported
        Basic and diluted                             $(0.09)       $(0.11)        $(0.30)       $(0.28)
                                                      ------        ------         ------        ------
     Pro forma net loss per common share:
        Basic and diluted                             $(0.12)       $(0.14)        $(0.37)       $(0.37)
                                                      ------        ------         ------        ------
</TABLE>

     Based  upon the fair  value  method of  accounting  for stock  compensation
     expense,  the pro  forma  net loss for the  three  and  nine  months  ended
     December  26,  2003,  was  increased  by $3.3 and  $9.5,  respectively,  as
     compared to the net loss, as reported (three and nine months ended December
     27, 2002, $3.3 and $11.4, respectively).


     Pro forma financial information required by SFAS 123 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 and nine month fiscal  periods
     ended December 26, 2003 and December 27, 2002:

<TABLE>
<CAPTION>
                                                             Three Months Ended            Nine Months Ended
                                                           ----------------------        ----------------------
                                                            Dec. 26,      Dec. 27,       Dec. 26,      Dec. 27,
                                                             2003          2002            2003          2002
                                                            ------        ------          ------        ------
       <S>                                                  <C>          <C>              <C>          <C>
       Weighted  average fair value price of the
          options  granted during the quarter               $  1.50      $  1.19          $  1.74      $  1.82

       Risk free interest rate                                3.26%        3.45%            3.15%        3.82%
       Dividend yield                                           Nil          Nil              Nil          Nil
       Volatility factor of the expected market
         price of the Company's common stock                  0.701        0.673            0.692        0.622
       Weighted average expected life of the options      3.3 years    3.1 years        3.3 years    3.1 years
</TABLE>

     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.


                                       8
<PAGE>

5.   Inventories

                                                      Dec. 26,        March 28,
                                                        2003             2003
                                                      -------         --------
     Raw materials                                    $   2.4         $   2.6
     Work-in-process                                     17.0            18.3
     Finished goods                                       4.2             3.1
                                                      -------         -------
                                                      $  23.6         $  24.0
                                                      =======         =======

6.   Fixed assets

                                                      Dec. 26,       March 28,
                                                        2003           2003
                                                      -------        --------
     Cost                                             $ 164.3         $ 163.7
     Accumulated depreciation                           121.0           107.3
                                                      -------         -------
                                                      $  43.3         $  56.4
                                                      =======         =======

     The Company  recorded an impairment  loss on fixed assets of $1.4 and $6.1,
     respectively,  during the three and nine months ended December 26, 2003, as
     a  result  of a  review  of the  ongoing  usage  of the  Company's  testing
     equipment and enterprise resource planning system.

7.   Other assets

                                                      Dec. 26,       March 28,
                                                        2003           2003
                                                      -------        --------
     Patents, trademarks, and other intangible
       assets:
       Cost                                           $  10.8         $   9.5
       Accumulated amortization                          (6.3)           (5.0)
                                                      -------         -------
       Patents, trademarks, and other intangible
         assets - net                                     4.5             4.5
     Other                                                 --             0.2
                                                      -------         -------
                                                      $   4.5         $   4.7
                                                      =======         =======

     The  amortization  of  patents,  trademarks  and  other  intangible  assets
     amounted  to $0.4 and $1.2,  respectively,  for the  three and nine  months
     ended  December 26, 2003 (three and nine months  ended  December 27, 2002 -
     $0.3 and $0.9, respectively).

8.       Note receivable

                                                      Dec. 26,       March 28,
                                                        2003           2003
                                                      -------        --------
         Note receivable, non-interest bearing          $16.9        $   15.9
         Less: Deferred gain                            (16.8)          (15.8)
                                                      -------         -------
                                                          0.1             0.1
         Less: current portion                           (0.1)             --
                                                      -------         -------
                                                      $    --         $   0.1
                                                      =======         =======

     Based upon the terms of the  Plymouth  Foundry  sale  agreement  with X-FAB
     Semiconductor  Foundries  AG,  the  first  payment  of  $10.0  against  the
     discounted  note  receivable  is due in June 2004 with the final payment of
     $8.0 due in March 2005.


                                       9
<PAGE>

9.   Provisions for exit activities

                                                      Dec. 26,       March 28,
                                                        2003           2003
                                                      -------        --------
     Restructuring provisions                         $   3.3         $   2.9
     Provision for disposal of discontinued
       operations                                          --             0.1
     Provision for disposal of foundry businesses         0.6             1.2
                                                      -------         -------
                                                      $   3.9         $   4.2
                                                      =======         =======

     During  the  second  and  third   quarters  of  Fiscal  2004,  the  Company
     implemented  further cost  reductions in efforts to outsource  programs and
     streamline operations. During the three months ended December 26, 2003, the
     Company incurred workforce reduction costs of $2.9 ($6.3 year-to-date) as a
     result  of  reducing  the  Company's  employee  base by  approximately  100
     employees,  bringing the total employee  reduction to approximately 220 for
     the first  nine  months of  Fiscal  2004.  The  reductions  were  performed
     globally  across all job  categories and business  units.  During the third
     quarter,  severance  costs of $1.4 ($2.4  year-to-date)  were  included  in
     research and development, related to a reduction in R&D engineers, and as a
     result of a further reduction in the selling and administrative  workforce,
     severance  costs of $1.1 ($2.9  year-to-date)  were included in selling and
     administration.  The Company also  recorded  severance  costs of $0.4 ($1.0
     year-to-date) in cost of revenue,  related to further cost reductions as it
     finalizes its outsourcing programs and streamlines operations.

     As a  result  of  the  workforce  reduction  program  and  streamlining  of
     operations,  the Company recorded a charge of $nil during the third quarter
     of Fiscal 2004 ($0.6 year-to-date), included in asset impairment and other,
     related to excess space under lease contract in Canada.

     Of the $2.9 of  restructuring  provision  recorded in the third  quarter of
     Fiscal  2004,  $1.8  related to the Network  Communications  segment,  $1.0
     related to the  Consumer  Communications  segment,  and $0.1 related to the
     Ultra  Low-Power   Communications   segment.  The  restructuring  provision
     recorded in the nine months ended  December 26, 2003  included $4.4 related
     to the Network  Communications  segment,  $1.9  pertaining  to the Consumer
     Communications  segment,  and $0.6 in the  Ultra  Low-Power  Communications
     segment.

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, that will be paid over the lease term unless settled earlier.


     The  following  table  summarizes  the  continuity  of these  restructuring
     provisions for the three and nine months ended December 26, 2003:

                                                             Lease
                                             Workforce    and contract
                                             reduction     settlement      Total
                                             ---------     ----------      -----
     Balance, March 28, 2003                  $  0.3         $ 2.6        $ 2.9
     Cash drawdowns during quarter              (0.1)         (0.2)        (0.3)
                                              ------         -----        -----
     Balance, June 27, 2003                   $  0.2         $ 2.4        $ 2.6
     Restructuring activities during
       the quarter                               3.4           0.6          4.0
     Cash drawdowns during quarter              (2.2)         (0.6)        (2.8)
                                              ------         -----        -----
     Balance, Sept. 26, 2003                  $  1.4         $ 2.4        $ 3.8
     Restructuring activities during
       the quarter                               2.9            --          2.9
     Cash drawdowns during quarter              (3.3)         (0.1)        (3.4)
                                              ------         -----        -----
     Balance, Dec. 26, 2003                   $  1.0         $ 2.3        $ 3.3
                                              ======         =====        =====


                                       10
<PAGE>

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 December 26,  2003,  was $35.5 (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  December  26,  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 December 26,
     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 December 26,
     2003,  the taxation years 2000 to February 16, 2001 are subject to audit by
     taxation authorities.

     As at December 26, 2003, the Company has guaranteed a custom bond amounting
     to $2.8 to a third party on behalf of a subsidiary.

     Based upon the  transition  rules  outlined in FASB  Interpretation  no. 45
     ("FIN  45"),   "Guarantor's  Accounting  and  Disclosure  Requirements  for
     Guarantees of Indebtedness of Others", no amounts have been recorded by the
     Company related to the above-mentioned items.

     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 three and nine month
     periods ended December 26, 2003:

                                                   Three Months     Nine Months
                                                      Ended            Ended
                                                  Dec. 26, 2003    Dec. 26, 2003
                                                  -------------    -------------
     Beginning balance                               $  0.1           $   --
     Accruals for new and pre-existing warranties        --              0.5
     Reduction based on change in estimates              --             (0.4)
                                                     ------           ------
     Ending balance                                  $  0.1           $  0.1
                                                     ======           ======


                                       11
<PAGE>

11.  Commitments

     The Company had letters of credit  outstanding  as at December  26, 2003 of
     approximately $9.2 (December 27, 2002 - $6.0). Cash and cash equivalents of
     $9.5 have been pledged as security against certain  outstanding  letters of
     credit,  which expire  within 12 months,  and are  presented as  restricted
     cash.

