Exhibit 99.1

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

                                                        September 26,  March 28,
                                                             2003        2003
                                                        -------------  ---------
ASSETS                                                   (Unaudited)

Current assets:
  Cash and cash equivalents                                 $ 56.4       $ 23.5
  Short-term investments                                      35.2         89.5
  Restricted cash                                              5.6          6.2
  Trade accounts receivable - net                             27.0         20.3
  Other receivables                                            2.7          4.2
  Current portion of long-term receivables                     9.4           --
  Inventories                                                 21.8         24.0
  Future income tax assets                                     1.4          1.0
  Prepaid expenses and other                                  10.1          7.4
                                                            ------       ------
                                                             169.6        176.1
Fixed assets - net                                            48.2         58.4
Long-term receivables                                         24.2         31.8
Other assets                                                   4.6          4.5
                                                            ------       ------

                                                            $246.6       $270.8
                                                            ======       ======

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Trade accounts payable                                    $ 15.3       $ 10.1
  Employee-related payables                                   10.2         15.5
  Income and other taxes payable                              15.0         13.0
  Provisions for exit activities                               4.5          4.2
  Other accrued liabilities                                   10.7         12.6
  Deferred credits                                             0.8          1.1
  Current portion of long-term debt                            0.3          0.6
                                                            ------       ------
                                                              56.8         57.1
Long-term debt                                                 0.1          0.2
Pension liabilities                                           15.9         14.3
Future income tax liabilities                                  8.3          7.4
                                                            ------       ------
                                                              81.1         79.0
                                                            ------       ------
Commitments (Note 11)

Shareholders' equity:
  Redeemable preferred shares, unlimited
    shares authorized; 1,419,800 shares issued                20.5         20.9
    and outstanding (March 28, 2003 - 1,451,600)
  Common shares, unlimited shares authorized; no
    par value; 127,275,933 shares issued                     407.8        407.8
    and outstanding (March 28, 2003 - 127,265,316)
  Contributed surplus                                          5.6          5.8
  Deficit                                                   (282.0)      (256.3)
  Translation account                                         13.6         13.6
                                                            ------       ------
                                                             165.5        191.8
                                                            ------       ------
                                                            $246.6       $270.8
                                                            ======       ======

        (See accompanying notes to the consolidated financial statements)


                                       31
<PAGE>

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

<TABLE>
<CAPTION>
                                                                            Three Months Ended                 Six Months Ended
                                                                        ---------------------------       --------------------------
                                                                        Sept. 26,         Sept. 27,       Sept. 26,        Sept. 27,
                                                                          2003              2002            2003             2002
                                                                        ---------         ---------       ---------        ---------
<S>                                                                      <C>              <C>              <C>              <C>
Revenue                                                                  $  46.6          $  46.2          $ 100.3          $  94.2
Cost of revenue                                                             27.4             25.9             55.7             51.8
                                                                         -------          -------          -------          -------
Gross margin                                                                19.2             20.3             44.6             42.4
                                                                         -------          -------          -------          -------
Expenses:
  Research and development                                                  19.2             22.5             38.4             42.9
  Selling and administrative                                                14.4             12.2             26.2             25.4
  Asset impairment and other                                                 5.3               --              5.3               --
                                                                         -------          -------          -------          -------
                                                                            38.9             34.7             69.9             68.3
                                                                         -------          -------          -------          -------
Loss from operations                                                       (19.7)           (14.4)           (25.3)           (25.9)
Other income - net                                                           0.7              2.6              0.5              3.0
Interest expense                                                            (0.3)            (0.3)            (0.3)            (0.4)
                                                                         -------          -------          -------          -------
Loss before income taxes                                                   (19.3)           (12.1)           (25.1)           (23.3)
Income tax (expense) recovery                                                0.5             (1.1)             0.4             (1.3)
                                                                         -------          -------          -------          -------
Net loss for the period                                                  $ (18.8)         $ (13.2)         $ (24.7)         $ (24.6)
                                                                         =======          =======          =======          =======
Net loss attributable to common shareholders
 after preferred share dividends                                         $ (19.3)         $ (13.7)         $ (25.7)         $ (25.6)
                                                                         =======          =======          =======          =======
Net loss per common share:
      Basic and diluted                                                  $ (0.15)         $ (0.11)         $ (0.20)         $ (0.20)
                                                                         =======          =======          =======          =======
Weighted average number of common shares
  outstanding (millions):
      Basic and diluted                                                    127.3            127.2            127.3            126.9
                                                                         =======          =======          =======          =======
</TABLE>

