PMC-Sierra Reports First Quarter 2008 Results

Quarterly Revenues Increase 21% Year over Year; Non-GAAP Net
Income Highest in 8 Years
SANTA CLARA, Calif.--(Business Wire)--
PMC-Sierra, Inc. (Nasdaq:PMCS):

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-- Q1 Net Revenues: $125.0 million
-- Q1 GAAP Net Loss: $(22.7) million or $(0.10) per share (fully
diluted)
-- Q1 Non-GAAP Net Income: $23.5 million or $0.11 per share (fully
diluted)
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PMC-Sierra, Inc. (Nasdaq:PMCS), a leading provider of high-speed
broadband communications and storage semiconductors, today reported
results for the first quarter ending March 30, 2008.

Net revenues in the first quarter of 2008 were $125.0 million,
which is 21% higher than the first quarter of 2007 and a slight
increase compared with $123.6 million in the fourth quarter of 2007.

Net loss in the first quarter of 2008 on a GAAP basis was $22.7
million (GAAP basic and diluted loss per share of $0.10) compared with
a GAAP net loss in the fourth quarter of 2007 of $5.1 million (GAAP
basic and diluted loss per share of $0.02). Non-GAAP net income in the
first quarter of 2008 was $23.5 million (non-GAAP diluted earnings per
share of $0.11) compared with non-GAAP net income of $20.1 million
(non-GAAP diluted earnings per share of $0.09) in the fourth quarter
of 2007.

Non-GAAP net income in the first quarter of 2008 excludes the
following items: (i) $7 million in stock-based compensation expense;
(ii) $9.8 million amortization of purchased intangible assets; (iii)
$0.9 million in restructuring costs; (iv) $3.6 million foreign
exchange gain relating to an income tax liability in a foreign
jurisdiction; (v) $1.4 million gain on repurchase of senior
convertible notes, net; and (vi) $30.3 million relating to FIN48 items
arising in prior years and related interest, $2.3 million tax impact
related to repatriation of earnings from a foreign jurisdiction, and
$0.8 million income tax provision related to the non-GAAP adjustments
above.

For a full reconciliation of GAAP net income to non-GAAP net
income, please refer to the schedule included with this release. The
Company believes the additional non-GAAP measures are useful to
investors for the purpose of financial analysis. Management uses the
non-GAAP measures internally to evaluate its in-period operating
performance before gains, losses and other charges that are considered
by management to be outside of the Company's core operating results.
In addition, the measures are used to plan for the Company's future
periods. However, non-GAAP measures are neither stated in accordance
with, nor are they a substitute for, GAAP measures.

"In the first quarter, we experienced strong demand for our fiber
to the home, enterprise storage, and laser printer products," said Bob
Bailey, chairman and chief executive officer of PMC-Sierra. "We
believe that the overall business environment has improved in Asia,
and PMC-Sierra is gaining market share in a number of key target
markets."

During the first quarter of 2008, the Company repurchased $98.0
million of its outstanding 2.25% senior convertible notes (due October
2025) in the open market. Following the repurchase, a total of $127.0
million of senior convertible notes are outstanding on the Company's
balance sheet at the end of the first quarter of 2008.

On April 2, 2008, the Company announced the appointment of Greg
Lang as president and chief executive officer. The position will
become effective immediately upon the resignation of Robert Bailey as
the Company's president and chief executive officer following the
filing of the Company's first quarter 2008 Form 10-Q, which will be on
or before May 9, 2008. The Company's Board of Directors also elected
Mr. Lang to serve as a director effective as of the next meeting of
the Board. Mr. Bailey will continue as PMC-Sierra's Chairman of the
Board. Prior to his appointment at PMC-Sierra, Mr. Lang was president
and CEO at Integrated Device Technology, Inc. since 2001. Before that,
Mr. Lang spent 15 years at Intel and was vice president and general
manager of the Platform Networking Group.

The Company made the following product announcements in Q1 2008:

-- PMC-Sierra announced a multi-year joint development agreement
with IBM for RAID technology. The companies expect this
agreement to accelerate the development of innovative RAID
chipset and software solutions for 6Gbit/s next-generation
enterprise server and storage systems.

-- We introduced a new family of controller-based encryption
solutions for secure enterprise storage. The Tachyon(R) QE8e+
for Fibre Channel and the SPCe 8x6G for SAS/SATA both feature
PMC-Sierra's StorCladTM encryption technology that
significantly improves system performance, cost and
manageability compared to currently available data security
solutions.

