Atheros Communications Announces Record Second Quarter 2004 Financial Results

Gross Margins Increase to 49.9 Percent

SUNNYVALE, Calif., July 21, 2004 — Atheros Communications, Inc. (NASDAQ: ATHR), a leading developer of advanced wireless LAN chipsets, today announced record financial results for the second quarter of fiscal 2004, ended June 30, 2004.

Revenue in the second quarter of fiscal 2004 was a record $46.6 million, compared with $43.1 million in the first quarter of fiscal 2004, an increase of eight percent. Gross margins in the second quarter of fiscal 2004 were 49.9 percent, 570 basis points higher than the 44.2 percent gross margins reported in the prior quarter.

In accordance with U.S. generally accepted accounting principles (GAAP), the company's net income in the second quarter of fiscal 2004 was a record $5.5 million, or earnings of $0.10 per diluted share on 53.8 million average shares outstanding. This compares with a net income of $2.4 million, or $0.05 per diluted share on 48.2 million average shares outstanding in the first quarter of fiscal 2004.

Total cash and short-term investments were $155.9 million at June 30, 2004, compared with $158.4 million at March 31, 2004, a decrease of $2.5 million resulting from cash used for working capital needs.

Atheros reports net income (loss) and basic and diluted net income (loss) per share in accordance with GAAP and additionally on a non-GAAP basis. Non-GAAP net income (loss), where applicable, excludes the effect of the amortization of stock-based compensation. In the second quarter of 2004, non- GAAP net income was $6.5 million, or $0.12 per diluted share, compared with non-GAAP net income of $3.5 million, or $0.07 per diluted share, in the first quarter of fiscal 2004. Average shares used in computing non-GAAP net income per share for the second quarter of fiscal 2004 increased to 53.8 million, compared with 48.2 million for the first quarter of fiscal 2004.

Six Months Ended June 30, 2004

Revenues for the six months ended June 30, 2004 were $89.7 million, with gross margins of 47.1 percent. GAAP net income for the six-month period was $7.9 million, or $0.15 per share. Non-GAAP net income for that period was $10.0 million, or 11 percent of revenues and $0.20 per share on 51.0 million average shares outstanding.

"We increased our leadership position in key areas of the wireless networking industry in the second quarter, resulting in record financial results," said Craig Barratt, president and CEO of Atheros. "We are especially pleased to be shipping production quantities of the world's first single-chip 802.11g wireless LAN solution, integrating the MAC, baseband and 2.4 GHz radio. Also in the second quarter we began volume shipments of a second version of our single-chip solution, incorporating Super G(TM) and our unique adaptive radio features. Both of our single-chip solutions include our Atheros eXtended Range™  (XR) technology, which dramatically increases the range of wireless LAN devices by up to three times that of basic 802.11a and .11g solutions," Barratt said.

Fujitsu, NEC and Sony all introduced new laptops using Atheros Super GŪ  and Super AGŪ  technology in the second quarter. On the enterprise side, Atheros announced products with Foundry Networks, Trapeze Networks, Vivato and Colubris Networks. Atheros Super G and Super AGŪ technologies continue to gain widespread acceptance. Seventeen leading Japanese WLAN equipment vendors and PC manufacturers are now shipping products using Atheros' Super G or Super AGŪ technologies, and many of them are displaying the Atheros Super AGŪ/G logo on their PCs and wireless LAN equipment, as well as on product boxes, data sheets, brochures and websites.

"In consumer electronics, we just announced our first chipset targeted for video and multimedia applications. This chipset includes smart antenna and quality-of-service (QoS) features, which deliver high-quality video throughout the home. We also announced joint reference designs with Syabas and Sigma Designs, and a collaboration with NEC Electronics on a new AV module including this chipset, which is being demonstrated for the first time this week at the Wireless Japan 2004 Show in Tokyo," Barratt said.

Conference Call

Atheros will broadcast its conference call discussion of second quarter fiscal 2004 financial results today, Wednesday, July 21, 2004 at 2:00 p.m. pacific daylight time (5:00 p.m. eastern daylight time).

To listen to the call, please dial 630-395-0049 approximately 10 minutes prior to the start time. The pass code is: Atheros. A taped replay will be available approximately one hour after the conclusion of the call and will remain available for one week. To access the replay, dial 203-369-1197.

The Atheros financial results conference call will be available via a live webcast on the investor relations section of the Atheros web site at www.atheros.com. Please access the web site approximately 15 minutes prior to the start of the call to download and install any necessary audio software. An archived webcast replay of the call will be available at the web site for one year.

Atheros Communications, Inc.

Atheros Communications is a leading developer of semiconductor system solutions for wireless communications products. Atheros combines its wireless systems expertise with high-performance radio frequency, mixed signal and digital semiconductor design skills to provide highly integrated chipsets that are manufacturable on low-cost, standard complementary metal-oxide semiconductor (CMOS) processes. Atheros technology is being used by a broad base of leading customers, including personal computer and networking equipment manufacturers. For more information, visit www.atheros.com or send email to info@atheros.com.

