SigmaTel Reports Record Quarterly and Annual Revenues and Profits; Qua

SigmaTel Reports Record Quarterly and Annual Revenues and Profits; Quarterly Revenues Up by 125 Percent Year-Over-Year

    Business Editors/High-Tech Writers

    AUSTIN, Texas--(BUSINESS WIRE)--Jan. 25, 2005--SigmaTel, Inc. (NASDAQ:SGTL), a leader in analog-intensive mixed-signal integrated circuits, today announced fourth quarter and fiscal 2004 results for the periods ended December 31, 2004. Quarterly revenues were $78.6 million, up 125 percent from revenues of $35.0 million in the same period in the year 2003. Pro forma adjusted net income for the fourth quarter of 2004 was $21.0 million, representing earnings of $0.56 per diluted share, compared to $9.0 million or $0.24 per diluted share in the fourth quarter of 2003.

    Financial Results

    Under generally accepted accounting principles (GAAP), net income for the fourth quarter of 2004 was $19.5 million, resulting in GAAP diluted earnings per share for the quarter of $0.52. This compares to net income of $8.2 million, or earnings per share of $0.21, in the fourth quarter of 2003. This GAAP net income includes non-cash charges related to deferred stock-based compensation for both periods and a one-time charge in the fourth quarter of 2004 related to the relocation of the company's Austin, Texas, operations. These charges are set forth in the reconciliation of GAAP to non-GAAP financial measures table included below.
    Revenues for the year ended December 31, 2004 were $194.8 million, up 94 percent from $100.2 million for the year ended December 31, 2003. Pro forma net income attributable to common stockholders for the year ended December 31, 2004 was $55.2 million, up 490 percent from $9.4 million for the year ended December 31, 2003. GAAP net income attributable to common stockholders for the year ended December 31, 2004 was $52.6 million, up from $1.2 million for the year ended December 31, 2003.
    As of December 31, 2004, SigmaTel reported cash and short-term investments of $141.7 million, which is up from the December 31, 2003 balance of $111.3 million. The company added 24 employees during the fourth quarter of 2004, primarily in research and development, bringing the total number of full-time equivalent employees to 243 as of December 31, 2004.
    "We are very pleased to return company-record results again this quarter," said Ron Edgerton, chief executive officer and president of SigmaTel. "'Integration via Innovation' has long been our motto, and is exemplified in the industry-leading products we bring to market. The growth of our business during 2004 demonstrates the strength of both our technology and our internal team, and points to continued success for the company long-term."

    Business Summary

    SigmaTel's leadership in portable SoCs continued during the quarter as the company shipped over 10 million of its industry-leading SoCs into flash and hard-drive MP3 players. New design wins revealed during the quarter include standard MP3 players from Lexar Media and Memorex as well as the Oakley Thump sports sunglasses with integrated MP3 functionality. SigmaTel also extended its value-segment STMP3502 product into "premium giveaway" products, resulting in a meaningful revenue increase. SigmaTel reports that it will be sampling its next-generation portable SoC, which specifically targets hard drive MP3 players, in the late first quarter or early second quarter of 2005. "The combination of an expanded feature set in our 3500 family for flash-based players, our 3502 value-segment product and the new 3600 solutions means that SigmaTel serves the full range of MP3 players and is poised to further strengthen its leadership over the competition in 2005," said Mr. Edgerton.
    In the audio codec area, SigmaTel announced the company's first 8-channel high-fidelity codecs for PC and convergent media applications, the STAC9220 and 9221. These products offer the industry's highest audio quality levels for mid- and upper-range PCs as well as theater-quality surround sound for high-end PC applications. SigmaTel reports that the new codecs are gaining momentum in the PC desktop market to complement the company's existing healthy notebook PC position.
    SigmaTel continues to strengthen its patent portfolio as the company now has over 100 patents issued or pending on its innovative mixed-signal technology. In early January of 2005, SigmaTel filed a lawsuit against Actions Semiconductor, based in China, alleging infringement of several of SigmaTel's power management patents.
    SigmaTel added 24 employees to its workforce during the fourth quarter of 2004, primarily in the area of research and development in Austin, Texas, and to expand the staff at its Asian engineering center in Hong Kong. As of December 31, 2004, SigmaTel had 243 full-time equivalent employees, compared with 141 at this time last year. As a part of this continuing growth, during the fourth quarter of 2004, SigmaTel relocated the Austin headquarters to a larger office complex that houses its current domestic workforce and provides opportunity for future growth within the same campus.