        (See accompanying notes to the consolidated financial statements)


                                       32
<PAGE>

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

<TABLE>
<CAPTION>
                                                                            Three Months Ended                 Six Months Ended
                                                                        ---------------------------       --------------------------
                                                                        Sept. 26,         Sept. 27,       Sept. 26,        Sept. 27,
                                                                          2003              2002            2003             2002
                                                                        ---------         ---------       ---------        ---------
<S>                                                                      <C>              <C>              <C>              <C>
CASH PROVIDED BY (USED IN)
Operating activities:
  Net loss for the period                                                $ (18.8)         $ (13.2)         $ (24.7)         $ (24.6)
  Depreciation of fixed assets                                               3.5              4.5              7.3              8.6
  Amortization of other assets                                               0.5              0.3              0.8              0.6
  Future income taxes                                                       (0.9)              --             (0.8)              --
  Other non cash changes in operating activities                             5.9             (1.8)             7.0             (1.5)
  Decrease (increase) in working capital
      Trade accounts and other receivables                                   1.8              0.4             (5.6)             2.5
      Inventories                                                            1.5              4.6              2.3              7.3
      Prepaid expenses and other                                              --              0.4             (3.5)             2.4
      Trade accounts payable and other accrued liabilities                  (1.4)            (9.8)            (0.1)           (14.5)
      Deferred credits                                                        --              0.4             (0.2)             0.3
                                                                         -------          -------          -------          -------
Total                                                                       (7.9)           (14.2)           (17.5)           (18.9)
                                                                         -------          -------          -------          -------
Investing activities:
      Purchased short-term investments                                     (22.7)           (63.6)           (85.0)          (149.6)
      Matured short-term investments                                        49.8            119.5            139.3            166.0
      Proceeds from disposal of fixed and other assets                       0.2              0.4              0.6              0.4
      Expenditures for fixed and other assets                               (2.0)            (1.6)            (3.2)            (4.3)
      Increase in long-term investments                                       --               --               --             (0.4)
                                                                         -------          -------          -------          -------
Total                                                                       25.3             54.7             51.7             12.1
                                                                         -------          -------          -------          -------
Financing activities:
      Repayment of capital lease liabilities                                (0.2)            (0.8)            (0.4)            (1.4)
      Payment of dividends on preferred shares                              (0.5)            (0.5)            (1.0)            (1.0)
      Issue of common shares                                                  --               --               --              0.5
      Repurchase of preferred shares                                        (0.1)            (0.2)            (0.5)            (0.4)
      Reduction in hypothecation of cash under letters of
       credit                                                                0.6               --              0.6               --
                                                                         -------          -------          -------          -------
Total                                                                       (0.2)            (1.5)            (1.3)            (2.3)
                                                                         -------          -------          -------          -------

Effect of currency translation on cash and cash equivalents                   --             (2.0)              --              1.4
                                                                         -------          -------          -------          -------

Increase (decrease) in cash and cash equivalents                            17.2             37.0             32.9             (7.7)

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

Cash and cash equivalents, end of period                                 $  56.4          $  67.9          $  56.4          $  67.9
                                                                         =======          =======          =======          =======
</TABLE>

        (See accompanying notes to the consolidated financial statements)


                                       33
<PAGE>

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

1.    Basis of Presentation

      These  unaudited  interim  consolidated  financial  statements  have  been
      prepared by Zarlink  Semiconductor  Inc.  ("Zarlink" or the  "Company") in
      United States (U.S.) dollars,  unless otherwise stated,  and in accordance
      with  accounting  principles  generally  accepted  in Canada  for  interim
      financial statements and with the instructions to Form 10-Q and Regulation
      S-X pertaining to interim financial statements. Accordingly, these interim
      consolidated  financial  statements  do not  include all  information  and
      footnotes required by generally accepted  accounting  principles  ("GAAP")
      for complete  financial  statements.  In the opinion of  management of the
      Company, the unaudited interim  consolidated  financial statements reflect
      all adjustments,  which consist only of normal and recurring  adjustments,
      necessary to present  fairly the financial  position at September 26, 2003
      and the results of operations  and cash flows of the Company for the three
      and six month  periods  ended  September  26, 2003 and September 27, 2002,
      respectively,  in accordance  with Canadian GAAP,  applied on a consistent
      basis.  The  consolidated  financial  statements  include the  accounts of
      Zarlink and its wholly owned subsidiaries.  Intercompany  transactions and
      balances have been eliminated. Separate U.S. GAAP financial statements are
      also prepared and presented to shareholders.

