First Quarter Fiscal 2004 Financial Results Conference Call

First Quarter Fiscal 2004 Financial Results Conference Call DAVID ALLEN Thank you, operator. Good afternoon and thank you for joining Cirrus Logic s First Quarter Fiscal 2004 financial results conference call. I m Dave Allen, Vice President of Investor Relations and Treasurer of Cirrus Logic. Joining me today on the call is David French, Cirrus Logic s President and CEO, and Kirk Patterson, Vice President, Corporate Controller and acting Chief Financial Officer. Before we begin, I would like to remind you that during the course of this conference call, we will make projections or other forward-looking statements regarding, among other things, our estimates for second quarter revenues, combined R&D and SG&A expenses, gross margin, cash levels, projected savings from outsourcing our test operations, reduction in income taxes payable, days sales outstanding, as well as expectations regarding our growth and future performance. Please keep in mind that these statements are predictions that are subject to risks and uncertainties that may cause actual results to differ materially. Please refer to our press release dated July 23, 2003, which is available on our website at www.cirrus.com, our latest Form 10-K for the year ended March 29, 2003, as well as our other filings made with the Securities and Exchange Commission for additional discussion of risk factors that could cause actual results to differ materially from our current expectations. Now I will turn the call over to Dave French. Dave? DAVE FRENCH Thank you, Dave, and thanks to all of you who are joining us today. Page 1 of 11

For those of you who have not yet had a chance to read our press release, I will quickly recap our results. I would like to mention before proceeding that our first quarter results were in line with the guidance that we gave on our April 30th conference call, and that also importantly all financial numbers we discuss are in conformance with generally accepted accounting principles. For the first quarter of fiscal 2004: Revenue was $40.7 million; Gross margin was 48.5 percent; Combined R&D and SG&A expenses totaled $33.2 million; And net loss was $24.3 million, including a charge of $7.6 million, which was primarily related to facilities consolidations; Net loss per share in total was $0.29; and And our ending total cash balance was $115.5 million. At the end of April, we told you that our customers were reporting limited visibility due to a variety of factors including low consumer confidence, unclear economic circumstances and the uncertainties surrounding the threat of SARS. We also said that we thought the audio market might not see its typical seasonal rebound during the June quarter. Early reports confirm that our views on June quarter demand were accurate. For instance, according to a recent Consumer Electronics Association survey, factory shipments of audio systems into U.S. retail stores in the month of May were down 35 percent on a year-over-year basis. Moving into the September quarter, however, it is becoming more apparent that the excess inventories in retail have been worked off, and that the outlook for demand of audio and related hardware product in the North American Retail segment is likely to increase. Based on this early assessment, I am pleased to report that it appears our first fiscal quarter was a turning point for Cirrus Logic, and that we expect to return to revenue growth during the current quarter. While the seasonal rebound in audio demand started much later in our first quarter than we have traditionally seen, we have greater visibility with higher orders and backlog now than at this point last quarter. In addition to the modest seasonal recovery we are seeing in audio products, we are now seeing Page 2 of 11

traction for digital video recording applications, which we have indicated could be key drivers of second half revenue growth for Cirrus Logic. Continuing to look for opportunities to contain and reduce our costs, I am also pleased that we recently entered into a strategic relationship with ChipPAC to outsource our test operations. We expect this new relationship will provide us with savings of $6 million to $8 million per year beginning in calendar year 2004. Before I review our first quarter results in detail, let me quickly comment on a recent management change we had at Cirrus Logic. As we have previously announced, Steve Overly, who served as our chief financial officer for the past 15 months, recently left the company. Steve successfully guided us through some difficult downsizing and expense cutting and we are pleased to have benefited from his contributions. With Steve s departure, I am also pleased that Kirk Patterson could step in immediately. Kirk joined Cirrus Logic three years ago and has spent more than 23 years in financial management roles. For the past two years, he has been our Chief Accounting Officer and has led our finance team as Corporate Controller. Kirk is here with me now, and he will be available for direct involvement during the Questions and Answers part of this call. I d like to now give you a more detailed analysis of the financial results for our first fiscal quarter again, which were in line with our April 30th guidance. (First Fiscal Quarter 2004 Results) (Revenue) First quarter net revenue was $40.7 million, down 22 percent from $52.1 million in the fourth quarter. Audio revenue in the first quarter was $37.4 million, compared with $41.1 million in the fourth quarter. Video revenue in the first quarter was $3.0 million, compared with $3.9 million in the fourth quarter. Other revenue in the first quarter was $0.3 million. Page 3 of 11

