ARC : Update on strategic and operational plans third quarter trading results in line with the 13 September Statement

Elstree,UK - 5 October 2001: ARC International plc (LSE:ARK.L), a leading designer and developer of customisable, high-performance microprocessors and related intellectual property solutions, today provided confirmation of its third quarter 2001 trading performance. It also provided an update on its strategic and operational plans following the recent appointment of John Stockton as Chief Executive officer.

Key Points
 

•  Third quarter turnover approximately £2 million, in line with 13 September statement
•  12 design licences and 2 additional customers won in third quarter; including a new tier one  OEM customer and substantial re-licensing by established customers
• Approximately £125 million cash in hand at the end of September 2001
• Strategy being refined to exploit ARC's major competitive advantages
• Increased sales emphasis to be placed on high volume standard product opportunities with major semiconductor suppliers
• Product lines consolidated into two groups: Hardware IP and Software
• Sales and marketing retargeted and strengthened
• Clear focus on target vertical markets

John Stockton, Chief Executive Officer of ARC International, said:

"Market conditions remained difficult throughout the period but I am encouraged by the addition of another tier one licensee and the repeat usage of our technology by a number of our established customers.

"In today's tougher market conditions we will focus more sharply on the sales channels and market segments where we have the greatest competitive advantage and where we can build solid ongoing trading relationships. We will place increased sales emphasis on standard product opportunities with major semiconductor suppliers where potential volumes are substantially higher. The consolidation of our product lines into two groups, Hardware Intellectual Property and Software, will enable us to provide our customers with more integrated solutions and provide a clear market and service focus in each area.

"I have great confidence in the Company's future success based upon our strategy and operational action plans for advancing our progress towards profitability."

Trading Update

Preliminary, unaudited turnover for the three months ended 30 September 2001 is expected to be approximately £2 million, compared with £3.5 million in the three months ended 30 June 2001. During the third quarter, we added 12 new licence agreements and two new customers, including a tier one original equipment manufacturer (OEM), bringing our total design licences to 99 licences from 58 customers. Our technology was re-licensed by several of our established customers for new designs, reflecting the growing recognition of its commercial benefits. In addition we concluded a number of significant development and partnership licences with leading companies within their market sectors.

The pre-exceptional net loss for the third quarter is expected to be approximately £7 million, compared with a pre-exceptional net loss of £6.1 million for the second quarter of 2001. Cash in hand at the end of the third quarter was approximately £125 million.

Actual results for the quarter ended 30 September 2001 will be reported on 1 November 2001.

Strategic and Operational Plan

The Board has recently undertaken an extensive strategic review. This confirmed that the commercial advantages of ARC's innovative technology are being increasingly acknowledged. However, in the light of today's market conditions, the strategy is being refined to exploit ARC's competitive advantages to the full.

The key changes being implemented are:
 

• Sales channel focus is being adjusted. Increased sales emphasis will be placed on application specific standard product (ASSP) opportunities through major semiconductor companies, which offer higher potential volumes and ongoing revenue through multiple designs and royalties. Within the system OEM channel, ARC's principal sales channel to date, there will be more targeted concentration on developing business with tier one customers. High-quality partnership licences will be sought with other intellectual property companies that are market leaders within their sectors.
• Product lines have been consolidated into two groups: Hardware Intellectual Property (IP), comprising the microprocessor and peripherals, and Software, comprising development tools and protocols. Single engineering and product development teams will operate within these two groups, completing the integration of the acquired Metaware, Vautomation and Precise businesses. While the major activity of the Company will remain its Hardware IP business, development of the software business will be improved through a more integrated offering.
• Product development has been prioritised to target revenue enhancing projects aimed at our selected vertical market segments.
• Sales and marketing is being retargeted and strengthened. An integrated sales team, incorporating the hardware and software teams, will enable us to achieve more effective cross-selling and lead generation. Activity will be focused on our target customers and selected vertical market segments. Salesforce quotas and incentives are being revised to support the strategic objectives.
• Vertical markets will be targeted with increased clarity to exploit ARC's competitive advantages in each market segment:
• Wireless: ARC's extendable architecture is particularly suitable for battery powered applications.
• Wired networking: ARC's multi-processor capabilities, configurable and extendable architecture and peripherals strength are major benefits.
• Consumer electronics: ARC's configurable features enable it to achieve the optimum die size, provide the best battery life solution and be customised for the many highly specific applications in this sector.

In addition, the cost base of the business has been significantly reduced by the cost reduction programme announced on 1 August. This lower cost base, combined with the strategic and operational changes being implemented throughout the business, are expected to advance the Company's progress to profitability.

For further information, please contact:

John Stockton CEO, ARC International plc 020 8236 2800
Simon Poulton CFO, ARC International plc 020 8236 2800
Peter Aubusson Investor Relations Manager, ARC International plc 020 8236 2800
Freida Davidson Citigate Dewe Rogerson 020 7638 9571

ARC's management will be available on 020 7638 9571 on 5 October.

About ARC International

ARC International plc, is a leading developer of user-customisable, high-performance microprocessor cores, including ARCtangentTM, and related intellectual property technology enabling designers to reduce time to market for their system-on-a-chip products. 58 licensees use ARC's technology including: Austria Mikro Systeme, BrightCom, Conexant Systems, Cypress Semiconductor, Fujitsu Microelectronics, IBM, Infineon Technologies, Qlogic, RF Micro Devices, SanDisk, Texas Instruments and Vtech Communications. ARC 's target markets are wireless telecoms, wired networking, and consumer electronics embedded systems. Products available based on ARC's technology include digital still cameras, set-top boxes and network processors.

With headquarters in Elstree, England, ARC International plc and its group companies employ about 230 people in research and development, sales, and marketing offices across North America and Europe. MetaWare Inc., Precise Software Technologies Inc. and VAutomation Inc. are wholly owned subsidiaries of ARC International, providing software development tools, hardware and software intellectual property and real time operating systems for an integrated approach to system-on-a-chip development. ARC International plc is listed on the London Stock Exchange (LSE:ARK). The company's website is located at www.arccores.com

Statements made in this press release that are not historical facts include forward-looking statements that involve risks and uncertainties. Important factors that could cause actual results to differ from those indicated by such forward-looking statements include, among others, market acceptance of the ARC technology; fluctuations in and unpredictability of the Company's quarterly results; general economic and business conditions; regulatory policies adopted by governmental authorities; assumptions regarding the Company's future business strategy; changes in technology; competition; ability to attract and retain qualified personnel; risks associated with the Company's international operations; and other uncertainties that are discussed in the "Investment Considerations" section of the Company's listing particulars dated 28 September 2000 filed with the United Kingdom Listing Authority and the Registrar of Companies in England and Wales.

ARC International (UK) Ltd. and ARC Cores Inc., both of which are wholly owned subsidiaries of ARC International plc, trade under the name of ARC Cores.

ARC Cores is a trademark of ARC International (UK) Limited.

All other brands or product names are the property of their respective holders.