      These  financial  statements  should  be  read  in  conjunction  with  the
      financial   statements  and  notes  thereto   contained  in  the  Canadian
      Consolidated  Financial  Statements for the year ended March 28, 2003. The
      Company's fiscal year-end is the last Friday in March.

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

2.    Change in functional currency

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

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

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


                                       34
<PAGE>

       (in millions of U.S. dollars, except per share amounts, CDN, GAAP)

3.    Recently issued accounting pronouncements

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

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

4.    Stock-based compensation

      Pro forma  information  regarding  net income (loss) and net income (loss)
      per share is required by CICA Handbook  Section 3870 as if the Company had
      accounted  for its  stock-based  awards to employees  under the fair value
      method.  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                 Six Months Ended
                                                                       ---------------------------       --------------------------
                                                                       Sept. 26,         Sept. 27,       Sept. 26,        Sept. 27,
                                                                         2003              2002            2003             2002
                                                                       ---------         ---------       ---------        ---------
      <S>                                                               <C>              <C>              <C>              <C>
      Net loss, as reported                                             $ (18.8)         $ (13.2)         $ (24.7)         $ (24.6)
      Adjustments:
         Pro forma stock compensation expense                              (3.1)            (3.4)            (6.2)            (6.7)
                                                                       ---------------------------       --------------------------
      Pro forma net loss                                                $ (21.9)         $ (16.6)         $ (30.9)         $ (31.3)
                                                                       ---------------------------       --------------------------
      Net loss per common share, as reported
         Basic and diluted                                              $ (0.15)         $ (0.11)         $ (0.20)         $ (0.20)
                                                                       ---------------------------       --------------------------
      Pro forma net loss per common share:
         Basic and diluted                                              $ (0.18)         $ (0.13)         $ (0.25)         $ (0.25)
                                                                       ---------------------------       --------------------------
      </TABLE>

      Based  upon the fair value  method of  accounting  for stock  compensation
      expense,  the pro forma net loss for the quarter ended September 26, 2003,
      was increased by $3.1 as compared to the net loss,  as reported  ($3.4 for
      the quarter ended September 27, 2002).  The pro forma net loss for the six
      months ended  September  26, 2003 was increased by $6.2 as compared to the
      net loss, as reported ($6.7 for the six months ended September 27, 2002).


                                       35
<PAGE>

       (in millions of U.S. dollars, except per share amounts, CDN, GAAP)

      Pro forma financial  information required by CICA Handbook Section 3870has
      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 six month fiscal
      periods ended September 26, 2003 and September 27, 2002:

<TABLE>
<CAPTION>
                                                                           Three Months Ended                 Six Months Ended
                                                                       ---------------------------       --------------------------
                                                                       Sept. 26,         Sept. 27,       Sept. 26,        Sept. 27,
                                                                         2003              2002            2003             2002
                                                                       ---------         ---------       ---------        ---------
      <S>                                                               <C>              <C>              <C>              <C>
      Weighted  average fair value price of the options  granted         $  2.39           $  1.56          $  2.31         $  1.73
         during the quarter

      Risk free interest rate                                               3.01%             3.69%            3.10%           4.19%
      Dividend yield                                                         Nil               Nil              Nil             Nil
      Volatility factor of the expected market price of the
        Company's common stock                                              0.692            0.628            0.687           0.595
      Weighted-average expected life of the options                     3.4 years        3.0 years        3.4 years       3.3 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.