I d like to remind you that revenue during the March quarter included $7.1 million in game console revenue of which $6.8 million related to game console components sold under a supply commitment, which was completed at the end of that quarter. Revenue from our ongoing game console product was reported as part of our audio revenue in the just completed first quarter. (Gross Margins) Gross margins for the first quarter were 48.5 percent, down from 50.6 percent in the fourth quarter. I d like to point out that this was driven largely by a one-time $723,000 impairment charge we recorded in the recently completed quarter on assets being sold to ChipPAC in our recently announced agreement and by reserves taken on certain parts in our inventory. (Operating Expenses) During the first quarter, our combined R&D and SG&A expenses were $33.2 million, an improvement of $1.6 million down from $34.8 million reported in the prior quarter. SG&A decreased $2.8 million largely due to lower salaries and benefit expense and lower marketing expenses due to the timing of some trade shows. R&D increased $1.2 million, mainly due to increased product development costs. Let me point out here as we have reported in earlier quarters, our combined R&D and SG&A expenses include legal costs incurred in connection with our exit from the magnetic storage product line as well as deferred compensation charges associated with acquisitions. Expenses in these two areas totaled $1.5 million in the first quarter. As you will note in the tables, first quarter operating expenses also include $3.8 million of amortization associated with acquisition intangibles. In addition, in the first quarter, the company incurred a charge of $7.6 million for restructuring and other related costs primarily relating to facility consolidations in Texas and California. Our first quarter operating expenses were $44.6 million, compared with $180.8 million in the fourth quarter, on a comparable basis. And as you ll recall, in the fourth quarter we incurred a non-cash charge of $136.2 million related to the write-off of goodwill and the impairment of intangible assets. Page 4 of 11

(Net Loss) The net loss for the first quarter was $24.3 million, compared with a net loss of $152.8 million in the fourth quarter. The net loss per share for the first quarter was ($0.29), based on 83.8 million average weighted shares outstanding. This compares with a net loss per share of ($1.82) in the prior quarter, based on a comparable number of shares outstanding. (Employee Headcount) Our employee headcount at the end of the first quarter was 892, down from 905 at the close of the prior quarter. (Balance Sheet Accounts - Assets) We ended the first quarter with total cash of $115.5 million, in line with our prior guidance of $113 million to $118 million. Total cash at the end of the prior quarter for reference was $122.8 million. We ended the first quarter with $23.6 million in net receivables and a DSO of 53 days, versus 40 in the fourth quarter. We view this increase as temporary and expect our DSO to return to prior levels in the current quarter. Our net inventory was $21.2 million at the close of the first quarter, which on a dollar basis was down from $22.3 million in the prior quarter. I point out that as we prepare for a higher level of anticipated sales in the September quarter, our net inventory at the end of the June quarter represented a slightly higher percentage of sales at the end of the prior quarter. Capital additions remained very modest and were down slightly at $835,000 in the first quarter, compared with $1.1 million in the fourth quarter. Depreciation and amortization expense totaled $7.6 million in the first quarter, compared with $8.5 million in the prior quarter. (Liabilities) Accounts payable and accrued liabilities were $43.9 million, compared with $43.1 in the prior quarter. Page 5 of 11