-- We announced the availability of complete 10G EPON reference
designs for Optical Line Terminals (OLTs) and Optical Network
Units (ONTs). The PAS8001 OLT and PAS9001 ONU reference
designs leverage PMC-Sierra's market-leading EPON capabilities
and integrate all the functionality to enable 10Gbit/s IEEE
802.3av EPON.

-- At Storage Networking World Spring, we announced the SXP
24x6GSec and SXP 36x6GSec SAS-2 expander embedded switches
that significantly improve performance, manageability and
security in enterprise storage applications. PMC-Sierra now
provides the first end-to-end chipset solutions for 6Gb/s
SAS/SATA enterprise storage systems and server RAID.

First Quarter 2008 Conference Call

Management will review the first quarter 2008 results and provide
guidance for the second quarter of 2008 during a conference call at
1:45 p.m. Pacific Time/4:45 p.m. Eastern Time on April 17, 2008. The
conference call webcast will be accessible under the Financial Events
and Calendar section at http://investor.pmc-sierra.com/. To listen to
the conference call live by telephone, dial 416-642-5213 approximately
ten minutes before the start time. A telephone playback will be
available after the completion of the call and can be accessed at
647-436-0148 using the access code 4313465. A replay of the webcast
will be available for five business days.

Second Quarter 2008 Conference Call

PMC-Sierra is planning on releasing its results for the second
quarter of 2008 on July 17th. A conference call will be held on the
day of the release to review the quarter and provide an outlook for
the third quarter of 2008.

Safe Harbor Statement

PMC-Sierra's forward-looking statements are subject to risks and
uncertainties. Actual results may differ from these projections. The
Company's SEC filings describe more fully the risks associated with
the Company's business including PMC-Sierra's limited revenue
visibility due to variable customer demands, market segment growth or
decline, orders with short delivery lead times, customer
concentration, and other items such as foreign exchange rates. The
Company does not undertake any obligation to update the
forward-looking statements.

About PMC-Sierra

PMC-Sierra(TM) is a leading provider of broadband communications
and storage semiconductors for metro, access, fiber to the home,
wireless infrastructure, storage, laser printers, and fiber access
gateway equipment. PMC-Sierra offers worldwide technical and sales
support, including a network of offices throughout North America,
Europe, Israel and Asia. The company is publicly traded on the NASDAQ
Stock Market under the PMCS symbol. For more information, visit
www.pmc-sierra.com.

(C) Copyright PMC-Sierra, Inc. 2008. All rights reserved. PMC and
Tachyon are registered trademarks of PMC-Sierra, Inc. in the United
States and other countries. PMC-SIERRA, PMCS, StorClad and "Enabling
connectivity. Empowering people." are trademarks of PMC-Sierra, Inc.
Other product and company names mentioned herein may be trademarks of
their respective owners.

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PMC-Sierra, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share amounts)
(unaudited)
Three Months Ended
--------------------------------
March 30, December 30, April 1,
2008 2007 2007

Net revenues $125,040 $ 123,569 $103,665
Cost of revenues 43,306 43,205 37,571
--------- ------------ ---------
Gross profit 81,734 80,364 66,094

Other costs and expenses:
Research and development 37,310 37,418 44,524
Selling, general and administrative 24,209 24,493 26,698
Amortization of purchased
intangible assets 9,836 9,836 9,835
Restructuring costs and other
charges 887 2,593 6,894
--------- ------------ ---------
Income (loss) from operations 9,492 6,024 (21,857)

Other income (expense):
Interest income, net 2,234 2,877 1,837
Foreign exchange gain (loss) 3,158 (2,511) (996)
Amortization of debt issue costs (207) (242) (242)
Gain on repurchase of Senior
convertible notes, net 1,351 - -
--------- ------------ ---------
Income (loss) before provision for
income taxes 16,028 6,148 (21,258)

(Provision for) recovery of income
taxes (38,686) (11,229) 5,435
--------- ------------ ---------
Net loss $(22,658) $ (5,081) $(15,823)
========= ============ =========

Net loss per common share - basic and
diluted $ (0.10) $ (0.02) $ (0.07)

Shares used in per share calculation
- basic and diluted 219,931 218,912 213,881
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As a supplement to the Company's condensed consolidated statement of
operations presented on a generally accepted accounting principles
(GAAP) basis, the Company provides additional non-GAAP measures for
net income (loss) and net income (loss) per share in its press
release.