     During  the third  quarter  of  Fiscal  2004,  the  Company  cancelled  the
     operating line component of its revolving global credit facility, as it was
     not being  utilized or required by the Company.  This  resulted in reducing
     the total credit facility from $19.0 (Cdn $25.0) to a facility of $9.5 (Cdn
     $12.5) available for letters of credit.

     Prior to the  third  quarter  of Fiscal  2004,  the  Company  had not met a
     quarterly financial covenant with respect to shareholder's equity under the
     Company's  credit  facility,  as a result of  restructuring  and impairment
     losses  recorded  since the fourth  quarter  of Fiscal  2003.  In  previous
     quarters  the Company had obtained a waiver from the bank in respect of the
     financial  covenant.  In  addition  to the  reduction  in the amount of the
     credit  facility,  the  financial  covenant  with respect to  shareholder's
     equity was also modified under the new  agreement,  such that no waiver was
     required as at December 26, 2003.

12.  Redeemable Preferred Shares

     There were 64,300  preferred  shares purchased during the nine months ended
     December 26, 2003 for cash  consideration of $1.2. As at December 26, 2003,
     there were 12,900 repurchased  preferred shares that had not been cancelled
     by the end of the quarter.

     During the third quarter of Fiscal 2004,  the Company paid dividends on its
     redeemable  preferred  shares of $0.6 and declared a quarterly  dividend of
     $0.38  (Cdn$0.50)  per share,  resulting in a cumulative  dividend of $1.14
     (Cdn$1.50) per share for the first nine months of Fiscal 2004.

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:

                                                    Nine Months Ended
                                              -----------------------------
                                               December 26,    December 27,
                                                   2003            2002
                                              -----------      -----------
     Outstanding Options:
     Balance, beginning of period              10,828,557       10,914,962
     Granted                                      379,500          400,300
     Exercised                                    (10,617)        (109,193)
     Forfeited                                 (1,396,565)      (1,896,121)
                                              -----------      -----------
     Balance, end of period                     9,800,875        9,309,948
                                              ===========      ===========

     As at December 26, 2003,  there were 4,731,187 (March 28, 2003 - 3,714,122)
     options  available  for grant under the stock  option plan  approved by the
     Company's   shareholders  on  December  7,  2001.  The  exercise  price  of
     outstanding  stock  options  ranges  from  $2.59 to $28.50  per share  with
     exercise  periods  extending to December  2009. The exercise price of stock
     options  was based on prices in  Canadian  dollars  translated  at the U.S.
     dollar exchange rate on December 26, 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.


                                       12
<PAGE>

     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         Nine Months Ended
                                 -------------------       ---------------------
                                 Dec. 26,   Dec. 27,       Dec. 26,     Dec. 27,
                                  2003        2002          2003          2002
                                 ------      ------        ------        ------
     Stock options               19,599      30,473        328,532       91,921
                                 ======      ======        =======       ======

     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         Nine Months Ended
                                 -------------------       --------------------
                                 Dec. 26,   Dec. 27,       Dec. 26,    Dec. 27,
                                  2003        2002          2003         2002
                                 ------      ------        ------       ------
     Number of outstanding
       options                 9,488,938   9,218,448     7,126,213     8,837,767

     Average exercise price
       per share                  $ 9.13      $ 8.92       $ 10.87        $ 9.21

     The average exercise price of stock options was based on prices in Canadian
     dollars  translated  at the U.S.  dollar  exchange  rate on the  applicable
     period end date.

14.  Accumulated other comprehensive income (loss)

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

<TABLE>
<CAPTION>
                                                        Three Months Ended           Nine Months Ended
                                                      ----------------------       ----------------------
                                                      Dec. 26,      Dec. 27,       Dec. 26,      Dec. 27,
                                                       2003          2002            2003          2002
                                                      ------        ------          ------        ------
     <S>                                              <C>          <C>             <C>           <C>
     Net loss for the period                          $(11.2)      $(13.7)         $(36.3)       $(34.4)
     Other comprehensive income (loss):
     Realized net derivative gains on cash flow
          hedges                                        (0.3)        (0.9)           (0.3)         (2.3)
     Unrealized net derivative gains (losses) on
          cash flow hedges                               0.7         (1.5)            1.1          (3.7)
     Change in cumulative translation adjustment          --          2.8              --           9.3
                                                      ------       ------          ------        ------
     Other comprehensive loss for the period          $(10.8)      $(13.3)         $(35.5)       $(31.1)
                                                      ======       ======          ======        ======
</TABLE>

     The changes to  accumulated  other  comprehensive  loss for the nine months
     ended December 26, 2003 were as follows:

<TABLE>
<CAPTION>

                                                                         Realized and
                                                                          Unrealized
                                                         Cumulative        Net Gain
                                                        Translation       (Loss) on
                                                          Account         Derivatives    Total
                                                          -------         -----------    -----
     <S>                                                  <C>               <C>         <C>
     Balance, March 28, 2003                              $(32.4)           $(0.1)      $(32.5)
     Change during the three months ended June 27,
         2003                                                 --              0.2          0.2
                                                          ------            -----       ------
     Balance, June 27, 2003                               $(32.4)           $ 0.1       $(32.3)
     Change during the three months ended
         September 26, 2003                                   --              0.2          0.2
                                                          ------            -----       ------
     Balance, September 26, 2003                          $(32.4)           $ 0.3       $(32.1)
     Change during the three months ended December
         26, 2003                                             --              0.4          0.4
                                                          ------            -----       ------
     Balance, December 26, 2003                           $(32.4)           $ 0.7       $(31.7)
                                                          ======            =====       ======
</TABLE>


                                       13
<PAGE>

     The  Company  recorded a decrease in other  comprehensive  loss in the nine
     months  ended  December 26, 2003 of $0.8  (December  27, 2002 - increase of
     $6.0)  which was  attributable  to the  change in the value of  outstanding
     foreign currency forward contracts related to the Company's hedging program
     that were designated as cash flow hedges.  The Company  estimates that $0.7
     of net  derivative  gain  included  in  other  comprehensive  loss  will be
     reclassified into earnings within the next six months.

15.  Other income (expense) (net)

<TABLE>
<CAPTION>
                                                    Three Months Ended           Nine Months Ended
                                                  ----------------------       ----------------------
                                                  Dec. 26,      Dec. 27,       Dec. 26,      Dec. 27,
                                                   2003          2002            2003          2002
                                                  ------        ------          ------        ------
     <S>                                           <C>          <C>             <C>            <C>
     Interest income                               $ 0.4        $ 0.7           $ 1.0          $2.6
     Foreign exchange gain (loss)                   (1.2)        (0.4)           (2.1)          1.2
     Gain on sale of long-term investments           0.6          0.7             0.6           0.7
                                                   -----        -----           -----          ----
     Other income (expense) (net)                  $(0.2)       $ 1.0           $(0.5)         $4.5
                                                   =====        =====           =====          ====
</TABLE>

     On December 5, 2003,  the Company sold its  investment in a privately  held
     company for cash proceeds of $0.6. The carrying value had been written down
     to $nil in Fiscal 2002 to reflect an impairment of the investment.

16.  Income Taxes

     An income tax recovery of $1.4 was recorded for the third quarter of Fiscal
     2004 as a result of a recovery of domestic  income taxes,  compared with an
     expense of $0.3 for the  corresponding  period in Fiscal  2003.  During the
     nine months ended  December 26, the income tax recovery was $1.4,  compared
     with an expense of $1.2 for the first nine months of Fiscal 2003.

     The Company is subject to income taxes in Canada,  the United Kingdom,  the
     United  States and numerous  other foreign  jurisdictions.  The Company has
     recorded a valuation  allowance on its  deferred  tax assets,  and recorded
     only  deferred  tax assets  that can be applied  against  income in taxable
     jurisdictions or applied against deferred tax liabilities that will reverse
     in  the  future.  Significant  judgment  is  required  in  determining  the
     provision  for income  taxes and the  valuation  allowance  on deferred tax
     assets.  In establishing the appropriate  valuation  allowance for tax loss
     carry-forwards and investment tax credits,  it is necessary to consider all
     available evidence, both positive and negative.

