Exhibit 99.1

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

                                                      December 26,     March 28,
                                                          2003           2003
                                                      ------------     ---------
ASSETS                                                 (Unaudited)    (Note 1)
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 - net                           29.4          20.3
  Other receivables                                          2.9           4.2
  Current portion of long-term receivables                   9.6            --
  Inventories                                               23.6          24.0
  Future income tax assets                                   1.2           1.0
  Prepaid expenses and other                                 9.4           7.4
                                                        --------      --------
                                                           163.9         176.1
Fixed assets - net                                          44.7          58.4
Long-term receivables                                       25.0          31.8
Other assets                                                 4.5           4.5
                                                        --------      --------
                                                        $  238.1      $  270.8
                                                        ========        ======
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

  Trade accounts payable                                $   18.0      $   10.1
  Employee-related payables                                 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
Future income tax liabilities                                8.2           7.4
                                                        --------      --------
                                                            84.9          79.0
                                                        --------      --------
Commitments (Note 11)
Shareholders' equity:
  Redeemable preferred shares, unlimited shares
    authorized; 1,377,400  shares issued and
    outstanding (March 28, 2003 - 1,451,600)                19.6          20.9
  Common shares, unlimited shares authorized;
    no par value; 127,275,933  shares issued and
    outstanding (March 28, 2003 - 127,265,316)             407.8         407.8
  Contributed surplus                                        5.9           5.8
  Deficit                                                 (293.7)       (256.3)
  Translation account                                       13.6          13.6
                                                        --------      --------
                                                           153.2         191.8
                                                        --------      --------
                                                        $  238.1      $  270.8
                                                        ========      ========

        (See accompanying notes to the consolidated financial statements)


                                       34
<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           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                                      26.2           25.8           81.9          77.6
                                                  -------       --------      ---------     ---------
Gross margin                                         20.8           21.0           65.4          63.4
                                                  -------       --------      ---------     ---------
Expenses:
  Research and development                           19.5           24.3           57.9          67.2
  Selling and administrative                         11.8           12.8           38.0          38.2
  Asset impairment and other                          1.7              -            7.0             -
  Stock compensation expense                          0.1              -            0.1             -
                                                  -------       --------      ---------     ---------
                                                     33.1           37.1          103.0         105.4
                                                  -------       --------      ---------     ---------
Loss from operations                                (12.3)        (16.1)         (37.6)        (42.0)
Other income - net                                    0.1            0.8            0.6           3.8
Interest expense                                     (0.3)         (0.3)          (0.6)         (0.7)
                                                  -------       --------      ---------     ---------
Loss before income taxes                            (12.5)        (15.6)         (37.6)        (38.9)
Income tax (expense) recovery                         1.4            0.6            1.8         (0.7)
                                                  -------       --------      ---------     ---------
Net loss for the period                             (11.1)        (15.0)         (35.8)        (39.6)


Deficit, beginning of period                       (282.0)       (214.7)        (256.3)       (189.1)
                                                  -------       --------      ---------     ---------
                                                   (293.1)       (229.7)        (292.1)       (228.7)
Dividends on preferred shares                        (0.6)         (0.5)          (1.6)         (1.5)
                                                  -------       -------       --------      --------

Deficit, end of period                            $(293.7)      $(230.2)      $ (293.7)     $ (230.2)
                                                  =======       =======       ========      ========
Net loss attributable to common shareholders
 after preferred share dividends                  $ (11.7)      $ (15.5)      $  (37.4)     $  (41.1)
                                                  =======       =======       ========      ========
Net loss per common share:
      Basic and diluted                           $ (0.09)      $ (0.12)      $  (0.29)     $  (0.32)
                                                  =======       =======       ========      ========
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)


                                       35
<PAGE>

                           Zarlink Semiconductor Inc.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     (in millions of U.S. dollars, CDN 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                                     $ (11.1)      $  (15.0)      $  (35.8)      $  (39.6)
  Depreciation of fixed assets                                    3.0            4.2           10.3           12.8
  Amortization of other assets                                    0.4            0.3            1.2            0.9
  Future income taxes                                            (0.4)           0.1           (1.2)           0.1
  Other non cash changes in operating activities                  2.3           (0.5)           9.3           (2.0)
  Stock compensation expense                                      0.1             --            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                                 (0.1)           1.8           (3.6)           4.2
      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)


                                       36
<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 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 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.

     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 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.


                                       37
<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.