A non-GAAP financial measure is a numerical measure of a company's
performance, financial position, or cash flows that either excludes
or includes amounts that are not normally excluded or included in the
most directly comparable measure calculated and presented in
accordance with GAAP. The Company believes that the additional non-
GAAP measures are useful to investors for the purpose of financial
analysis. Management uses these measures internally to evaluate the
Company's in-period operating performance before gains, losses and
other charges that are considered by management to be outside of the
Company's core operating results. In addition, the measures are used
for planning and forecasting of the Company's future periods.
However, non-GAAP measures are not in accordance with, nor are they a
substitute for, GAAP measures. Other companies may use different non-
GAAP measures and presentation of results.

PMC-Sierra, Inc.
Reconciliation of GAAP net loss to Non-GAAP net income
(in thousands, except for per share amounts)
(unaudited)

Three Months Ended
March 30, 2008
--------------------------------
Non-GAAP
Reported Items Non-GAAP
--------- -------- ---------

Net revenues $125,040 - $125,040

Cost of revenues 43,306 (315) (1) 42,991
--------- -------- ---------

Gross profit 81,734 315 82,049

Operating expenses:
Research and development 37,310 (3,162) (1) 34,148
Selling, general and
administrative 24,209 (3,529) (1) 20,680
Amortization of purchased
intangible assets 9,836 (9,836) (2) -
Restructuring costs and other
charges 887 (887) (3) -
--------- -------- ---------

Income (loss) from operations 9,492 17,729 27,221

Other income (expense):
Interest income, net 2,234 - 2,234
Foreign exchange gain (loss) 3,158 (3,605) (4) (447)
Amortization of debt issue costs (207) - (207)
Gain on repurchase of Senior
convertible notes, net 1,351 (1,351) (5) -
--------- -------- ---------

Income (loss) before provision for
income taxes 16,028 12,773 28,801

(Provision for) recovery of income
taxes (38,686) 33,408 (6) (5,278)
--------- -------- ---------
Net (loss) income $(22,658) $46,181 $ 23,523
========= ======== =========

Net (loss) income per common share -
basic $ (0.10) $ 0.11
Net (loss) income per common share -
diluted $ (0.10) $ 0.11

Shares used in per share calculation
- basic 219,931 219,931
Shares used in per share calculation
- diluted 219,931 220,948

Three Months Ended
April 1, 2007
----------------------------------
Non-GAAP
Reported Items Non-GAAP
--------- --------- ---------

Net revenues $103,665 - $103,665

Cost of revenues 37,571 (517) (1) 37,054
--------- - ------- ---------

Gross profit 66,094 517 66,611

Operating expenses:
Research and development 44,524 (4,267) (1) 40,257
Selling, general and
administrative 26,698 (4,633) (1) 22,065
Amortization of purchased
intangible assets 9,835 (9,835) (2) -
Restructuring costs and other
charges 6,894 (6,894) (7) -
--------- - ------- ---------

Income (loss) from operations (21,857) 26,146 4,289

Other income (expense):
Interest income, net 1,837 - 1,837
Foreign exchange gain (loss) (996) 979 (4) (17)
Amortization of debt issue costs (242) - (242)
Gain on repurchase of Senior
convertible notes, net - - -
--------- - ------- ---------

Income (loss) before provision for
income taxes (21,258) 27,125 5,867

(Provision for) recovery of income
taxes 5,435 (6,902) (8) (1,467)
--------- - ------- ---------
Net (loss) income $(15,823) $ 20,223 $ 4,400
========= = ======= =========

Net (loss) income per common share
- basic $ (0.07) $ 0.02
Net (loss) income per common share
- diluted $ (0.07) $ 0.02

Shares used in per share
calculation - basic 213,881 213,881
Shares used in per share
calculation - diluted 213,881 215,385