5.    Inventories

                                                      Sept. 26,       March 28,
                                                        2003            2003
                                                      ---------       ---------
      Raw materials                                     $ 2.3          $ 2.6
      Work-in-process                                    16.0           18.3
      Finished goods                                      3.5            3.1
                                                        -----          -----
                                                        $21.8          $24.0
                                                        =====          =====

6.    Fixed assets

                                                      Sept. 26,       March 28,
                                                        2003            2003
                                                      ---------       ---------
      Cost                                             $174.2          $174.5
      Accumulated amortization                          126.0           116.1
                                                       ------          -------
                                                       $ 48.2          $  58.4
                                                       ======          =======

      The Company recorded an impairment loss on fixed assets of $4.7 during the
      second quarter of Fiscal 2004 as a result of a review of the ongoing usage
      of the  Company's  testing  equipment  and  enterprise  resource  planning
      system.


                                       36
<PAGE>

7.    Long term receivables

                                                     Sept. 26,       March 28,
                                                       2003            2003
                                                     ---------       ---------
      Note receivable, non-interest bearing            $16.5           $15.9
      Investment tax credits recoverable                17.1            15.9
                                                       -----           -----
                                                        33.6            31.8
      Less: current portion                             (9.4)             --
                                                       -----           -----
                                                       $24.2           $31.8
                                                       =====           =====


      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.

8.    Other assets

                                                     Sept. 26,       March 28,
                                                       2003            2003
                                                     ---------       ---------
      Patents, trademarks, and other
        intangible assets:
        Cost                                           $10.5          $ 9.5
        Accumulated amortization                        (5.9)          (5.0)
                                                       -----          -----
        Patents, trademarks, and other
          intangible assets - net                      $ 4.6          $ 4.5
                                                       =====          =====

      The  amortization  of  patents,  trademarks  and other  intangible  assets
      amounted  to $0.5 and $0.8,  respectively,  for the  three and six  months
      ended  September 26, 2003 (three and six months ended September 27, 2002 -
      $0.3 and $0.6, respectively).

9.    Provisions for exit activities

                                                     Sept. 26,       March 28,
                                                       2003            2003
                                                     ---------       ---------
      Restructuring provisions                          $3.8           $2.9
      Provision for disposal of discontinued
        operations                                        --            0.1
      Provision for disposal of foundry
        businesses                                       0.7            1.2
                                                        ----           ----
                                                        $4.5           $4.2
                                                        ====           ====

      During the second quarter of Fiscal 2004, the Company  implemented further
      cost   reductions  in  efforts  to  outsource   programs  and   streamline
      operations.  The Company incurred  workforce  reduction costs of $3.4 as a
      result of  reducing  the  Company's  employee  base by  approximately  120
      employees,  globally  across all job categories  and business  units. . In
      particular,  severance  costs  of  $1.0  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 $1.8 were included in selling and  administration in the quarter.
      The  Company  also  recorded  severance  costs of $0.6 in cost of revenue,
      related  to  further  cost  reductions  as it  finalizes  its  outsourcing
      programs and streamline operations.


      As a  result  of the  workforce  reduction  program  and  streamlining  of
      operations,  the  Company  recorded  a charge of $0.6,  included  in asset
      impairment  and other,  related to excess  space under  lease  contract in
      Canada.


      Of the $4.0 of restructuring  provision  recorded in the second quarter of
      Fiscal  2004,  $2.6  related to the Network  Communication  segment,  $0.9
      related to the Consumer  Communications  segment,  and $0.5 related to the
      Ultra Low-Power 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.


                                       37
<PAGE>

       (in millions of U.S. dollars, except per share amounts, CDN GAAP)

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


                                                       Lease and
                                          Workforce     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
                                            =====        =====        =====

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  September  26,  2003,  was $33.2 (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 September 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
      September 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 September 26,
      2003, the taxation years 2000 to February 16, 2001 are subject to audit by
      taxation authorities.

      As at  September  26,  2003,  the  Company  has  guaranteed  a custom bond
      amounting to $2.7 to a third party on behalf of a subsidiary.

      No  amounts   have  been   recorded   by  the   Company   related  to  the
      above-mentioned items.


                                       38
<PAGE>

       (in millions of U.S. dollars, except per share amounts, CDN GAAP)

      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 six month
      periods ended September 26, 2003:

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

11.   Commitments

      The Company had letters of credit  outstanding as at September 26, 2003 of
      approximately  $5.6 (September 27, 2002 - $3.1). Cash and cash equivalents
      of $5.6 have been pledged as security against certain  outstanding letters
      of credit,  which expire within 12 months, and are presented as restricted
      cash.