     In October 2003, the CICA revised CICA Handbook Section 3870,  "Stock-Based
     Compensation and Other Stock-Based Payments" ("Section 3870"). Section 3870
     establishes standards for the recognition,  measurement,  and disclosure of
     stock-based  compensation and other  stock-based  payments made in exchange
     for  goods  and   services   and   applies   to   transactions,   including
     non-reciprocal  transactions,  in which an enterprise grants common shares,
     stock options, or other equity instruments,  or incurs liabilities based on
     the  price of common  shares  or other  equity  instruments.  Section  3870
     outlines a fair value  based  method of  accounting  required  for  certain
     stock-based  compensation,  and provides  alternative methods of transition
     for change to this method.  The  provisions of this amendment are effective
     for the  Company's  Fiscal year 2005 and apply to all employee  grants.  As
     permitted under the amendment, Zarlink Semiconductor will voluntarily adopt
     the  provisions of this  statement in the fourth quarter of Fiscal 2004 for
     all awards  granted or modified  since the  beginning of Fiscal  2004.  The
     impact  of  adoption  will  not have a  material  impact  on the  financial
     position  and results from  operations  for the first nine months of Fiscal
     2004.  However,  the impact of  adoption on future  periods  will depend on
     various  factors  including,  but not  limited  to, the volume and types of
     stock-based  transactions  entered into in future  periods,  the  Company's
     common  share  price,  and the  volatility  of  common  shares.  Due to the
     uncertainty  surrounding  these  factors,  the expense to be  recognized in
     future  periods  will vary as a result of the  adoption  of the fair  value
     based method.

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 is
     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.


                                       38
<PAGE>

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

<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                      $ (11.1)      $ (15.0)      $  (35.8)      $ (39.6)
     Adjustments:
        Stock compensation expense as reported      0.1            --            0.1            --
        Pro forma stock compensation expense       (3.4)         (3.3)          (9.6)        (10.0)
                                                -------       -------       --------       -------
     Pro forma net loss                         $ (14.4)      $ (18.3)      $  (45.3)      $ (49.6)
                                                -------       -------       --------       -------
     Net loss per common share, as reported
        Basic and diluted                       $ (0.09)      $ (0.12)      $  (0.29)      $ (0.32)
                                                -------       -------       --------       -------
     Pro forma net loss per common share:
        Basic and diluted                       $ (0.12)      $ (0.15)      $  (0.37)      $ (0.40)
                                                -------       -------       --------       -------
</TABLE>

     Based  upon the fair  value  method of  accounting  for stock  compensation
     expense,  the pro forma net loss for the quarter  ended  December 26, 2003,
     was  increased by $3.3 as compared to the net loss,  as reported  ($3.3 for
     the quarter ended  December 27, 2002).  The pro forma net loss for the nine
     months ended December 26, 2003 was increased by $9.5 as compared to the net
     loss, as reported ($10.0 for the nine months ended December 27, 2002).

     Pro forma financial  information required by CICA Handbook Section 3870 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.

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
                                                   ========          ========


                                       39
<PAGE>

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

6.   Fixed assets

                                                  Dec. 26,         March 28,
                                                    2003             2003
                                                 --------          --------
     Cost                                        $  175.0          $  174.5
     Accumulated depreciation                       130.3             116.1
                                                 --------          --------
                                                 $   44.7          $   58.4
                                                 ========          ========

     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.   Long term receivables

                                                  Dec. 26,         March 28,
                                                    2003             2003
                                                 --------          --------
     Note receivable, non-interest bearing       $   16.9          $   15.9
     Investment tax credits recoverable              17.7              15.9
                                                 --------          --------
                                                     34.6              31.8
     Less: current portion                           (9.6)               --
                                                 --------          --------
                                                 $   25.0          $   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

                                                  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
                                                 ========          ========

     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).

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.


                                       40
<PAGE>

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

     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:

<TABLE>
<CAPTION>

                                                  Workforce   Lease and contract
                                                  reduction      settlement         Total
                                                  ---------      ----------         -----

     <S>                                          <C>             <C>               <C>
     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
                                                  =======         ======            ======
</TABLE>

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.


                                       41
<PAGE>

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

     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.

     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.  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.


                                       42
<PAGE>

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

     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.