Non-GAAP adjustments include:
(1) Stock based compensation of $7 million (Q1'07 - $9.4 million).
(2) $9.8 million amortization of intangible assets purchased from
Passave, Inc. and the Avago Storage Semiconductor Business.
(3) $0.9 million restructuring costs including $0.3 million for
severance and $0.6 million for excess facilities.
(4) Foreign exchange gain of $3.6 million (Q1'07 - foreign exchange
loss of $1 million) on an income tax liability in a foreign
jurisdiction and related cash held for future settlement of this
liability.
(5) $3.3 million gain on repurchase of Senior convertible notes, net
of $1.9 million write-off of related debt issue costs.
(6) $30.3 million relating to FIN48 items arising in prior years and
related interest, $2.3 million tax impact related to repatriation of
earnings from a foreign jurisdiction, and $0.8 million income tax
provision related to the non-GAAP adjustments above.
(7) $6.9 million restructuring costs including $4.5 million severance,
$0.4 million write-down of assets and $2 million provision for excess
facilities.
(8) $4 million income tax recovery relating to prior years and $2.9
million income tax effect relating to these non-GAAP adjustments.
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PMC-Sierra, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)

March 30, December 30,
2008 2007

ASSETS:
Current assets:
Cash and cash equivalents $ 285,624 $ 364,922
Accounts receivable, net 45,670 39,362
Inventories, net 35,876 34,246
Prepaid expenses and other current assets 15,161 16,266
Income tax receivable - 2,365
----------- ------------
Total current assets 382,331 457,161

Goodwill 396,144 398,418
Intangible assets, net 185,713 187,126
Property and equipment, net 17,820 18,725
Investments and other assets 7,871 10,747
Deposits for wafer fabrication capacity 5,145 5,145
Deferred tax assets 52,541 54,676
----------- ------------
$1,047,565 $1,131,998
=========== ============

LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 21,041 $ 24,011
Accrued liabilities 55,189 53,617
Income taxes payable 421 -
Deferred income taxes 2,042 2,787
Liability for unrecognized tax benefit 76,777 71,586
Accrued restructuring costs 9,693 10,911
Deferred income 17,373 13,674
----------- ------------
Total current liabilities 182,536 176,586

Long-term obligations 1,232 958
2.25% Senior convertible notes due October
15, 2025 127,000 225,000
Deferred income taxes 24,001 23,023
Liability for unrecognized tax benefit 127,870 107,764

PMC special shares convertible into 2,065
(2007 - 2,065) shares of common stock 2,671 2,671

Stockholders' equity
Common stock and additional paid in capital 1,406,080 1,395,183
Accumulated other comprehensive income
(loss) (543) 1,437
Accumulated deficit (823,282) (800,624)
----------- ------------
Total stockholders' equity 582,255 595,996
----------- ------------
$1,047,565 $1,131,998
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PMC-Sierra, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

Three Months Ended
-------------------
March 30, April 1,
2008 2007

Cash flows from operating activities:
Net loss $(22,658) $(15,823)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Stock-based compensation 7,006 9,418
Depreciation and amortization 13,157 14,965
Foreign exchange (gain) loss on tax liability,
net (3,605) 979
Gain on repurchase of Senior convertible
notes, net (1,351) -
(Gain) loss on disposal of property (32) 484
Changes in operating assets and liabilities:
Accounts receivable (6,308) (1,627)
Inventories (1,630) 3,904
Prepaid expenses and other current assets 711 1,159
Accounts payable and accrued liabilities (7,464) (47)
Deferred taxes and income taxes payable 38,556 (1,615)
Accrued restructuring costs (1,218) 4,357
Deferred income 3,699 1,682
--------- ---------
Net cash provided by operating activities 18,863 17,836
--------- ---------

Cash flows from investing activities:
Purchases of property and equipment (1,467) (2,257)
Proceeds from sale of property and equipment 32 -
Purchase of intangible assets (4,155) (1,388)
--------- ---------
Net cash used in investing activities (5,590) (3,645)
--------- ---------

Cash flows from financing activity:
Repurchase of Senior convertible notes (95,491) -
Proceeds from issuance of common stock 3,891 7,596
--------- ---------
Net cash provided by (used in) financing
activity (91,600) 7,596
--------- ---------

Effect of exchange rate changes on cash and cash
equivalents (971) -
Net (decrease) increase in cash and cash
equivalents (78,327) 21,787
Cash and cash equivalents, beginning of the period 364,922 258,914
--------- ---------
Cash and cash equivalents, end of the period $285,624 $280,701
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PMC-Sierra, Inc.
Vice President & CFO
Mike Zellner, 1-408-988-1204
or
VP Marketing Communications
David Climie, 1-408-988-8276
or
Sr Manager, Communications
Susan Shaw, 1-408-988-8515

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