     Management  periodically  reviews  the  Company's  valuation  allowance  to
     determine whether the overall tax estimates are reasonable. When management
     performs its quarterly  assessments of the valuation  allowance,  it may be
     determined that an adjustment is required to the valuation allowance, which
     may have a material impact on the Company's  financial position and results
     of operations.

17.  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  sectors  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    segment   provides
     Application-Specific  Integrated Circuit ("ASIC") and  Application-Specific
     Standard  Product ("ASSP")  solutions for applications  such as pacemakers,
     hearing aids and portable instruments.


                                       14
<PAGE>

     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,  interest  expense  or  income  taxes  to its
     reportable  segments.  In  addition,  the Company does not use a measure of
     segment assets to assess  performance or allocate  resources.  As a result,
     segmented  asset  information is not presented;  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.

<TABLE>
<CAPTION>

     Three Months Ended Dec. 26, 2003                 Network             Consumer        Ultra Low-Power   Unallocated
                                                   Communications      Communications     Communications       Costs         Total
                                                   --------------      --------------     --------------    -----------      -----
     <S>                                              <C>                 <C>                 <C>              <C>         <C>
     Total external sales revenue                     $ 24.6              $ 14.9              $ 7.5            $   --      $  47.0
     Depreciation of buildings and equipment             1.8                 0.6                0.4                --          2.8
     Asset impairment and other                          1.6                 0.1                 --                --          1.7
     Stock compensation expense                           --                  --                 --               0.1          0.1
     Segment's operating income (loss)                  (6.7)               (5.4)               0.1              (0.1)       (12.1)

                                                      Network             Consumer        Ultra Low-Power   Unallocated
     Three Months Ended Dec. 27, 2002              Communications      Communications     Communications       Costs         Total
                                                   --------------      --------------     --------------    -----------      -----
     Total external sales revenue                     $ 27.8              $ 12.0              $  7.0           $  --       $  46.8
     Depreciation of buildings and equipment             2.4                 0.5                 0.2              --           3.1
     Stock compensation expense                           --                  --                  --              --            --
     Segment's operating loss                           (8.3)               (4.6)               (1.2)             --         (14.1)

     Nine Months Ended Dec. 26, 2003                  Network             Consumer        Ultra Low-Power   Unallocated
                                                   Communications      Communications     Communications       Costs         Total
                                                   --------------      --------------     --------------    -----------      -----
     Total external sales revenue                    $  78.9             $  42.1             $ 26.3           $   --      $ 147.3
     Depreciation of buildings and equipment             5.5                 2.7                1.5               --          9.7
     Asset impairment and other                          4.6                 2.0                0.4               --          7.0
     Stock compensation expense                           --                  --                 --              0.1          0.1
     Segment's operating loss                          (20.6)              (15.0)              (0.9)            (0.1)       (36.6)

                                                      Network             Consumer        Ultra Low-Power   Unallocated
     Nine Months Ended Dec. 27, 2002               Communications      Communications     Communications       Costs         Total
                                                   --------------      --------------     --------------    -----------      -----
     Total external sales revenue                    $  85.6            $  35.0              $ 20.4           $   --      $ 141.0
     Depreciation of buildings and equipment             7.5                1.7                 0.4                           9.6
     Stock compensation recovery                          --                 --                  --             (1.4)        (1.4)
     Segment's operating loss                          (20.1)             (15.7)               (2.6)             1.4        (37.0)
</TABLE>


                                       15
<PAGE>

18.  Supplementary cash flow information

     The following  table  summarizes  the  Company's  other non cash changes in
     operating activities:

<TABLE>
<CAPTION>

                                                    Three Months Ended           Nine Months Ended
                                                  ----------------------       ----------------------
                                                  Dec. 26,      Dec. 27,       Dec. 26,      Dec. 27,
                                                   2003          2002            2003          2002
                                                  ------        ------          ------        ------
<S>                                               <C>          <C>              <C>          <C>
Cash provided by (used in)
  Loss (gain) on disposal of fixed assets         $   --       $ (0.1)          $  0.1       $ (0.1)
  Foreign exchange loss (gain) on short-term
    investments                                       --          0.3               --         (1.2)
  Gain on sale of long-term investment              (0.6)        (0.7)            (0.6)        (0.7)
  Change in pension liabilities                      1.2           --              2.8           --
  Impairment of fixed and other assets               1.7           --              6.4           --
  Provision for excess space under lease contract     --           --              0.6           --
                                                  ------       ------           ------       ------
Other non cash changes in operating activities    $  2.3       $ (0.5)          $  9.3       $ (2.0)
                                                  ======       ======           ======       ======
</TABLE>

19.  Comparative figures

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


                                       16
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS (in millions of U.S. dollars, except  per share  amounts,
         and in accordance with U.S. GAAP)

Overview

For almost 30 years, Zarlink  Semiconductor has delivered the integrated circuit
(IC) building blocks that drive the capabilities of voice, enterprise, broadband
and wireless  communications.  Zarlink is a global provider of  microelectronics
for voice and data networks,  consumer and ultra low-power  communications,  and
high-performance analog.

The following  discussion and analysis  explains  trends in Zarlink's  financial
condition and results of operations for the three and nine months ended December
26, 2003,  compared with the corresponding  periods in the previous fiscal year.
This discussion is intended to help  shareholders  and other readers  understand
the dynamics of Zarlink's  business and the key factors underlying its financial
results.  This discussion  should be read in conjunction  with the  consolidated
financial statements and notes thereto included elsewhere in this Form 10-Q, and
with the Company's audited  consolidated  financial statements and notes thereto
for the fiscal year ended March 28, 2003.

Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q contain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform  Act") that are based on current  expectations,  estimates and
projections  about the  industries in which the Company  operates,  management's
beliefs and assumptions made by management.  These statements are not guarantees
of future performance and involve certain risks,  uncertainties and assumptions,
which are  difficult to predict.  Accordingly,  actual  outcomes and results may
differ materially from results  forecasted or suggested in such  forward-looking
statements.

Such risks,  uncertainties and assumptions include, among others, the following:
increasing  price  and  product/service  competition  by  foreign  and  domestic
competitors,  including  new  entrants;  rapid  technological  developments  and
changes;  the ability to continue to  introduce  competitive  new  products on a
timely,  cost-effective  basis; delays in product development;  product mix; the
ability  to ensure  continuity  of supply  from  outside  fabrication  services;
changes  in   environmental   and  other   domestic  and  foreign   governmental
regulations;  protection and validity of patent and other intellectual  property
rights;  import  protection  and  regulation;  industry  competition;   industry
capacity and other  industry  trends;  the ability of the Company to attract and
retain key employees;  demographic  changes and other factors  referenced in the
Company's Annual Report on Form 10-K for the fiscal year ended March 28, 2003.

The above factors are representative of the risks, uncertainties and assumptions
that could affect the outcome of the  forward-looking  statements.  In addition,
such statements could be affected by general industry and market  conditions and
growth rates, general domestic and international economic conditions,  including
interest  rate  and  currency   exchange  rate  fluctuations  and  other  risks,
uncertainties  and  assumptions,  as described in the Company's Annual Report on
Form 10-K for the fiscal year ended March 28, 2003,  including those  identified
under   "Forward-Looking   Statements  and  Risk   Factors".   In  making  these
forward-looking  statements,  which  are  identified  by words  such as  "will",
"expects", "intends",  "anticipates" and similar expressions, the Company claims
the protection of the safe-harbor for  forward-looking  statements  contained in
the Reform Act. The Company  undertakes  no  obligation  to update  publicly any
forward-looking statements whether as a result of new information, future events
or otherwise.