     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.  Other income (expense)-- net

<TABLE>
<CAPTION>

                                                     Three Months Ended                   Nine Months Ended
                                              -------------------------------      -------------------------------
                                              Dec. 26, 2003     Dec. 27, 2002      Dec. 26, 2003     Dec. 27, 2002
                                              -------------     -------------      -------------     -------------
     <S>                                         <C>               <C>                 <C>              <C>
     Interest income                             $  0.7            $  0.7              $ 2.1            $  2.6
     Foreign exchange gain (loss)                  (1.2)             (0.6)              (2.1)              0.5
     Gain on sale of long-term investments          0.6               0.7                0.6               0.7
                                                  -----            ------             ------            ------
     Other income (net)                           $ 0.1            $  0.8             $  0.6            $  3.8
                                                  =====            ======             ======            ======
</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.


                                       43
<PAGE>

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

15.  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 a
     recovery of $0.6 for the  corresponding  period in Fiscal 2003.  During the
     nine months ended December 26, income tax recovery was $1.8,  compared with
     an expense of $0.7 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 future tax assets, and recorded only
     future  tax  assets  that  can  be  applied   against   income  in  taxable
     jurisdictions  or applied against future 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.

16.  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 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,  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.


                                       44
<PAGE>

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

<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                 0.8                 0.4               --          3.0
Asset impairment and other                          1.6                 0.1                  --               --          1.7
Stock compensation expense                           --                  --                  --              0.1          0.1
Segment's operating income (loss)                  (6.7)               (5.6)                0.1             (0.1)       (12.3)

                                                 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             2.7                 1.3                 0.2               --          4.2
Segment's operating loss                           (9.7)               (5.2)               (1.2)              --        (16.1)

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                 3.3                 1.5               --         10.3
Asset impairment and other                          4.6                 2.0                 0.4               --          7.0
Stock compensation expense                           --                  --                  --              0.1          0.1
Segment's operating loss                          (21.0)              (16.0)               (0.5)            (0.1)       (37.6)

                                                 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             8.5                 3.9                 0.4               --         12.8
Segment's operating loss                          (21.8)              (17.6)               (2.6)              --        (42.0)
</TABLE>

17.  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)
  Gain on disposal of fixed assets                $   --      $ (0.1)        $ 0.1         $ (0.1)
  Foreign exchange loss (gain) on short-term
    investments                                       --         0.3            --           (1.2)
  Change in pension liabilities                      1.2          --           2.8             --
  Impairment of fixed assets                         1.7          --           6.4             --
  Provision for excess space under lease
    contract                                          --          --           0.6             --
  Gain on sale of long-term investments             (0.6)       (0.7)         (0.6)          (0.7)
                                                  ------      ------         -----         ------
Other non cash changes in operating activities    $  2.3      $ (0.5)        $ 9.3         $ (2.0)
                                                  ======      ======         =====         ======
</TABLE>

18.  Comparative figures

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


                                       45
<PAGE>

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

Exhibit 99.2

ZARLINK SEMICONDUCTOR INC.
MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS - CANADIAN SUPPLEMENT

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

The following  Management's  Discussion and Analysis of Financial  Condition and
Results of Operations - Canadian  Supplement  ("Canadian  Supplement") should be
read in  conjunction  with  Zarlink's  Management's  Discussion  and Analysis of
Financial  Condition  and  Results  of  Operations  included  in  Item 2 of this
Quarterly  Report.  The Canadian  Supplement  should also be read in conjunction
with the unaudited  consolidated financial statements and notes thereto prepared
in accordance with U.S. GAAP (included in Item 1 of this Quarterly Report),  the
unaudited  consolidated  financial  statements  and notes  thereto  prepared  in
accordance with Canadian generally  accepted  accounting  principles  ("Canadian
GAAP")  (included  in  Exhibit  99.1)  and the  audited  consolidated  financial
statements and notes thereto included in the Company's  Annual  Information Form
for the fiscal year ended March 28, 2003.

Certain  statements  in  this  Canadian  Supplement  constitute  forward-looking
statements.  Such  forward-looking  statements  involve known and unknown risks,
uncertainties  and other factors that may cause the actual results,  performance
or achievements of Zarlink, or industry results, to be materially different from
any future  results,  performance or  achievements  expressed or implied by such
forward-looking  statements.  Such risks, uncertainties and assumptions include,
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 Canadian  Supplement  has been prepared by management to provide an analysis
of the material  differences between Canadian GAAP and U.S. GAAP with respect to
Zarlink's financial condition and results of operations.