    Business Outlook

    "In addition to supporting the rapid ramp of our business and revenues during 2004, SigmaTel took key steps to broadening our product portfolio, customer base and employee headcount," said Mr. Edgerton. "Additionally, our target markets continue to grow more quickly than expected. We believe we are well-positioned to enjoy significant growth in the coming year. During the first quarter of 2005, we expect to sustain our current revenue level and continue to exceed our long term operating model in terms of operating income. We are very pleased with this outlook given our sharp revenue ramp in the fourth quarter and the fact that we typically expect a seasonal decline in the first quarter."

    Specific guidance for the first quarter of 2005:

--	Revenues are expected to be between $76.0 million and $83.0 million, up 141% to 163% when compared to the $31.5 million of revenues in the first quarter of 2004.
--	Gross margin is expected to be approximately 54 percent. SigmaTel's gross margin percentage varies primarily with product mix, pricing, and unit costs.
--	Pro forma net income is expected to be between $14.9 million and $16.6 million. This excludes the amortization of non-cash deferred stock-based compensation of approximately $0.3 million.
--	GAAP net income is expected to be between $14.6 million and $16.3 million, including a provision for income taxes at a rate of between 33 and 34 percent.
--	Proforma EPS is expected to be between $0.39 and $0.44.
--	The diluted weighted average shares outstanding are expected to be approximately 38.0 million.

    Conference Call Today

    A conference call will be held today, January 25, 2005, beginning at 3:30 P.M. Central Time. This call will be simulcast via SigmaTel's website at www.sigmatel.com/investor-relations. Replays of the call will be available at this web address and via telephone at 800-633-8284 (U.S.) and 402-977-9140 (international) by entering reservation number 21226738. These replays will be available through February 20, 2005.

    About SigmaTel:

    SigmaTel, Inc., a fabless semiconductor company headquartered in Austin, Texas, designs, develops, and markets proprietary, analog intensive, mixed-signal ICs for a variety of products in the consumer electronics and computing markets, including portable compressed audio players, such as MP3 players, notebook and desktop PCs, DVD players, digital televisions, and set-top boxes. SigmaTel provides complete, system-level solutions that include highly-integrated ICs, customizable firmware and software, software development tools, reference designs, and applications support. The Company's focus is on providing system-level solutions that enable customers to rapidly introduce and offer electronic products that are small, light-weight, power-efficient, reliable, and cost-effective. SigmaTel is ISO 9001:2000 certified and is committed to providing customers with high performance, quality products along with superior customer service.
    Readers may obtain investment information from the company's investor relations department at 512-381-3931, by sending email to investor.relations@sigmatel.com, or on the Web at www.sigmatel.com/investor-relations.

    Cautionary Language:

    This press release contains forward-looking statements based on current SigmaTel expectations. The words "expect," "will," "should," "would," "anticipate," "project," "outlook," "believe," "intend," and similar phrases as they relate to SigmaTel or future events are intended to identify such forward-looking statements. These forward-looking statements reflect the current views and assumptions of SigmaTel, but are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. A number of important factors could cause actual results to differ materially from those in the forward-looking statements, and there will be events in the future that SigmaTel is not able to accurately predict or control. Among the factors that could cause actual results to differ materially from those in the forward-looking statements are the following: risks that SigmaTel may not be able to maintain its high growth rate; risks that adverse changes in the global economy may reduce demand for SigmaTel's products; risks that shortages of supply for other components of MP3 players may limit customer demand to purchase SigmaTel's portable audio SoCs; quarterly fluctuations in revenue and operating results due to seasonal fluctuations in demand for consumer electronics products and other factors; risks that SigmaTel's foundry suppliers may not allocate to it sufficient silicon wafers to meet its demand due to SigmaTel's lack of long term supply contracts with foundries and tightening foundry capacity; risks that SigmaTel may not be able to successfully manage strains associated with its growth; risks that SigmaTel's new products under development may not be completed in a timely fashion and may not achieve market acceptance; risks with managing international activities; intellectual property litigation risk; dependence on a limited number of products; the semiconductor industry's cyclical nature; geographic concentration of foundries, assembly and test facilities, distributors, and customers in the Pacific Rim, subjecting SigmaTel to risks of natural disasters, epidemics (such as SARS), and political unrest; and other factors. For a discussion of these and other factors that could impact SigmaTel's financial results and cause actual results to differ materially from those in the forward-looking statements, please refer to recent SigmaTel filings with the SEC, particularly the 424(b)(4) final prospectuses filed September 19, 2003 and February 19, 2004, the Form 10-Qs that were filed on October 29, 2003, April 20, 2004, July 20, 2004 and October 19, 2004, the Form 10-K that was filed on February 17, 2004, and the Form 10-K that SigmaTel anticipates filing during February of 2005 covering the annual period ended December 31, 2004.