(Stockholders Equity) Stockholders equity at the end of the quarter was $140.2 million, down from $163.5 million in the fourth quarter due primarily to the net loss, which included the restructuring charges as previously discussed. (Litigation Update) Before I provide comments on our products and markets, let me quickly report that there has been no change in the status of the outstanding Western Digital and Fujitsu lawsuits as noted in our recently filed Form 10-K. (Product/Market Outlook) Now let s look at some of the exciting application areas we are pursuing and the related product activities inside of Cirrus Logic. As I mentioned, I am encouraged about the seasonal pickup in audio demand we are now seeing as our distributors and retailers begin to replenish their inventory levels, and as our OEM customers introduce new models. While it was clear in late December that there was likely to be a significant excess in audio product inventories in North American retail after the holiday selling season, this situation was even worse than many of us had thought. While the summer months tend to represent a slow period in retail sales of these products, the pickup in orders we have recently seen across a wide range of audio customers suggest that retailers and manufacturers believe this inventory overhang is behind us. I am also very encouraged to see our video recording orders and related backlog improving. Our digital video recording solutions are at the forefront of an emerging market, and we are now enabling a growing list of customers to introduce new digital recording products at affordable price points that we expect will spur demand for these products later this year. (AUDIO) Audio and mixed-signal applications remain our largest revenue category contributing $37.4 million in sales in the first quarter. We continue to build on our market leadership position as evidenced by our audio video receiver win at Onkyo, one of the leading names in audio/video components and home theater systems in the world. Our highly integrated CS42518 and CS42528 surround-sound CODECs will be featured in Onkyo s next-generation receivers, along with our Page 6 of 11

CS5333 analog-to-digital converters. As is often the case, we were chosen for this design because we enable a cost-effective product line with best-in-class performance and leading-edge features. In the growing area of DVD receivers, which integrate high-performance audio amplifiers in the same box with a DVD player, we continue to be a major semiconductor supplier to Bose, a company synonymous with great sounding audio systems. We are bolstering our DVD receiver customer base with several recent design wins, including well-known, leading brands that we expect will be coming to market later this calendar year. Before we turn to the quickly developing digital video recording markets, let me comment on the opportunity that automotive-related sales offers Cirrus Logic. Today, automotive-related sales account for a relatively small percentage of our revenue and a very small share of a very large and growing market. We currently sell a number of products to industry leaders Bose and Delphi. In fact, during the first quarter, Delphi selected our CS4334 DAC for its XM radio platform, which is sold to Tier 1 automotive manufacturers. The market research firm IMS expects that the worldwide market for in-car audio and infotainment systems will expand from 90 million units in calendar 2002 to 125 million units by calendar 2008. Our consumer entertainment expertise directly applies to the migration of premium audio and video capabilities from the home into the car, with the car becoming an important entertainment environment. A key to expanding our automotive customer base beyond Bose and Delphi, and ramping up product sales will be our attainment of ISO/TS 16949 certification, which we are now actively pursuing. We already have dozens of existing products that can be sold into this market, and are now building relationships with large, Tier 1 automotive suppliers for participation in development efforts. I expect we will be talking more about our automotive efforts and progress in future conference calls. (VIDEO) Now I d like to shift the discussion to our video product line. We have recently made some important gains, particularly in the emerging video recording area, which we expect will be a major growth driver for Cirrus Logic. Page 7 of 11

In the DVD recording market, we agree with market research analysts that the video recording segment is one of the best growth prospects for the semiconductor industry. According to a February 2003 IDC report, the semiconductor market for DVD recording products is expected to grow from $74 million in calendar 2002 to $283 million this year. This market is expected to grow further to $678 million next year, and $2.7 billion by calendar 2007. The growth from 2002 levels through 2007 represents a compound annual growth rate of 106%. According to other studies by IDC, In-Stat and Gartner Group, DVD recorder shipments could grow from approximately 1 million units in calendar 2002 to 3 to 3.7 million units this calendar year, further going to 8.3 to 10.6 million units in 2004 and further to over 30 million units by calendar 2006. We believe that the key factor behind this growth will be how quickly OEMs bring affordable DVD recorders to the retail market. As we recently announced through a number of customer design win press releases, we are now beginning to enable our video customers to bring to market for the first time these products at mass-market prices. With more affordable price points, DVD recorders will usher in a major product replacement cycle as consumers drive the VCR in the same direction as the 8-track tape player. Earlier this year at the Consumer Electronics Show, we announced that Mustek, a major Taiwanese consumer electronics manufacturer, demonstrated a DVD recorder reference platform. The platform uses our CS92288 video encoder and our flagship CS98200 DVD playback processor, which is among the industry s highest performing DVD processors. Mustek recently began volume shipments of its first DVD recording device, which will soon be available in retail outlets across Europe and North America at prices below $450. Recently, Taiwan-based Sampo Corporation announced the launch of its own DVD Recorder, the DV-R1, which is targeted for the mass market with a retail price also under $500. This DVD recorder also uses our CS98200 processor and CS92288 encoder providing Sampo with a complete audio, video and software solution. In addition, the Cirrus Logic platform enables Sampo to integrate IEEE-1394 functionality and also supports Kodak Picture CD, along with MP3 and Windows Media Audio formats. The Sampo DVD recorder leverages Cirrus Logic s audio Page 8 of 11