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>

                                              Three Months Ended                 Nine Months Ended
                                           -------------------------         --------------------------
(millions of U.S. dollars)                 Dec. 26,         Dec. 27,          Dec. 26,         Dec. 27,
                                             2003             2002              2003             2002
                                           --------         --------         --------         --------
<S>                                        <C>              <C>              <C>              <C>
Loss before income taxes - U.S. GAAP       $  (12.6)        $  (13.4)        $  (37.7)        $  (33.2)
                                           ========         ========         ========         ========
Loss before income taxes - CDN GAAP        $  (12.5)        $  (15.6)        $  (37.6)        $  (38.9)
                                           ========         ========         ========         ========
Net loss for the period - U.S. GAAP        $  (11.2)        $  (13.7)        $  (36.3)        $  (34.4)
                                           ========         ========         ========         ========
Net loss for the period - CDN GAAP         $  (11.1)        $  (15.0)        $  (35.8)        $  (39.6)
                                           ========         ========         ========         ========
Net loss per common share - U.S. GAAP      $  (0.09)        $  (0.11)        $  (0.30)        $  (0.28)
                                           ========         ========         ========         ========
Net loss per common share - CDN GAAP       $  (0.09)        $  (0.12)        $  (0.29)        $  (0.32)
                                           ========         ========         ========         ========
</TABLE>

The  difference  in loss before  income taxes between U.S. and Canadian GAAP was
principally due to differences in the treatment of stock  compensation  expense,
the treatment of imputed  interest income on the valuation of the long-term note
receivable,  and the method used to record an impairment  charge for  long-lived
and intangible assets in previous years.

In the third quarter of Fiscal 2004 there was $0.1 of stock compensation expense
recorded in the Company's  earnings under both Canadian and U.S. GAAP.  Prior to
Fiscal  2003,  stock  compensation  expense was not  recorded  in the  Company's
earnings  under  Canadian  GAAP.  In the first  nine  months of Fiscal  2003 the
Company  recorded a stock  compensation  recovery of $1.4 under U.S.  GAAP. As a
result, the loss from operations and net loss under Canadian GAAP as compared to
U.S. GAAP was higher by $1.4 for the nine months ended December 27, 2002.


                                       46
<PAGE>

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

Under  Canadian  GAAP there are  differences  in the net book  values of certain
tangible  and  intangible  assets  as a  result  of  different  methods  used to
determine fair values  resulting from their  impairment in previous  years.  The
different net book values of tangible and intangible assets resulted in a higher
depreciation and amortization  expense under Canadian GAAP by $0.2 for the three
months ended December 26, 2003 (three months ended December 27, 2002 - higher by
$1.1).  For the first nine months of Fiscal 2004, the differences  resulted in a
higher  depreciation and amortization  expense under Canadian GAAP by $0.6 (nine
months ended December 27, 2002 - higher by $3.2).

The  Canadian  GAAP other  income was higher than the  corresponding  U.S.  GAAP
amount due to  differences  in the treatment of imputed  interest  income on the
valuation of a long-term  note  receivable.  Under  Canadian  GAAP, the interest
income has been  recorded in the Company's  earnings,  as compared to under U.S.
GAAP,  where the income has been  deferred  and netted  against the value of the
note receivable.  The difference in accounting resulted in a higher other income
under  Canadian GAAP by $0.3 for the three months ended December 26, 2003 (three
months ended  December 27, 2002 - no  difference).  For the first nine months of
Fiscal 2004,  the  difference  resulted in a higher other income under  Canadian
GAAP by $1.1 (nine months ended December 27, 2002 - no difference).

Under Canadian GAAP, unrealized gains and losses on forward contracts identified
as hedges may be  deferred  as long as there is  reasonable  assurance  that the
hedge will be  effective.  Under U.S.  GAAP,  deferral is allowed for  contracts
meeting  the  requirements  for cash flow  hedging  under FAS 133.  Prior to the
adoption of FAS 133,  deferral was allowed  only on contracts  intended to hedge
identifiable firm commitments.  The difference in accounting  resulted in higher
Canadian  GAAP net loss by $nil for the three  months  ended  December  26, 2003
(three months ended December 27, 2002 - higher net loss by $0.2).  For the first
nine months of Fiscal 2004,  the  difference  in  accounting  resulted in higher
Canadian GAAP net loss by $nil (nine months ended December 27, 2002 - higher net
loss by $0.7).

Under  Canadian  GAAP,  capital taxes and investment tax credits are included in
operating income.  Under U.S. GAAP, capital taxes and investment tax credits are
included in income tax expense. For the nine months ended December 26, 2003, the
Canadian GAAP operating  loss was higher,  and income tax recovery was higher by
$0.4, and for the nine months ended December 27, 2002, operating loss was higher
and income tax expense was lower by $0.5.


                                       47