    Non-GAAP Financial Measurements

    In addition to the GAAP results provided by this document, the company has provided non-GAAP financial measurements that present net income and net income per share on a basis excluding certain non-cash charges. Details of these excluded items are presented in the table below, which reconciles the GAAP results to non-GAAP financial measurements described in this press release. Also, this press release and the reconciliation from GAAP results to these and other additional non-GAAP financial measurements that may be discussed in the Q4 2004 earnings conference call can be found on the company's website at www.sigmatel.com/investor-relations.

    SigmaTel is a registered trademark of SigmaTel, Inc. All other products and brand names as they appear in this release are trademarks or registered trademarks of their respective holders. All specifications may be changed without notice.

SIGMATEL, INC. PRO FORMA VS. GAAP RESULTS (in thousands)

Three Months Ended Twelve Months Ended December 31, December 31, ----------------------- ----------------------- 2004 2003 2004(1) 2003 ----------- ----------- ----------- ----------- Net income attributable to common stockholders as reported $19,486 $8,157 $52,556 $1,221 Pro forma adjustments: Deferred stock- based compensation (tax effected) 222 889 1,405 3,781 Lease abandonment charge (tax effected) 1,285 -- 1,285 -- Litigation settlement (tax effected) -- -- -- 4,355 ----------- ----------- ----------- ----------- Pro forma net income attributable to common stockholders $20,993 $9,046 $55,246 $9,357 =========== =========== =========== ===========

Diluted weighted average shares outstanding 37,485,379 38,289,376 37,871,618 31,086,166

Diluted net income attributable to common stockholders per share, as reported $0.52 $0.21 $1.39 $0.04 =========== =========== =========== =========== Diluted net income attributable to common stockholders per share, pro forma $0.56 $0.24 $1.46 $0.30 =========== =========== =========== ===========

(1) There are fluctuations in the estimated tax rate used from quarter to quarter for factors such as the release of a valuation allowance on the deferred tax asset that impact the year to date tax effected pro forma adjustments.

SIGMATEL, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (in thousands, except share data) (unaudited)

Three Months Ended Twelve Months Ended December 31, December 31, ----------------------- ----------------------- 2004 2003 2004 2003 ----------- ----------- ----------- ----------- Revenues, net $78,585 $34,971 $194,805 $100,225 Cost of goods sold 35,592 17,295 89,187 52,491 ----------- ----------- ----------- ----------- Gross Profit 42,993 17,676 105,618 47,734

Operating Expenses: Research and development 10,397 5,377 32,253 17,867 Selling, general and administrative 7,632 3,213 18,098 10,184 Amortization of deferred stock- based compensation 341 919 2,162 3,907 Litigation settlement -- -- -- 4,500 ----------- ----------- ----------- ----------- Total operating expenses 18,370 9,509 52,513 36,458 ----------- ----------- ----------- ----------- Operating income 24,623 8,167 53,105 11,276

Other income (expense): Interest income 592 254 1,732 296 Interest expense (4) (9) (23) (1,250) ----------- ----------- ----------- ----------- Total other income (expense) 588 245 1,709 (954) ----------- ----------- ----------- -----------

Income before income taxes 25,211 8,412 54,814 10,322

Income tax expense 5,725 255 2,258 333 ----------- ----------- ----------- -----------

Net income 19,486 8,157 52,556 9,989 Deemed dividends on preferred stock -- -- -- (8,768) ----------- ----------- ----------- ----------- Net income attributable to common stockholders $19,486 $8,157 $52,556 $1,221 =========== =========== =========== ===========

BASIC NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS PER SHARE $0.56 $0.24 $1.52 $0.09 =========== =========== =========== =========== DILUTED NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS PER SHARE $0.52 $0.21 $1.39 $0.04 =========== =========== =========== ===========