                                       17
<PAGE>

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 26, 2003

<TABLE>
<CAPTION>

                                                                Three Months Ended              Nine Months Ended
  Summary of Results from Operations                          ------------------------       ------------------------
  (millions of U.S. dollars, except per share                 Dec. 26,        Dec. 27,        Dec. 26,       Dec. 27,
   amounts)                                                     2003            2002            2003           2002
                                                                ----            ----            ----           ----
<S>                                                            <C>            <C>            <C>            <C>
  Consolidated revenue                                         $ 47.0         $ 46.8         $ 147.3        $ 141.0
     Network Communications                                      24.6           27.8            78.9           85.6
     Consumer Communications                                     14.9           12.0            42.1           35.0
     Ultra Low-Power Communications                               7.5            7.0            26.3           20.4

  Operating income (loss)                                      (12.1)         (14.1)          (36.6)         (37.0)
     Network Communications                                     (6.7)          (8.3)          (20.6)         (20.1)
     Consumer Communications                                    (5.4)          (4.6)          (15.0)         (15.7)
     Ultra Low-Power Communications                              0.1           (1.2)           (0.9)          (2.6)
     Unallocated recoveries (costs)                             (0.1)            --            (0.1)           1.4

  Net loss for the period                                      (11.2)         (13.7)          (36.3)         (34.4)
  Net loss per common share - basic and diluted                (0.09)         (0.11)          (0.30)         (0.28)
  Weighted average common shares outstanding - millions        127.3          127.2           127.3          127.0
</TABLE>

Revenue in the third  quarter of Fiscal 2004 was $47.0,  in line with revenue of
$46.8 in the third  quarter of Fiscal 2003.  Revenue in the first nine months of
Fiscal 2004 was  $147.3,  an increase of 4% from the first nine months of Fiscal
2003. The market  continues to pose  challenges as  semiconductor  sales volumes
continue to be affected by the prolonged  downturn  impacting the  semiconductor
industry.  However,  the Company  experienced higher sequential  bookings in the
third  quarter  of Fiscal  2004,  and  bookings  remain in line with the  levels
experienced during the same period in Fiscal 2003.

In the third  quarter of Fiscal  2004,  the Company  recorded a net loss,  after
preferred share dividends,  of $11.8, or $0.09 per share. This compares to a net
loss,  after  preferred  share  dividends,  of $14.2, or $0.11 per share, in the
third quarter of Fiscal 2003.

For the nine months ended  December 26, 2003,  the Company  recorded a net loss,
after preferred share dividends,  of $37.9, or $0.30 per share. This compares to
a net loss, after preferred share  dividends,  of $35.9, or $0.28 per share, for
the nine months ended December 27, 2002.

The Company implemented further cost reductions in the second and third quarters
of Fiscal  2004 in efforts to  outsource  programs  and  streamline  operations.
During the third  quarter,  the Company  incurred  $2.9 ($6.3  year-to-date)  of
expenses  related  to  reducing  its  global  workforce  by  approximately   100
employees,  bringing  the total  workforce  reduction  for the nine months ended
December 26, 2003 to  approximately  220 employees.  Workforce  reductions  were
implemented  across all regions and business units.  The Company also recorded a
charge related to excess space under lease contract of $nil ($0.6  year-to-date)
as a result of  restructuring  activities  implemented  during the  periods.  In
addition,  the Company  recorded an impairment loss on fixed and other assets of
$1.7 ($6.4 year-to-date) as a result of a review of the ongoing usage of certain
assets of the Company.

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


                                       18
<PAGE>

Network Communications

                                     Three Months Ended    Nine Months Ended
                                    --------------------   -------------------
     Network Communications        Dec. 26,    Dec. 27,   Dec. 26,   Dec. 27,
     (millions of U.S. dollars)      2003        2002       2003       2002
                                   -------     ------     -------    -------
     Revenue:                      $  24.6     $ 27.8     $  78.9    $  85.6
                                   -------     ------     -------    -------
     As a % of total revenue            52%        59%         53%        61%
     Operating loss                $  (6.7)    $ (8.3)    $ (20.6)   $ (20.1)
                                   =======     ======     =======    =======

Zarlink's  Network   Communications   segment   specializes  in  microelectronic
solutions for broadband  connectivity  over wired and optical media. The product
line  enables  voice  and data  convergence  for  high-speed  internet  systems,
switching  systems,  and subscriber  access  systems.  In simple terms,  Network
Communications semiconductor products connect network equipment together.

Revenue for the third  quarter of Fiscal 2004 totaled  $24.6,  down 12% from the
third  quarter  of Fiscal  2003.  During the first  nine  months of Fiscal  2004
revenue decreased to $78.9, down 8% from the same period in Fiscal 2003. Reduced
capital  spending  in the  market  continues  to  impact  demand  by  networking
companies.  Revenue  declines  were a result of decreased  sales  volumes of the
Company's packet  switching,  packet  processing,  TDM switching,  and specialty
products,  partially  offset by  increased  sales  volumes  of voice  processing
products.  The overall decline in revenue was predominantly due to lower revenue
from the North America region.

The segment's  operating  loss  decreased to $6.7 in the third quarter of Fiscal
2004,  down 19% from $8.3 in the third quarter of Fiscal 2003,  due primarily to
the timing of severance costs incurred. Severance costs for the third quarter of
Fiscal 2004 were $1.8,  as  compared to $3.2 in the same period in Fiscal  2003.
Improvements  also resulted from a stronger  product mix in the current  quarter
and lower R&D spending, primarily a result of the cancellation of development in
the VDSL (Very high rate Digital  Subscriber  Line) market which occurred in the
third  quarter of Fiscal  2003.  These  savings were  partially  offset by asset
impairment charges of $1.6 in the third quarter of Fiscal 2004.

The  segment's  operating  loss  increased  to $20.6 in the first nine months of
Fiscal 2004 from an  operating  loss of $20.1 in the first nine months of Fiscal
2003, due primarily to asset  impairments and other costs incurred in the second
and third quarters of Fiscal 2004,  partially offset by cost control initiatives
and lower R&D  spending,  in addition to improved  margins on a stronger  mix of
products sold,  including margin  improvements on the Company's voice processing
products.   During  the  first  nine   months  of  Fiscal   2004,   the  Network
Communications  segment  incurred  asset  impairment and other costs of $4.6 and
approximately $1.4 of severance costs related to its direct R&D initiatives,  as
it implemented cost control  initiatives,  as compared to approximately  $3.2 in
severance  over the  same  period  in  Fiscal  2003,  when  the  Company  ceased
development in the VDSL market.

Consumer Communications

                                       Three Months Ended   Nine Months Ended
                                       ------------------   ------------------
     Consumer Communications           Dec. 26,   Dec. 27,  Dec. 26,  Dec. 27,
     (millions of U.S. dollars)          2003       2002      2003      2002
                                        ------    ------    -------   -------
     Revenue:                           $ 14.9    $ 12.0    $  42.1   $  35.0
                                        ------    ------    -------   -------
     As a % of total revenue                32%       26%        29%       25%
     Operating loss                     $ (5.4)   $ (4.6)   $ (15.0)  $ (15.7)
                                        ======    ======    =======   =======

Zarlink's  Consumer  Communications  products  allow  users  to  connect  to the
network.  These products include wireless (for example,  cellular  chipsets) and
infotainment applications (for example,  terrestrial and satellite set-top boxes
and digital TV).

Revenue for the third  quarter of Fiscal  2004  totaled  $14.9,  up 24% from the
third  quarter of Fiscal  2003.  During the first  nine  months of Fiscal  2004,
revenue increased 20% over the same period in Fiscal 2003 to $42.1,  principally
as a result of increased shipments of the Company's tuners and demodulators.


                                       19
<PAGE>

The segment's  operating  loss during the third quarter of Fiscal 2004 increased
to $5.4,  up 17% from the same period of Fiscal 2003.  This was due primarily to
severance costs of $1.0 incurred during the quarter, partially offset by revenue
improvements.

The  segment's  operating  loss  decreased  to $15.0 in the first nine months of
Fiscal 2004 from an  operating  loss of $15.7 in the same period of Fiscal 2003,
due principally to improved revenues. The increase was partially offset by asset
impairments  of $0.1 and  other  cost  control  initiatives,  including  $1.9 in
severance  costs  during  the  period,  as well as lower  margins  on tuners and
demodulators  resulting  from  increasing  price  pressure  on  certain  of  the
Company's tuners.

Ultra Low-Power Communications

                                        Three Months Ended    Nine Months Ended
                                        ------------------    -----------------
     Ultra Low-Power Communications     Dec. 26,   Dec. 27,   Dec. 26, Dec. 27,
     (millions of U.S. dollars)           2003       2002       2003      2002
                                         -----      ------    ------    ------
     Revenue:                            $ 7.5      $  7.0    $ 26.3    $ 20.4
                                         -----      ------    ------    ------
     As a % of total revenue                16%         15%       18%       14%
     Operating income (loss)             $ 0.1      $ (1.2)   $ (0.9)   $ (2.6)
                                         =====      ======    ======    ======

Zarlink's  Ultra  Low-Power  Communications  business  provides  ASIC  and  ASSP
solutions for applications such as cardiac  pacemakers,  hearing aids,  portable
instruments and personal area communications devices.