      As a result of the  restructuring  and impairment  losses  recorded in the
      second  quarter  of Fiscal  2004,  the  Company  did not meet a  quarterly
      financial  covenant  with  respect  to  shareholder's   equity  under  the
      Company's credit facility.  A waiver was obtained from the bank in respect
      of the financial  covenant,  and subsequent to the quarter ended September
      26, 2003,  the Company has cancelled the operating  line  component of the
      revolving global credit  facility.  As a result of this change the Company
      will  operate with a credit  facility of  approximately  $9.2  (Cdn$12.5),
      available for letters of credit.  The  financial  covenant with respect to
      shareholder's equity has also been modified under the new agreement.

12.   Redeemable Preferred Shares

      There were 27,800  preferred  shares purchased during the six months ended
      September  26, 2003 for cash  consideration  of $0.5.  As at September 26,
      2003,  there were 5,900  repurchased  preferred  shares  that had not been
      cancelled by the end of the quarter.

      During the second  quarter of Fiscal 2004,  the Company paid  dividends on
      its redeemable  preferred shares of $0.5 and declared a quarterly dividend
      of $0.37(Cdn$0.50) per share,  resulting in a cumulative dividend of $0.74
      (Cdn$1.00) per share for the first six 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:

                                                       Six Months Ended
                                               ---------------------------------
                                               September 26,       September 27,
                                                   2003                 2002
                                               -------------       -------------
      Outstanding Options:
      Balance, beginning of period              10,828,557          10,914,962
      Granted                                      109,500             357,300
      Exercised                                    (10,617)           (109,193)
      Forfeited                                   (997,883)         (1,476,966)
                                                ----------          ----------
      Balance, end of period                     9,929,557           9,686,103
                                                ==========          ==========

            As at September  26, 2003,  there were  4,602,505  (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 $2.51 to $
            27.57 per share with exercise  periods  extending to June 2008.


                                       39

<PAGE>

       (in millions of U.S. dollars, except per share amounts, CDN GAAP)

            The exercise  price of stock options was based on prices in Canadian
            dollars translated at the U.S. dollar exchange rate on September 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.

      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         Six Months Ended
                                 Sept. 26,   Sept. 27,    Sept. 26,    Sept. 27,
                                   2003        2002          2003        2002
                                 -----------------------------------------------
       Stock options              537,993     41,054       573,690      208,942
                                 ===============================================

      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         Six Months Ended
                                 Sept. 26,   Sept. 27,    Sept. 26,    Sept. 27,
                                   2003        2002          2003        2002
                                 -----------------------------------------------
      Number of outstanding
        options                  7,451,043   9,420,728    7,401,043    8,219,274

      Average exercise price
        per share                $   10.56   $    9.03    $   10.59    $    9.65

      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.   Other income (expense) - net

                                  Three Months Ended         Six Months Ended
                                 ---------------------    ----------------------
                                 Sept. 26,   Sept. 27,    Sept. 26,    Sept. 27,
                                   2003        2002          2003        2002
                                 -----------------------------------------------
      Interest income              $0.6        $1.0          $ 1.4       $1.9
      Foreign exchange
        gain (loss)                 0.1         1.6           (0.9)       1.1
                                 -----------------------------------------------
      Other income (net)           $0.7        $2.6          $ 0.5       $3.0
                                 ===============================================

15.   Information on business segments

      Business Segments

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

      The  Company  targets  the  communications  industry  with  products  that
      specialize in broadband  connectivity  solutions over wired,  wireless and
      optical  media,  as  well  as  through  ultra   low-power   communications
      solutions.  The Network  Communications  business  segment offers products
      that provide  connectivity  to the  enterprise  and metro  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
      provides ASIC solutions for applications such as pacemakers,  hearing aids
      and portable instruments.