WEIGHTED AVERAGE SHARES USED TO COMPUTE: Basic net income attributable to common stockholders per share 34,500,533 34,109,901 34,668,904 13,449,687 Diluted net income attributable to common stockholders per share 37,485,379 38,289,376 37,871,618 31,086,166

SIGMATEL, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except share data) (unaudited)

December 31, December 31, 2004 2003 ------------ ------------ ASSETS Current Assets: Cash and cash equivalents $27,246 $61,841 Short-term investments 114,451 49,420 Accounts receivable, net 34,195 15,989 Inventories, net 19,411 9,904 Deferred tax asset 7,613 -- Prepaid expenses and other current assets 4,241 1,333 ------------ ------------ Total current assets 207,157 138,487

Property, equipment and software, net 7,116 3,792 Intangible assets, net 4,357 4,476 Other assets 1,285 122 ------------ ------------

Total assets $219,915 $146,877 ============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $23,016 $13,466 Accrued payroll 2,217 870 Other accrued expenses 4,365 2,561 Deferred revenue 7,286 3,645 Current portion of long-term obligations 1,223 48 ------------ ------------ Total current liabilities 38,107 20,590

Capital lease obligations, net of current portion 7 63 Other liabilities 885 116 ------------ ------------ Total liabilities 38,999 20,769 ------------ ------------

Stockholders' equity: Common stock, $.0001 par value; 170,000,000 shares authorized; shares issued and outstanding: 35,204,742 and 35,114,786 at 2004 and 34,270,961 and 34,181,005 at 2003, respectively 4 3 Additional paid-in capital 173,480 173,737 Notes receivable from stockholders (7) (115) Deferred stock-based compensation (1,278) (3,678) Treasury stock, 89,956 common shares, at cost (741) (741) Accumulated surplus (deficit) 9,458 (43,098) ------------ ------------

Total stockholders' equity 180,916 126,108 ------------ ------------

Total liabilities and stockholders' equity $219,915 $146,877 ============ ============

SIGMATEL, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)

Twelve Months Ended December 31, ------------------- 2004 2003 --------- -------- Cash flows from operating activities: Net income $52,556 $9,989 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,814 3,471 Amortization of deferred stock-based compensation 2,162 3,907 Amortization of premium & accretion of discount on securities 378 -- Deferred income tax benefit (8,166) -- Tax benefit related to exercise of employee stock options 9,860 -- Other non-cash expenses 439 1,016 Lease abandonment charge 1,946 -- Changes in assets and liabilities: Accounts receivable, net (18,206) (11,149) Inventories, net (9,507) (4,165) Prepaid expenses and other assets (3,514) (1,042) Accounts payable 13,047 4,546 Accrued expenses 3,274 2,518 Deferred revenue and other liabilities 3,507 3,236 --------- -------- Net cash provided by operating activities 52,590 12,327 --------- --------

Cash flows from investing activities: Maturities of short-term investments 77,801 130 Purchase of short-term investments (143,211) (49,420) Purchase of property, equipment, software and intangible assets (11,517) (3,581) --------- -------- Net cash used in investing activities (76,927) (52,871) --------- --------

Cash flows from financing activities: Proceeds from long-term debt -- 5,150 Repayments under revolving line of credit, net -- (8,923) Payments on long-term debt -- (5,000) Payments on capital lease obligations (48) (76) Proceeds from issuance of convertible preferred stock, net of issuance costs -- 8,090 Payments of interest on convertible notes -- (1,564) Proceeds from notes receivable from stockholders 109 181 Proceeds from issuance of common stock, net of issuance costs 10,702 101,668 Purchases of treasury stock (21,021) -- --------- -------- Net cash provided by (used in) financing activities (10,258) 99,526 --------- --------

Net increase (decrease) in cash and cash equivalents (34,595) 58,982 Cash and cash equivalents, beginning of period 61,841 2,859 --------- -------- Cash and cash equivalents, end of period 27,246 61,841 ========= ========

--30--CSD/sa*

CONTACT: SigmaTel, Inc., Austin Nate Long, 512-381-3913 nlong@sigmatel.com or Investor Relations, 512-381-3931 investor.relations@sigmatel.com http://www.sigmatel.com/investor-relations

KEYWORD: TEXAS HONG KONG INTERNATIONAL ASIA PACIFIC INDUSTRY KEYWORD: NETWORKING HARDWARE SOFTWARE COMPUTERS/ELECTRONICS BANKING CONFERENCE CALLS EARNINGS SOURCE: SigmaTel, Inc.

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