Revenue for the third  quarter of Fiscal 2004 totaled $7.5, up 7% from the third
quarter of Fiscal 2003, due mainly to increases in the sales volume of pacemaker
circuits  and  wireless  products,  partially  offset by a decrease in the sales
volume of hearing aid  components.  During the first nine months of Fiscal 2004,
revenue  increased 29% over the same period in Fiscal 2003 to $26.3,  due mainly
to increases in the sale of hearing aid components.  Revenue  improvements  were
also  realized on the  Company's  pacemaker  circuits  and other  wireless  ASIC
products.

The segment had operating income of $0.1 in the third quarter of Fiscal 2004, as
compared to an  operating  loss of $1.2 in the same period of Fiscal  2003,  due
principally to a more favorable product mix and increased  margins,  in addition
to savings resulting from cost control initiatives. The segment's operating loss
improved to $0.9 in the first nine months of Fiscal 2004 from an operating  loss
of $2.6 in the same period of Fiscal 2003, as a result of increased revenues and
favorable  product mix and  increased  margins on the  company's  wireless  ASIC
products, in addition to savings resulting from cost control initiatives.  These
favorable  impacts were partially  offset by $0.2 in severance  costs, and asset
impairments  and other costs of $0.4 recorded  earlier in the second  quarter of
Fiscal 2004.

GEOGRAPHIC REVENUE

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

<TABLE>
<CAPTION>

                                     Three Months Ended                         Nine Months Ended
                             ------------------------------------     --------------------------------------
                             Dec. 26,     % of    Dec. 27,   % of     Dec. 26,     % of    Dec. 27,     % of
(millions of U.S. dollars)     2003      Total     2002     Total       2003      Total      2002      Total
--------------------------     ----      -----     ----     -----       ----      -----      ----      -----
<S>                           <C>         <C>      <C>        <C>      <C>          <C>     <C>          <C>
Revenue:
Asia / Pacific                $20.4       44%      $17.6      37%      $ 60.6       41%     $ 52.3       37%
Europe                         13.8       29%       15.4      33%        44.3       30%       46.4       33%
United States                  10.0       21%        9.7      21%        32.9       23%       29.4       21%
Canada                          2.5        5%        2.4       5%         6.4        4%        8.9        6%
Other Regions                   0.3        1%        1.7       4%         3.1        2%        4.0        3%
                              -----      ---       -----     ---       ------      ---      ------      ---
Total                         $47.0      100%      $46.8     100%      $147.3      100%     $141.0      100%
                              =====      ===       =====     ===       ======      ===      ======      ===
</TABLE>

Asia/Pacific

Asia/Pacific  sales  increased  by 16% during the third  quarter of Fiscal  2004
compared to the third  quarter of Fiscal 2003,  and  continue to  represent  the
largest geographic segment of customer revenues. During the first nine months of
Fiscal 2004,  sales increased by 16% compared to the same period in Fiscal 2003.
Increases were driven primarily from the Consumer Communications segment.


                                       20
<PAGE>

Europe

European sales  decreased by 10% in the third quarter of Fiscal 2004 compared to
the third  quarter of Fiscal  2003.  For the first nine  months of Fiscal  2004,
sales  decreased  by 5%  compared to the first nine months of Fiscal 2003 due to
declines  in  the  revenues  from  the  Consumer   Communications   and  Network
Communications  segments,  partially  offset by  improved  revenues in the Ultra
Low-Power Communications segment.

United States

Sales to customers in the United States increased by 3% during the third quarter
of Fiscal 2004 compared to the third quarter of Fiscal 2003.  For the first nine
months of Fiscal  2004,  sales  increased  by 12% compared to the same period in
Fiscal 2003.  The increase was due  primarily to improved  Ultra  Low-Power  and
Consumer Communications product sales.

Canada

Canadian  sales in the third  quarter of Fiscal  2004 were in line with the same
period in Fiscal  2003.  During the first nine months of Fiscal  2004,  sales to
Canadian  customers  decreased by 28% compared to the same period in Fiscal 2003
due to lower Network Communications segment sales.

GROSS MARGIN

                                   Three Months Ended        Nine Months Ended
                                   -------------------      --------------------
(millions of U.S. dollars)         Dec. 26,   Dec. 27,      Dec. 26,   Dec. 27,
                                     2003       2002         2003        2002
                                   --------   --------      --------   --------
Gross Margin                       $ 21.0      $ 21.2       $ 66.0      $ 64.0
As a percentage of revenue             45%         45%          45%         45%

Gross  margin in the third  quarter of Fiscal 2004 was  unchanged  from the same
period  in  Fiscal  2003.  The  Company   increased  sales  of  its  tuners  and
demodulators,  and had a more favorable  product mix in their voice  processing,
other network, and consumer wireless product lines. These favorable impacts were
offset by lower  than  expected  sales  volumes  in the  Network  Communications
segment, and increasing price pressure on the Company's tuners and demodulators.
In addition, gross margin included approximately $0.4 of severance costs related
to the restructuring activities implemented during the quarter.

Gross margin of 45% in the first nine months of Fiscal 2004 was  unchanged  from
the same period in Fiscal 2003. During the first nine months of Fiscal 2004, the
Company  continued  its  effort  to lower  overall  manufacturing  costs,  as it
incurred  approximately  $1.0 of severance costs during the period.  The adverse
impact of the severance  costs was offset by increased  sales volumes and a more
favorable  product mix in the  Company's  Network  Communications  and  Consumer
Communications segments.

OPERATING EXPENSES

Research and Development ("R&D")

                                   Three Months Ended        Nine Months Ended
                                   -------------------      --------------------
(millions of U.S. dollars)         Dec. 26,   Dec. 27,      Dec. 26,   Dec. 27,
                                     2003       2002         2003        2002
                                   --------   --------      --------   --------
R&D Expenses                        $ 19.5     $ 23.5        $ 57.9     $ 66.8
As a percentage of revenue              41%        50%           39%        47%

R&D expenses decreased by 17%, or $4.0, in the third quarter of Fiscal 2004 from
the same period in Fiscal 2003. During the first nine months of Fiscal 2004, R&D
expenses  decreased by 13%, or $8.9  compared to the same period in Fiscal 2003,
primarily  due to the timing of certain  material  spending  and cost  reduction
initiatives  implemented in the second and third quarters of Fiscal 2004. During
the three and nine month periods  ended  December 26, 2003,  severance  costs of
$1.4 and $2.4 respectively  were incurred.  The Company continues to refocus its
R&D resources on programs and products that demonstrate  superior  potential for
near-  and  medium-term  revenue.  Management  expects  that R&D  spending  will
decrease  in the  remaining  quarter  of Fiscal  2004 as a result of  optimizing
electronic design automation and cost control.


                                       21
<PAGE>

The Company  continued its investment in research and development to develop and
launch new products, with 30 new products being released in the third quarter of
Fiscal 2004,  bringing the year-to-date  total to 52 new product  launches.  The
impact of new  products on revenue in the year of  introduction  is not normally
significant.  However,  management  believes that new product  introductions are
critical to supporting future revenue growth.

In the  Network  Communications  product  line,  R&D  activities  focused on the
following areas:

     o    Time  Division  Multiplex  ("TDM")  Switching -  Solutions  to set new
          industry standards for channel density, levels of integration, feature
          sets and power density for enterprise, edge and metro segments;

     o    Network  Timing and  Synchronization  - Digital and Analog  Phase Lock
          Loops  ("PLL")  solutions for T1/E1 to SONET/SDH  equipment  requiring
          accurate and standards driven timing and synchronization;

     o    Voice Processing  Solutions - Low, medium and high-density  voice echo
          cancellation solutions meeting G.168 standards for wireless, wired and
          enterprise segments;

     o    TDM to Internet Protocol ("IP") Processing Solutions - Meeting network
          convergence  with  TDM to IP  processing  solutions  for  applications
          requiring Circuit Switched Traffic over Packet Domains;

     o    Ethernet  Switching - Fast Ethernet ("FE") to Gigabit Ethernet ("GbE")
          switching for communication backplanes and linecards;

     o    Analog and Mixed Signal  Solutions - Timing,  Synthesizers,  Interface
          drivers,  Asymmetric Digital Subscriber Line ("ADSL") drivers and High
          Speed  Amplifiers  products  for  wired  and  wireless   applications;
          utilizing our analog/mixed-signal expertise; and

     o    Receivers and transmitters for single mode fiber ("SMF") targeting the
          access network as well as industrial  applications where customization
          is required.