###

Atheros, the Atheros logo, eXtended Range, Super G and Super AGŪ are trademarks of Atheros Communications, Inc.

Forward Looking Statement:

Except for the historical information contained herein, the matters set forth in this press release, including statements as to the continued acceptance and adoption of, and the expected benefits and capabilities of, Atheros' products and technology, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "expected," "believes" "anticipates," "plans," "expects," "will" and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause the actual results of Atheros to differ materially, including, among others, the ability of our customers to provide competitive solutions based on our products, development and manufacturing difficulties, the impact of competitive products and alternative technological advances, and risks detailed in Atheros' Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, as filed with the SEC, and in other reports filed by Atheros with the SEC from time to time. These forward-looking statements speak only as of the date hereof. Atheros does not undertake any obligation to update forward-looking statements.

                          ATHEROS COMMUNICATIONS, INC.
         CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
                    (In thousands, except per share data)

                            Three Months Ended           Six Months Ended
                                 June 30,                    June 30,
                             2004          2003         2004         2003
    Net revenue            $46,593      $15,125      $89,692      $24,531
    Cost of goods sold      23,347        8,739       47,415       14,218
    Gross profit            23,246        6,386       42,277       10,313

    Operating expenses:
     Research and
      development           10,496        6,671       20,221       12,943
     Sales and
      marketing              4,159        2,566        7,660        4,660
     General and
      administrative         2,063        1,217        4,293        2,151
     Stock-based
      compensation           1,024          820        2,140          882
       Total operating
        expenses            17,742       11,274       34,314       20,636

    Income (loss)
     from operations         5,504      (4,888)        7,963     (10,323)
    Interest income
     (expense), net            470         (15)          623           13
    Income taxes             (452)           --        (685)           --

    Net income (loss)       $5,522     $(4,903)       $7,901   $ (10,310)

    Basic earnings
     (loss) per share        $0.12      $(0.41)        $0.20      $(0.87)
    Diluted earnings
     (loss) per share        $0.10      $(0.41)        $0.15      $(0.87)
    Shares used in
      computing basic
      and pro forma basic
      earnings
     (loss) per share       46,499       12,037       38,637       11,836

    Shares used
     in computing
     diluted and pro
     forma diluted
     earnings (loss)
     per share              53,799       12,037       51,015       11,836

    Pro forma net
     income (loss)(*)       $6,546     $(4,083)      $10,041     $(9,428)

    Pro forma basic
     earnings (loss)
     per share (*)           $0.14      $(0.34)        $0.26      $(0.80)
    Pro forma diluted
     earnings (loss)
     per share (*)           $0.12      $(0.34)        $0.20      $(0.80)


                           Reconciliation of GAAP Net Income (Loss) to
                                     Pro Forma Net Income (Loss)

                            Three Months Ended          Six Months Ended
                                 June 30,                    June 30,
                              2004        2003         2004           2003
    GAAP net
     income (loss)          $5,522     $(4,903)       $7,901    $(10,310)
    Stock-based
     compensation            1,024          820        2,140          882

    Pro forma net
      income (loss)         $6,546     $(4,083)      $10,041     $(9,428)

     (*) To supplement our consolidated financial statements presented in
         accordance with GAAP, we have shown above a non-GAAP measure of net
         income (loss), which is adjusted from results based on GAAP to
         exclude stock-based compensation.  This non-GAAP measure is provided
         to enhance the user's overall understanding of our historical
         financial performance.  Specifically, we believe the non-GAAP results
         provide useful information to both management and investors by
         excluding stock-based compensation expenses.

                         ATHEROS COMMUNICATIONS, INC.
              CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
                                (In thousands)

                                                    June 30,    December 31,
                                                      2004            2003
    ASSETS
    Current assets:
    Cash, cash equivalents and
     marketable securities                          $155,913        $29,039
    Accounts receivable, net                          19,477          9,855
    Inventories                                       16,134         10,929
    Prepaid expenses and other current assets          3,270          1,110
       Total current assets                          194,794         50,933

    Property and equipment, net                        2,668          2,346
    Other assets                                       1,359          2,607
                                                    $198,821        $55,886

    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities                              $31,249        $31,769

    Long-term liabilities                              1,128          1,831

    Stockholders' equity                             166,444         22,286
                                                    $198,821        $55,886

For analyst inquires contact: Jack Lazar, Chief Financial Officer of Atheros Communications,
Inc., +1-408-773-5200; or Deborah Stapleton of Stapleton Communications Inc.,
+1-650-470-0200, for Atheros

For press inquiries contact: Cheryl Patstone, 408-773-5344, cheryl@atheros.com or Greg Wood, A&R Partners, 650-762-2838, gwood@arpartners.com.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding Atheros Communications's business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for the most recently ended fiscal year.

View All Press Releases