Fourteenth Consecutive Quarter of Revenue Growth

SANTA CLARA, Calif., Oct. 27 /PRNewswire-FirstCall/ -- Atheros Communications, Inc. (Nasdaq: ATHR), a leading developer of advanced wireless and wired network communications solutions, today announced financial results for its third quarter ended Sept. 30, 2008.

Revenue in the third quarter was a record $138.1 million, compared with $121.5 million reported in the second quarter of 2008 and $106.3 million reported in the third quarter of 2007.

In accordance with U.S. generally accepted accounting principles (GAAP), the company recorded third quarter net income of $10.1 million or $0.16 per diluted share. This compares with GAAP net income of $10.1 million or $0.16 per diluted share in the second quarter of 2008. GAAP net income in the third quarter of 2007 was $9.7 million or $0.16 per diluted share. Total cash, cash equivalents and short-term marketable securities were $274.1 million at Sept. 30, 2008, up $21.5 million from the prior quarter.

Atheros reports gross margins, operating expenses, 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, amortization of acquired intangible assets and acquisition-related charges, the other-than-temporary impairment of long-term investments and the tax impact of these excluded items. A reconciliation of preliminary GAAP to non-GAAP net income, as well as a description of items excluded in the calculation of non-GAAP net income is presented in the financial statements portion of this release.

Non-GAAP gross margin in the third quarter was 49.4 percent, compared with 50.8 percent in the second quarter of 2008 and 49.3 percent in the third quarter of 2007. Non-GAAP operating income was 17.7 percent of revenue, compared with 16.6 percent in the second quarter of 2008 and 17.0 percent in the third quarter of 2007.

Non-GAAP net income in the third quarter was $23.4 million or $0.37 per diluted share, compared with $19.3 million or $0.31 per diluted share in the second quarter of 2008 and $16.9 million or $0.28 per diluted share in the third quarter of 2007.

"We are pleased to report our 14th consecutive quarter of revenue growth," said Dr. Craig Barratt, president and chief executive officer. "Our 14 percent sequential increase in revenue was driven by strength in each of our three channels - PC, Networking and Consumer. Demand for our expanded family of 802.11n products was particularly strong while our 802.11g solutions continue to be incorporated into a wide variety of value-oriented laptops, networking products and consumer devices," Dr. Barratt said.

Recent Atheros Highlights
* October 27, 2008
Atheros Launches Align(TM) 1-Stream Solutions Leveraging 802.11n Specification to Provide Upgrade from Legacy 11g

* September 29, 2008
Atheros Appoints Amir Faintuch as Vice President and General Manager to Lead Mobile Wireless Business Unit

* September 22, 2008
Atheros Named to FORTUNE's 100 Fastest-Growing Companies List

* August 11, 2008
Atheros XSPAN PC Solutions Are First to Achieve Cisco Compatible Extensions Version 5 Certification

Conference Call

Atheros will broadcast its third quarter financial results conference call today, Monday, Oct. 27, 2008 at 2 p.m. Pacific time (5 p.m. Eastern time).

To listen to the call, dial 210-234-0024 approximately 10 minutes prior to the start of the call. The pass code is Atheros. A taped replay will be made available approximately one hour after the conclusion of the call and will remain available for one week. To access the replay, dial 888-562-4471 and use the pass code 2843767.

Atheros' financial results conference call will be available via a live webcast on the investor relations section of the Atheros web site at http://www.atheros.com. Please access the web site 15 minutes prior to the start of the call to download and install any necessary audio software. An archived webcast replay will be available on the web site for 6 months.

About Atheros Communications, Inc.

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

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

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

                             Three Months Ended        Nine Months Ended
                               September 30,             September 30,
                             2008         2007        2008          2007
    Net revenue           $138,064     $106,307     $374,100     $302,633
    Cost of goods sold      69,939       54,048      186,458      154,823
    Gross profit            68,125       52,259      187,642      147,810
    Operating expenses:
      Research and
       development          30,859       25,772       90,860       74,006
      Sales and marketing   13,471        9,508       37,913       26,821
      General and
       administrative        7,034        5,864       19,337       15,377
      Amortization of
       acquired intangible
       assets                2,927        1,790        9,346        5,358
         Total operating
          expenses          54,291       42,934      157,456      121,562

    Income from operations  13,834        9,325       30,186       26,248
    Interest income, net     2,354        3,064        6,718        8,326
    Impairment of long-term
     investments            (4,385)           -      (10,842)           -

    Provision for income
     taxes                  (1,715)      (2,718)      (2,432)      (8,022)
    Net income             $10,088       $9,671      $23,630      $26,552

    Basic earnings
     per share               $0.17        $0.17        $0.40        $0.48
    Diluted earnings
     per share               $0.16        $0.16        $0.38        $0.45

    Shares used in
     computing basic
     earnings per share     60,146       56,218       59,554       55,481

    Shares used in
     computing diluted
     earnings per share     62,624       59,576       62,062       58,999



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

                                                 September 30,  December 31,
                                                      2008           2007

    ASSETS
    Current assets:

    Cash, cash equivalents and marketable
     securities                                     $274,105       $219,544
    Accounts receivable, net                          91,006         58,002
    Inventory                                         52,118         35,497
    Deferred income taxes and other current assets    16,804         16,084
        Total current assets                         434,033        329,127