In the Consumer  Communications  product  line,  R&D  activities  focused on the
following areas:

     o    Providing a 2G cellular phone radio transceiver  chip,  compliant with
          2G  standards  for Time  Division  Multiple  Access  ("TDMA")/Advanced
          Mobile Phone  Service/System  ("AMPS"),  and developing a 2-chip radio
          solution for 3rd  generation  Global  System for Mobile  communication
          ("GSM")/Wideband  Code Division  Multiple  Access  ("WCDMA")  cellular
          phones;

     o    Providing tuner, demodulator and peripheral chips for satellite, cable
          and terrestrial digital set-top boxes,  integrated digital televisions
          and adapter boxes; and

     o    Development of the most highly  integrated  system-on-a-chip  solution
          for integrated Digital  Terrestrial  Televisions,  Digital Terrestrial
          Set-top  boxes,  adapter boxes and media  centers,  compliant with the
          Digital Video Broadcasting - Terrestrial ("DVB-T") standard.

In the Ultra Low-Power  Communications  business segment, R&D activities focused
on  semiconductor  solutions  and  technologies  for a variety  of  in-vivo  and
audiological applications, including:

     o    High performance custom  Coder/Decoders  ("CODECs") and digital signal
          processing ("DSP") chips for major hearing aid companies;

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

     o    Surge   protection   chips   used  in   implantable   pacemakers   and
          defibrillators for cardiac rhythm management;

     o    High   performance,   ultra  low-power  audio   converters   (CODECs),
          technology  also  used  in  digital  hearing  aids,  for  high  growth
          communications and entertainment applications; and

     o    Ultra low-power  integrated circuits supporting  short-range  wireless
          communications  for  healthcare  and  other  applications,   including
          implantable and in-vivo systems.

Selling and Administrative ("S&A")

                                   Three Months Ended        Nine Months Ended
                                   -------------------      --------------------
(millions of U.S. dollars)         Dec. 26,   Dec. 27,      Dec. 26,   Dec. 27,
                                     2003       2002         2003        2002
                                   --------   --------      --------   --------

S&A Expenses                        $ 11.8     $ 11.8         $ 37.6    $ 35.6

As a percentage of revenue              25%        25%            26%       25%

In the third quarter of Fiscal 2004,  S&A expenses were unchanged from the third
quarter of Fiscal 2003,  while S&A expenses  increased by $2.0, or 6% during the
first nine months of Fiscal 2004.  S&A  expenses in the third  quarter of Fiscal
2004 included approximately $1.1 ($2.9 year to date) of severance charges, which
were  partially  offset  by  savings  realized


                                       22
<PAGE>

from cost  reduction  activities  implemented  earlier in the year.  The Company
anticipates a reduction in S&A expenses  during the remaining  quarter of Fiscal
2004 as a result of these cost reduction activities.

Stock Compensation

The Company  records  stock  compensation  expense  arising from  certain  stock
options  subjected to option exchange programs and from stock options awarded to
former employees.  In prior years, the Company also recorded stock  compensation
expense arising from retention  conditions  associated with the stock awarded to
certain  employees of Vertex Networks  Incorporated,  which was acquired in July
2000.

During the three and nine months ended December 26, 2003,  the Company  recorded
stock compensation expense of $0.1, representing  amortization of the fair value
of stock  options  awarded to a former  employee.  During the three months ended
December 27, 2002,  the Company  recorded a stock  compensation  expense of $nil
(nine  months  ended  December  27,  2002 -  recovery  of $1.4)  related  to the
amortization  of intrinsic  value of unexercised  stock options  modified by the
option  exchange  programs,  net of the vesting of restricted  stock. No further
stock compensation  expense will be recorded related to the formerly  restricted
shares.

OTHER INCOME (EXPENSE)

Other income (expense) was comprised of interest income,  foreign exchange gains
and losses, and gains on sales of investments.

Interest  income  was $0.4 for the  three  months  ended  December  26,  2003 as
compared to $0.7 in the same period of Fiscal 2003. During the first nine months
of Fiscal 2004,  interest  income was $1.0 as compared to $2.6 in the first nine
months of Fiscal 2003.  The  decreases  were mainly due to reduced  average cash
balances and lower interest rates in Fiscal 2004.

Foreign  exchange losses in the third quarter of Fiscal 2004 amounted to $1.2 as
compared  to $0.4 for the same  period in Fiscal  2003.  During the nine  months
ended December 26, 2003, foreign exchange losses amounted to $2.1 as compared to
a gain of $1.2 for the nine months ended  December 27, 2002. In Fiscal 2004, net
losses  were  recorded  on  monetary  assets  and  liabilities   denominated  in
currencies  other than the U.S.  dollar  functional  currency,  and according to
month-end  market rates.  In Fiscal 2003,  the net foreign  exchange  gains were
related to gains  realized on short-term  investments  held in currencies  other
than the functional  currency of the parent company,  and according to month-end
foreign exchange rates.

On December 5, 2003, the Company sold its investment in a privately held company
for cash proceeds of $0.6. The investment had a carrying value of $nil resulting
from an impairment  charge  recorded in the fourth quarter of Fiscal 2002.  This
resulted in a gain of $0.6 for the three and nine month periods  ended  December
26, 2003. In the third quarter of Fiscal 2003 the Company sold its investment in
DALSA  Semiconductor  Inc.  ("DALSA") for cash proceeds of $4.2,  resulting in a
gain of $0.7 during the three and nine month periods ended December 27, 2002.

INTEREST EXPENSE

Interest expense was $0.3 for the three months ended December 26, 2003, compared
with $0.3 for the third quarter of Fiscal 2003.  During the first nine months of
Fiscal 2004,  interest expense was $0.6,  compared with $0.7 for the same period
of Fiscal 2003. The interest expense relates  primarily to the Company's capital
leases.

INCOME TAXES

An income tax  recovery  of $1.4 was  recorded  for the third  quarter of Fiscal
2004,  as a result of a recovery  of domestic  income  taxes,  compared  with an
expense of $0.3 for the  corresponding  period in Fiscal  2003.  During the nine
months ended December 26, 2003,  income tax recovery was $1.4,  compared with an
expense of $1.2 for the first nine months of Fiscal 2003.

The Company is subject to income taxes in Canada, the United Kingdom, the United
States and  numerous  other  foreign  jurisdictions.  The Company has recorded a
valuation  allowance on its deferred tax assets,  and recorded only deferred tax
assets that can be applied  against income in taxable  jurisdictions  or applied
against  deferred tax liabilities  that will reverse in the future.  The Company
has a valuation  allowance  on its  deferred  tax assets at December 26, 2003 of
$133.0,  (March  28,  2003 - $106.0).  The  increase  relates  mainly to foreign
exchange,  losses incurred in the Company's foreign  jurisdictions and temporary
differences  in the  Company's  foreign  and  domestic  operations.  Significant
judgment is required  in  determining  the  provision  for income  taxes and the
valuation  allowance on deferred tax assets.  In  establishing


                                       23
<PAGE>

the appropriate  valuation  allowance for tax loss carry-forwards and investment
tax credits, it is necessary to consider all available  evidence,  both positive
and negative.

Management  periodically  reviews the Company's valuation allowance to determine
whether the overall tax estimates are reasonable.  When management  performs its
quarterly  assessments of the valuation allowance,  it may be determined that an
adjustment  is required to the  valuation  allowance,  which may have a material
impact on the Company's financial position and results of operations.

NET LOSS

The Company recorded a net loss,  after preferred share dividends,  of $11.8, or
$0.09 per share,  in the third  quarter of Fiscal 2004.  This  compares to a net
loss, after preferred share dividends, of $14.2, or $0.11 per share, in the same
period in Fiscal 2003.  For the nine months ended December 26, 2003, the Company
recorded a net loss,  after  preferred share  dividends,  of $37.9, or $0.30 per
share,  as  compared  to $35.9 or $0.28 per share in the  first  nine  months of
Fiscal 2003.

The net loss for the three and nine month periods ended December 26, 2003,  were
primarily  a result of low  revenues  caused by the  continued  downturn  in the
semiconductor  industry,  combined with severance and asset  impairment  charges
incurred upon  implementation of cost cutting  initiatives during the second and
third quarters.

LIQUIDITY AND CAPITAL RESOURCES

At December  26,  2003,  cash,  cash  equivalents,  short-term  investments  and
restricted cash balances totaled $87.8, down from $119.2 at March 28, 2003. Cash
and cash equivalents at December 26, 2003, included in the amount above, totaled
$18.6 (March 28, 2003 - $23.5).