expertise by incorporating our CS5333 analog-to-digital converter and our CS4362 digital-to-analog converter. In addition to the DVD recording opportunities, we are also working closely with a number of consumer entertainment system manufacturers, including Apex, BBK, Digitech and others, on personal video recorders that employ hard disk drive-based solutions. For example, BBK Electronics Corp., one of the larger consumer products manufacturing companies in China, recently announced a personal video recorder combined with a DVD player, the DR9907, based upon a comprehensive suite of our audio and video components. BBK's new recorder combines popular digital entertainment features into a single, compact and affordable consumer device. BBK s new product records up to 41 hours of high-quality digital video encoding of content, such as broadcast television, with popular viewing control features such as the ability to pause and replay live broadcasts. The BBK product will be marketed and distributed under the Philco brand by major consumer electronics retail chains. Also already on store shelves in certain markets are Cirrus Logic-powered video recorders manufactured by Sony and Samsung. Sony uses our CS92288 encoder to provide video and audio recording functionality in two new, high-end digital video recorder products that are now available in Japan. Samsung is marketing a DVD player combined with a personal video recorder also based on our CS92288. All told we are now working with approximately a dozen manufacturers of consumer video recording products, which we believe will be in production or on retail shelves by this holiday season. We believe they represent important revenue opportunities to us over the next several quarters. (Guidance) Now, let s look at our guidance for our second fiscal quarter, which ends on September 27th. We expect revenue to be between $45 and $50 million. We expect gross margins to be in the range of 48 to 50 percent. Page 9 of 11

Our combined R&D and SG&A expenses are expected to total $33 to $35 million, including legal costs incurred in connection with our exit from the magnetic storage product line as well as deferred compensation charges associated with acquisitions. During the second quarter, we expect to benefit from a $7.2 million reduction in Income Taxes Payable due to the release of a reserve. This release will not have a cash impact. And we expect to exit the September quarter with total cash between $106 and $111 million, again with no debt on our balance sheet. While we expect healthy growth in fiscal Q2, we have to caution that it is too early to predict December quarter results, especially since the economy is still unsettled and it remains to be seen how consumers will choose to spend their discretionary income during the upcoming holiday season. And now we are ready for your questions. Operator (Q&A Session) DAVE FRENCH (Concluding Remarks) Thank you for your questions and also thanks for your continued interest in Cirrus Logic. I d like to reiterate the key points from today s call: 1. We believe that the June quarter was a turning point, and we expect to return to revenue growth this quarter. Orders began improving toward the end of the June quarter as the audio market started to seasonally rebound, and our overall backlog now is significantly higher than it was at this point 90 days ago. Page 10 of 11

2. Also I would like to point out that while I am encouraged about the positive reception and increasing demand we are receiving for our video recording products, our outlook for later this year continues to be tempered by macro economic conditions and concerns over how consumers will ultimately allocate their discretionary spending budgets. 3. Looking beyond the holiday season, however, I remain confident that our products, technology and customer relationships are strong. The markets we target here at Cirrus Logic provide strong growth opportunities over the next several years. 4. And finally, as we demonstrated with our recent announcement about outsourcing our test operations to ChipPAC, we remain committed to looking for ways to further improve our operational efficiencies and lower our cost structure, while at the same time improving our customer service. And finally, I would like to say thank you once again for joining us today. We look forward to talking with you when we report our September quarter financial results, which is scheduled for October 22. at: In the meantime, we hope to see many of you at upcoming conferences. We ll be presenting The Adams Harkness & Hill Summer Seminar in Boston on Aug. 6 The SoundView Technology Group Conference in San Francisco on Aug. 14, and The SG Cowen Fall Technology Conference in Boston on Sept. 3 Thank you again for your attendance and for your continuing interest in Cirrus Logic. Page 11 of 11