      The Chief Executive Officer ("CEO") is the chief operating  decision maker
      in  assessing  the  performance  of the  segments  and the  allocation  of
      resources to the segments.  The CEO evaluates the financial performance of
      each business segment and allocates  resources based on operating  income.
      The Company does not allocate stock compensation expense,  special charges
      or gains,  interest  income or  interest  expense  or income  taxes to its
      reportable segments.  In addition,  total assets are not allocated to each
      segment as they are  primarily  tracked  by legal  entity  only;  however,
      depreciation  of fixed assets is  allocated  to the segments  based on the
      estimated asset


                                       40

<PAGE>

       (in millions of U.S. dollars, except per share amounts, CDN GAAP)

      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 Sept. 26, 2003                Network             Consumer        Ultra Low-Power    Unallocated
                                              Communications      Communications     Communications        Costs         Total
                                            --------------------------------------------------------------------------------------
<S>                                              <C>                  <C>                <C>               <C>          <C>
Total external sales revenue                     $ 25.0               $13.8              $ 7.8             $ --         $ 46.6
Amortization of buildings and equipment             1.9                 1.2                0.4               --            3.5
Asset impairment and other                          3.0                 1.9                0.4               --            5.3
Segment's operating loss                          (11.7)               (6.0)              (2.0)              --          (19.7)
</TABLE>

<TABLE>
<CAPTION>
                                                 Network             Consumer        Ultra Low-Power    Unallocated
Three Months Ended Sept. 27, 2002             Communications      Communications     Communications        Costs         Total
                                            --------------------------------------------------------------------------------------
<S>                                              <C>                  <C>                <C>               <C>          <C>
Total external sales revenue                      $29.4               $10.4              $ 6.4             $ --         $ 46.2
Amortization of buildings and equipment             3.0                 1.3                0.2               --            4.5
Segment's operating loss                           (6.3)               (6.7)              (1.4)              --          (14.4)
</TABLE>

<TABLE>
<CAPTION>
Six Months Ended Sept. 26, 2003                  Network             Consumer        Ultra Low-Power    Unallocated
                                              Communications      Communications     Communications        Costs         Total
                                            --------------------------------------------------------------------------------------
<S>                                              <C>                 <C>                 <C>               <C>          <C>
Total external sales revenue                     $ 54.3              $ 27.2              $18.8             $ --         $100.3
Amortization of buildings and equipment             3.7                 2.5                1.1               --            7.3
Asset impairment and other                          3.0                 1.9                0.4               --            5.3
Segment's operating loss                          (14.3)              (10.0)              (1.0)              --          (25.3)
</TABLE>

<TABLE>
<CAPTION>
                                                 Network             Consumer        Ultra Low-Power    Unallocated
Six Months Ended Sept. 27, 2002               Communications      Communications     Communications        Costs         Total
                                            --------------------------------------------------------------------------------------
<S>                                              <C>                  <C>                <C>               <C>          <C>
Total external sales revenue                     $ 57.8              $ 23.0              $13.4             $ --         $ 94.2
Amortization of buildings and equipment             5.8                 2.6                0.2               --            8.6
Segment's operating loss                          (12.1)              (12.4)              (1.4)              --          (25.9)
</TABLE>

16.   Supplementary cash flow information

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

<TABLE>
<CAPTION>
                                                                              Three Months Ended              Six Months Ended
                                                                           -------------------------       ------------------------
                                                                           Sept. 26,       Sept. 27,       Sept. 26,      Sept. 27,
                                                                              2003            2002           2003            2002
                                                                           ---------       ---------       ---------      ---------
<S>                                                                           <C>            <C>             <C>            <C>
Cash provided by (used in)
  Loss on disposal of fixed assets                                            $0.1           $ --            $0.1           $ --
  Foreign exchange gain on short-term investments                               --           (1.8)             --           (1.5)
  Change in pension liabilities                                                0.5             --             1.6             --
  Impairment of fixed assets                                                   4.7             --             4.7             --
  Provision for excess space under lease contract                              0.6             --             0.6             --
                                                                              ---------------------------------------------------
Other non-cash changes in operating activities                                $5.9           $(1.8)          $7.0           $(1.5)
                                                                              ===================================================
</TABLE>

17.   Subsequent event

      On October 16, 2003, the Company announced  reduced spending  primarily in
      its  Network  Communications   segment.  The  Company  expects  to  record
      additional  charges of  approximately  $4.5 in the third quarter of Fiscal
      2004, related to reducing its global workforce by approximately 5%.

18.   Comparative figures

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


                                       41