Cash used in operating  activities  was $24.8 for the nine months ended December
26, 2003. Cash used in operations  before working  capital  changes  amounted to
$17.2 during the first nine months of Fiscal 2004,  as compared to $27.2 used in
the first nine months of Fiscal 2003. Cash used in operations  included  various
one-time  costs,  including  severance  payments  of $3.3,  associated  with the
restructuring activities implemented during the second and third quarters. Since
March 28, 2003, the Company's  working  capital  increased by $7.6,  mainly as a
result of increases in accounts  receivable of $8.4, and other prepaid  expenses
totaling $2.5. The increase in accounts receivable was a result of the timing of
sales late in the quarter,  resulting in the cash inflow not occurring until the
fourth quarter of Fiscal 2004. The increase in other prepaid expenses was due to
scheduled  payments for insurance and other annual payments.  These increases in
working  capital were  partially  offset by an increase in accounts  payable and
other accrued liabilities  totaling $2.7, and a reduction in inventories of $0.5
and  deferred  credits  of $0.1 over the  first  nine  months  of the year.  The
increase in accounts  payable and other  accrued  liabilities  resulted from the
timing of payments.  Management  expects to further draw down  inventory  levels
through  the  remainder  of Fiscal 2004 by  reducing  cycle  times and  managing
inventories on a  build-to-order  basis.  In comparison,  the Company's  working
capital  increased  by $6.6  during the first nine months of Fiscal  2003,  as a
result of reductions in inventories,  prepaid  expenses and deferred credits and
improved  cash  collections  against  trade  receivables,  partially  offset  by
decreases in accounts payable and accrued liabilities.

Cash  provided  from  investing  activities  was $26.5 for the nine months ended
December  26,  2003,  primarily  from matured  short-term  investments  totaling
$174.5,  offset by purchases of short-term  investments of $144.7.  In addition,
proceeds  of $0.6 were  received  upon  sale of the  Company's  investment  in a
privately  held  company.  Cash  balances were reduced by purchases of fixed and
other assets amounting to $4.7 during the first nine months of the year,  offset
by proceeds  from  disposal of fixed assets of $0.8.  The fixed asset  additions
were primarily related to continuing improvements to existing test equipment and
the Company's  information  technology  resources.  Management expects quarterly
capital spending to remain flat through the rest of Fiscal 2004 in comparison to
the first nine months of Fiscal 2004. Cash used in investing  activities for the
first  nine  months  of Fiscal  2003 was  $25.9.  Net  purchases  of  short-term
investments  in the  amount  of $24.4 and net  expenditures  for fixed and other
assets of $5.3 contributed to the net cash outflow, offset by a net reduction in
long-term  investments of $3.8. The fixed asset additions were primarily related
to design  tools and  upgrades  to  information  technology  resources.  The net
reduction in long-term  investments resulted from cash proceeds of $4.2 received
upon the sale of the Company's minority  investment in DALSA Semiconductor Inc.,
offset by a small investment earlier in the year.

Cash used in  financing  activities  during the first nine months of Fiscal 2004
was  $6.6.  The use of cash was  primarily  the  result  of an  increase  of the
hypothecation  of cash under letters of credit of $3.3, the repayment of $0.5 of
capital  leases,  the repurchase of $1.2 of the Company's  redeemable  preferred
shares, and the payment of $1.6 for dividends on the preferred shares. Cash used
in financing  activities  in the first nine months of Fiscal 2003 was $4.1.  The
use of cash was  primarily  the result of the repayment of $1.8 of capital lease
liabilities, the repurchase of $1.3 of preferred shares, and the payment of $1.5
for  dividends  on the  preferred  shares,  offset by $0.5 of new common  shares
issued from exercised stock options.


                                       24
<PAGE>

During  Fiscal  2002,  the  Company  took steps to wind up its  defined  benefit
pension plan in the United  Kingdom and replaced it with a defined  contribution
plan. The Company expects to make a final payment of  approximately  $2.6 in the
fourth quarter of Fiscal 2004 after the final adjustments are calculated.

During the first nine  months of Fiscal  2004,  the  Company  declared  and paid
dividends of $1.6 on its redeemable preferred shares based on a cumulative $1.14
(Cdn$1.50)  per share  dividend.  In  addition,  the  Company  purchased  64,300
preferred  shares  under its  purchase  obligation  during  this  period.  As at
December 26, 2003, the Company has repurchased  12,900 preferred shares that had
not yet been  cancelled  by the  transfer  agent.  In  addition  to  cash,  cash
equivalents,  short-term  investment and restricted cash balances of $87.8 as at
December  26,  2003,  the Company had a credit  facility of  approximately  $9.5
(Cdn$12.5),  of which $9.2 in letters of credit were  outstanding.  Accordingly,
the Company had an unused facility totaling $0.3 available for letters of credit
as at December 26, 2003.

During the third  quarter of Fiscal 2004,  the Company  cancelled  the operating
line  component of its  revolving  global credit  facility,  as it was not being
utilized or required by the Company.  This resulted in reducing the total credit
facility from $19.0 (Cdn $25.0) to a facility of $9.5 (Cdn $12.5)  available for
letters of credit.

Prior to the third  quarter of Fiscal 2004,  the Company had not met a quarterly
financial  covenant  with respect to  shareholder's  equity under the  Company's
credit  facility,  as a result of restructuring  and impairment  losses recorded
since the fourth  quarter of Fiscal 2003.  In previous  quarters the Company had
obtained  a waiver  from the  bank in  respect  of the  financial  covenant.  In
addition to the  reduction in the amount of the credit  facility,  the financial
covenant with respect to  shareholder's  equity was also modified  under the new
agreement, such that no waiver was required as at December 26, 2003.

Cash and cash  equivalents  totaling  $9.5 were  hypothecated  under the  credit
facility to cover outstanding  letters of credit. The credit facility is subject
to periodic review,  including the determination of certain financial covenants.
It is uncertain if the Company will be able to meet these financial covenants in
the future and,  if not,  to obtain a waiver from the bank,  which may result in
the availability of the credit facility being reduced or restricted.  Management
does not  anticipate  that this  would  have a  material  adverse  effect on the
financial  position  of the  Company.  Management  believes  the Company is in a
position to meet all foreseeable  business cash  requirements  and capital lease
and preferred share payments from its cash balances on hand,  existing financing
facilities and cash flow from operations.

BACKLOG

                                                       As at
                                  ---------------------------------------------
                                  Dec. 26,    Sept. 26,    June 27,    Mar. 28,
  (millions of U.S. dollars)        2003        2003         2003       2003
                                  --------    ---------    --------    --------
  90 Day Backlog                  $ 32.4       $ 27.5       $ 31.5     $ 36.9

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 "turns"),  order backlog is not necessarily indicative of a sales outlook for
the quarter or year.

Backlog  increased from the prior quarter due to increased  bookings  across the
Consumer and Network Communications  segments.  Bookings continue to be affected
by  the  continued  downturn  in  the  communications   semiconductor  industry,
described elsewhere in this Management's Discussion and Analysis.

The  comparative  backlog  amounts have been  adjusted to reflect the  Company's
revised  methodology  of applying  distributor  stock  rotations and  allowances
against  distributor  orders at the time of  booking.  The  revised  methodology
better  matches  order  backlog  with  the net  sales  recorded  at the  time of
shipment.

OTHER

Critical Accounting Policies and Significant Estimates

The Company's  consolidated  financial statements are based on the selection and
application of significant accounting policies, which require management to make
significant  estimates and assumptions.  As a result of writing off the carrying
value of the Company's  remaining  investment in Mitel  Networks  Corporation in
Fiscal 2003,  management believes the policy on investments in private companies
is no longer a critical accounting policy of the Company.  Other than the policy
on  investments  in  private  companies,  there is no  change  in the  Company's
critical  accounting  policies included in Item 7,  Management's  Discussion and
Analysis of Financial  Condition  and Results of  Operations,  of the  Company's
Annual Report on Form 10-K for the year ended March 28, 2003.


                                       25
<PAGE>

Foreign Currency Translation

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  functional   currency  of  Zarlink  and  its
subsidiaries is the U.S. dollar.  Monetary assets and liabilities denominated in
currencies  other than the U.S. dollar are remeasured at the closing  period-end
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.  Gains  (losses)  relating  to  external  foreign
exchange  contracts are  recognized  in income as they mature,  or to the extent
they are ineffective hedges.

