Atheros Announces Financial Results for Q3 2006

Sixth Consecutive Quarter of Revenue Growth

Santa Clara, Calif. – Oct. 23, 2006 – Atheros Communications, Inc. (NASDAQ: ATHR), a leading developer of advanced wireless solutions, today announced record financial results for the third quarter of 2006, ended Sept. 30, 2006.

Revenue in the third quarter was $79.6 million, up nine percent from the $73.2 million reported in the second quarter of 2006 and up 74 percent from the $45.8 million reported in the third quarter of 2005.

In accordance with U.S. generally accepted accounting principles (GAAP), the company recorded third quarter net income of $6.3 million or $0.11 per diluted share.  This compares with a GAAP net income of $6.8 million or $0.12 per diluted share in the second quarter of 2006 and $2.2 million or $.04 per share in the third quarter of 2005.  Total cash and investments were $191 million at Sept. 30, 2006.

Atheros reports operating income, net income and basic and diluted net income per share in accordance with GAAP and additionally on a non-GAAP basis.  Non-GAAP net income excludes, where applicable, the effect of stock-based compensation, the tax benefit due to the partial release of deferred tax asset valuation allowance, amortization of acquired intangible assets and acquisition related charges.  A reconciliation of GAAP to non-GAAP condensed consolidated statements of operations is presented in the financial statements portion of this release.

Non-GAAP gross margins in the third quarter were 48 percent, above the company’s target range of 43 to 45 percent, compared with 49.1 percent in the second quarter of 2006 and 43.5 percent in the third quarter of 2005. Non-GAAP operating income increased to 14.5 percent from the 14.4 percent reported in the second quarter of 2006.

Non-GAAP net income in the third quarter was $10.5 million or $0.19 per diluted share, compared with non-GAAP net income of $9.5 million or $0.17 per diluted share in the second quarter of 2006 and $2.6 million or $.05 per share in the third quarter of 2005.

 “This is our sixth consecutive quarter of revenue growth and the fifth consecutive quarter that Atheros achieved record non-GAAP operating income and earnings,” said Craig Barratt, president and CEO. “Once again, we saw strong sales of our XSPAN® 802.11n products and our core WLAN solutions, especially 802.11a/g products for the PC OEM market.

“Even as our core wireless businesses are gaining strength, we are continuing our expansion into new, complementary markets.  With the acquisition of Attansic announced today, Atheros will drive the adoption of gigabit Ethernet-based 802.11n solutions by delivering complete, highly integrated, wired and wireless solutions for video, voice and data,” Dr. Barratt said. 

“With the close of this acquisition later this year, we will offer a broader platform of communication technologies to key markets we serve.  In particular, we will immediately achieve a leading position in the PC LAN-on-motherboard (LOM) market, as Attansic currently supplies ASUSTek with its Ethernet products.  Atheros’ PC OEM customer base will gain access to the world’s most cost-optimized, performance-leading PCI Express WLAN and Gigabit solutions from a single vendor.

“This acquisition propels us further along our diversification path, enabling us to offer a comprehensive platform of products as we pursue our long-term goal of building several best-in-class businesses that benefit from our technology leadership, strong customer relationships and low-cost integration capabilities,” he said.

Recent Atheros Press Release Highlights:

• Oct. 23- Atheros Announces Acquisition of Attansic Technology Company

• Oct. 23 - Atheros Ships 75 Millionth Wireless LAN Chipset

• Oct. 19- Atheros Communications Named One of the Fastest Growing Companies in North America on Deloitte’s 2006 Technology Fast 500

• Oct. 16 - Atheros Communications and FON Collaboration Supports Expanding Worldwide Wi-Fi Community

• Oct. 2 - D-Link RangeBooster N 650 Wireless Router Featuring Atheros XSPAN Technology Receives LAPTOP Magazine’s Editors’ Choice Award

• Sept. 27 - Atheros Appoints Dr. Sam Endy as Vice President and General Manager to Lead Mobile Wireless Business Unit

• Sept. 18 - Atheros WLAN Technology Featured in Award-Winning Sonosâ Digital Music System

• Aug. 28 - Atheros Launches XSPANä Value Solutions Featuring the Company's First Advanced Network Processor

• Aug. 9 - Atheros Communications Completes Acquisition of ZyDAS Technology Corporation

• Aug. 7 - Atheros XSPAN Draft 802.11n Mini Card Reference Designs Achieve Industry's First PCI Express Compatibility Certification

• July 26 – Atheros and UT Starcom Collaborate in Feature-Rich, Ultra-Thin PAS Handset in China

Conference Call

Atheros will broadcast its third quarter 2006 financial results conference call today, Monday, Oct. 23, 2006, at 1:30 p.m. Pacific time (4:30 p.m. Eastern time).

To listen to the call, please dial (630) 395-0122 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) 369-3544.

The Atheros financial results conference call will be available via a live webcast on the investor relations section of the Atheros website at www.atheros.com.  Please access the website 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 on the web site for one year.

About 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 (RF), 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, networking equipment and handset manufacturers. For more information, please visit www.atheros.com or send email to info@atheros.com.

NOTE:  Atheros, the Atheros logo and XSPAN are trademarks of Atheros Communications, Inc.

Note on Forward-Looking Statements

Except for the historical information contained herein, the matters set forth in this press release, including the anticipated continued success of our products on the market; Atheros’ diversification plans and expansion into new markets; and the anticipated benefits of the acquisition of Attansic, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially, including, but not limited to, the impacts of competition, technological advances and pricing pressures; general economic conditions; difficulties in the development of new products and technologies; manufacturing difficulties; whether Atheros is successful in marketing its products; whether Atheros successfully completes the Attansic acquisition and is able to integrate Attansic and its products with Atheros and its products; whether Atheros is successful in maintaining its relationship with ASUSTek following the Attansic acquisition and whether ASUSTek is successful in marketing and selling its products; and other risks detailed in Atheros’ Annual Report on Form 10-K for the year ended December 31, 2005 and its Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, as filed with the Securities and Exchange Commission, and in other reports filed with the SEC by Atheros from time to time. These forward-looking statements speak only as of the date hereof. 

– Summary Financial Data PDF Link –

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

For Atheros press contact: Dakota Lee,  408-720-5597, dakota@atheros.com, or Greg Wood, A&R Partners, 650-762-2838, gwood@arpartners.com

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