Recently Issued Accounting Standards

On April 30, 2003, the FASB issued  Statement of Financial  Accounting  Standard
No. 149 ("SFAS 149"),  "Amendment of Statement 133 on Derivative Instruments and
Hedging  Activities".  The  amendments  set forth in SFAS 149 improve  financial
reporting  by  requiring  that  contracts  with  comparable  characteristics  be
accounted for similarly.  In particular,  this  statement  clarifies  under what
circumstances a contract with an initial net investment meets the characteristic
of a  derivative  as discussed  in SFAS 133. In  addition,  it clarifies  when a
derivative contains a financing component that warrants special reporting in the
statement of cash flows. SFAS 149 amends certain other existing  pronouncements.
Those  changes will result in more  consistent  reporting of contracts  that are
derivatives in their entirety or that contain embedded  derivatives that warrant
separate  accounting.  This Statement is effective for contracts entered into or
modified  after  June  30,  2003,  except  as  stated  below,  and  for  hedging
relationships  designated  after June 30,  2003.  The  guidance  will be applied
prospectively.  The  provisions of this  Statement  that relate to Statement 133
Implementation  Issues that have been  effective for fiscal  quarters that began
prior to June 15, 2003,  will  continue to be applied in  accordance  with their
respective effective dates. In addition,  certain provisions relating to forward
purchases or sales of when-issued securities or other securities that do not yet
exist,  should be applied to existing contracts as well as new contracts entered
into  after  June 30,  2003.  The  adoption  of SFAS 149 did not have a material
impact on the Company's financial statements.

On May 15, 2003, the FASB issued Statement of Financial  Accounting Standard No.
150  ("SFAS  150"),   "Accounting  for  Certain   Financial   Instruments   with
Characteristics  of both  Liabilities and Equity".  The Statement  clarifies the
accounting for certain  financial  instruments  that,  under previous  guidance,
issuers could account for as equity. SFAS 150 requires that those instruments be
classified  as  liabilities  in the  statements of financial  position,  whereas
previously  such  instruments may have been classified as equity or as temporary
equity. In addition to its requirements for the  classification  and measurement
of financial  instruments in its scope, SFAS 150 also requires disclosures about
alternative  ways of  settling  the  instruments  and the capital  structure  of
entities, all of whose shares are mandatorily  redeemable.  Most of the guidance
in SFAS 150 is effective for all financial  instruments entered into or modified
after May 31, 2003,  and  otherwise  is effective at the  beginning of the first
interim period  beginning  after June 15, 2003. The adoption of SFAS 150 did not
have a material impact on the Company's financial statements.

In  January  2003,   the  FASB  issued   Interpretation   No.  46,  ("FIN  46"),
"Consolidation  of Variable  Interest  Entities".  FIN 46 expands upon  existing
guidance  that  addresses  when  a  company  should  include  in  its  financial
statements  the  assets,  liabilities,  and  activities  of another  company.  A
variable  interest entity is any legal structure used for business purposes that
either (a) does not have  equity  investors  or has equity  investors  that lack
characteristics  of  control;  or (b) the  equity  investment  at risk  does not
provide sufficient financial resources for the entity to support its activities.
Under FIN 46, a variable  interest  entity must be  consolidated by a company if
that company is expected to absorb a majority of the entity's expected losses or
to  receive  a  majority  of  the  entity's  expected   residual  returns.   The
consolidation  requirements  are  currently  applicable  to  variable  interests
created after January 31, 2003. For variable  interest  entities  created before
January 31, 2003, the  consolidation  requirements  are applicable for reporting
periods  ending after March 15, 2004. FIN 46 also requires  certain  disclosures
about  variable  interest  entities  where those entities are not required to be
consolidated.  The  Company  has not  yet  evaluated  the  impact  of  this  new
pronouncement on its financial position or results of operations.

In  December  2003 the FASB  published  a revision  to  Statement  of  Financial
Accounting Standard No. 132 ("SFAS 132"),  "Employers Disclosures about Pensions
and Other Postretirement Benefits". The revision requires additional disclosure,
including information describing the types of plan assets,  investment strategy,
measurement  date(s),  plan  obligations,  cash  flows,  and  components  of net
periodic benefit cost recognized during interim periods. Most of the guidance in
the revision to SFAS 132 relating to domestic  plans is effective  for year ends
after December 15, 2003, and the guidance relating to


                                       26
<PAGE>

foreign plans is effective for year ends after June 15, 2004.  The  requirements
pertaining  to interim  periods  are  effective  for  quarters  beginning  after
December 15,  2003.  The adoption of the revision to SFAS 132 is not expected to
have a  material  impact on the  Company's  financial  position  or  results  of
operations.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk.  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 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.

Foreign Exchange Risk. The Company  currently uses forward  contracts,  and to a
lesser  extent  foreign  currency  options,  to reduce the  exposure  to foreign
exchange risk. The most significant  foreign exchange  exposures for the Company
relate to the Canadian dollar,  the U.K. pound sterling,  and the Swedish Krona.
At  December  26,  2003,  there  were  unrealized  gains of $0.7 on the  forward
contracts  relating to Fiscal 2004.  The  unrealized  gain is  calculated as the
difference  between the actual contract rates and the applicable  current market
rates that would be used to  terminate  the forward  contracts  on December  26,
2003, if it became necessary to unwind these contracts. Management believes that
the  established  hedges are effective  against its known and  anticipated  cash
flows, and that potential future losses from these hedges being marked to market
would be largely offset by gains on the underlying hedged transactions.

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

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

As at December 26, 2003,  there were no material  changes in  information  about
market risks as disclosed in the  Company's  Annual  Report on Form 10-K for the
fiscal year ended March 28, 2003.

ITEM 4.    CONTROLS AND PROCEDURES

The Company's  management  carried out an evaluation,  with the participation of
its Chief Executive Officer and Chief Financial Officer, of the effectiveness of
the Company's  disclosure controls and procedures as of December 26, 2003. Based
upon that evaluation,  the Company's Chief Executive Officer and Chief Financial
Officer  concluded that the Company's  disclosure  controls and procedures  were
effective to ensure that information  required to be disclosed by the Company in
reports that it files or submits  under the  Securities  Exchange Act of 1934 is
recorded, processed,  summarized and reported, within the time periods specified
in the rules and forms of the Securities and Exchange Commission.

There has not been any change in the Company's  internal controls over financial
reporting in connection with the evaluation required by Rule 13a-15(d) under the
Exchange Act that occurred  during the quarter ended  December 26, 2003 that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.


                                       27
<PAGE>

PART II - OTHER INFORMATION

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

a) Exhibits

31.1    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To
        Section 302(a) of The  Sarbanes-Oxley  Act of 2002,  President and Chief
        Executive Officer

31.2    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To
        Section 302(a) of The  Sarbanes-Oxley Act of 2002, Senior Vice President
        of Finance and Chief Financial Officer

32.1    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
        President and Chief Executive Officer

32.2    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
        Senior Vice President of Finance and Chief Financial Officer

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

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

b) Reports on Form 8-K

 Date of Filing     Description
---------------     --------------------------------------------------------



October 16, 2003    Press Release: "Financial Results for the Quarter Ended
                    September 26, 2003"

January 21, 2004    Press Release: "Financial Results for the Quarter Ended
                    December 26, 2003"

SIGNATURES

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

Zarlink Semiconductor Inc.
(Registrant)

Name                    Title                                       Date
---------------------   -----------------------------------     ----------------

/s/ SCOTT MILLIGAN
---------------------   Senior Vice President of Finance        February 5, 2004
Scott Milligan          and Chief Financial Officer
                        (Principal Financial and Accounting
                        Officer)


                                       28
<PAGE>

                                  EXHIBIT INDEX

  Exhibit
  Number                        Description                                 Page
----------  ---------------------------------------------------------       ----

    31.1    Certification Pursuant to 18 U.S.C. Section 1350, As              30
            Adopted Pursuant To Section 302(a) of The Sarbanes-Oxley
            Act of 2002, President and Chief Executive Officer

    31.2    Certification Pursuant to 18 U.S.C. Section 1350, As              31
            Adopted Pursuant To Section 302(a) of The Sarbanes-Oxley
            Act of 2002, Senior Vice President of Finance and Chief
            Financial Officer

    32.1    Certification Pursuant to Section 906 of the                      32
            Sarbanes-Oxley Act of 2002, President and Chief Executive
            Officer

    32.2    Certification Pursuant to Section 906 of the                      33
            Sarbanes-Oxley Act of 2002, Senior Vice President of
            Finance and Chief Financial Officer

    99.1    Selected Consolidated Financial Statements in U.S. Dollars        34
            and in accordance with Canadian Generally Accepted
            Accounting Principles

    99.2    Management's Discussion and Analysis of Financial                 46
            Condition and Results of Operations - Canadian Supplement


                                  29