    Property and equipment, net                       14,162         13,492
    Long-term investments                             21,745         30,453
    Goodwill and acquired intangible assets          127,830        136,125
    Deferred income taxes and other assets            17,699         12,940
                                                    $615,469       $522,137

    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities                             $106,385        $76,844

    Deferred income taxes and other long-term
     liabilities                                      46,712         43,836

    Stockholders' equity                             462,372        401,457
                                                    $615,469       $522,137



     ATHEROS COMMUNICATIONS, INC.
     RECONCILIATION OF PRELIMINARY NON-GAAP ADJUSTMENTS
      (Unaudited)
      (In thousands, except per share data)

                             Three Months Ended         Nine Months Ended
                                September 30,              September 30,
                            2008         2007          2008         2007
    GAAP net income        $10,088       $9,671      $23,630      $26,552

    Stock-based compensation:
      Cost of goods sold       145          146          441          391
      Research and
       development           4,058        3,457       11,636        9,011
      Sales and marketing    2,145        1,353        6,038        3,443
      General and
       administrative        1,260          850        3,439        2,297
        Total stock-based
         compensation        7,608        5,806       21,554       15,142

    Acquisition-related charges:
      Amortization of
       acquired intangible
       assets                2,927        1,790        9,346        5,358
      Other acquisition-
       related charges           3        1,163          945        1,418

    Impairment of long-term
     investments             4,385            -       10,842            -

    Net tax effect of
     non-GAAP adjustments   (1,648)      (1,493)      (5,436)      (3,223)
    Tax benefit from
     change in state tax
     filing position             -            -       (1,068)           -

    Non-GAAP net income    $23,363      $16,937      $59,813      $45,247

    Shares used in
     computing non-GAAP
     basic earnings
     per share              60,146       56,218       59,554       55,481

    Shares used in
     computing non-GAAP
     diluted earnings
     per share              62,624       59,576       62,062       58,999


    Non-GAAP basic
     earnings per share      $0.39        $0.30        $1.00        $0.82
    Non-GAAP diluted
     net income per share    $0.37        $0.28        $0.96        $0.77



     ATHEROS COMMUNICATIONS, INC.
     RECONCILIATION OF PRELIMINARY GAAP TO NON-GAAP FINANCIAL MEASURES

To supplement our unaudited selected financial data presented on a basis consistent with Generally Accepted Accounting Principles (or "GAAP"), the Company discloses certain non-GAAP financial measures, including non-GAAP gross profit, operating expenses, operating income and net income. These supplemental measures exclude stock-based compensation, acquisition-related charges, other-than-temporary impairments of long-term marketable securities, a tax benefit resulting from a change in state tax filing position and any tax detriment or benefit between the income tax expense with and without the non- GAAP measures. These non-GAAP measures are not in accordance with, nor serve as an alternative for GAAP. We believe that these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our GAAP results of operations. These non-GAAP measures should only be viewed in conjunction with corresponding GAAP measures. We compensate for the limitations of non-GAAP financial measures by relying upon GAAP results to gain a complete picture of our performance.

In calculating non-GAAP financial measures, we exclude certain items to facilitate a review of the comparability of our core operating performance on a period-to-period basis. The excluded items represent charges and gains that are primarily driven by discrete events that we do not consider to be directly related to core operating performance. We use non-GAAP measures to evaluate the core operating performance of our business, for comparison with forecasts and strategic plans, for calculating return on investment and for benchmarking performance externally against competitors. In addition, management's incentive compensation is determined using these non-GAAP measures. Also, when evaluating potential acquisitions, we primarily consider the impact of the target's performance and valuation on our non-GAAP measures. Since we find these measures to be useful, we believe that investors benefit from seeing results reviewed by management in addition to seeing GAAP results. We believe that these non-GAAP measures, when read in conjunction with our GAAP financials, provide useful information to investors by offering:

     *    more meaningful comparability of our on-going operating results;
     *    the ability to better identify trends in our underlying business;
          and
     *    a way to compare our operating results against analyst financial
          models and operating results of competitors that supplement their
          GAAP results with non-GAAP financial measures.

The following are explanations of each type of adjustment that we incorporate into non-GAAP financial measures:

Stock-based compensation expense relates to equity awards granted to our workforce. Our stock incentive plans are important components of our employee incentive compensation arrangements and are reflected as expenses in our GAAP results under Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, effective as of January 1, 2006. While we include the dilutive impact of such equity awards in weighted average shares outstanding, the expense associated with stock-based awards is excluded from non-GAAP net income. These non-cash charges are not factored into our internal evaluation of net income as we believe their inclusion would hinder our ability to assess core operational performance.

Acquisition-related charges include the amortization of acquired intangible assets primarily consisting of acquired technology, customer relationships, covenants not to compete, step-up of inventory to its estimated fair value, backlog and cash earn outs. These charges are not factored into our evaluation of potential acquisitions, or of our performance after completion of acquisitions, because they are generally non-cash and are not related to our core operating performance, and the frequency and amount of such charges vary significantly based on the timing and magnitude of our acquisition transactions, the then fair market value of our common stock and the maturities of the businesses being acquired.

Impairment of long-term marketable securities relates to the other-than- temporary, non-operating write down of our investments in auction rate securities rated AA and AAA at the date of purchase. The liquidity and fair value of these securities has been impacted by the uncertainty in the credit markets and the exposure of these securities to the financial condition of bond insurance companies. While we have received all interest payments due on these instruments on a timely basis, we have determined that certain of these assets have been other-than-temporarily impaired and therefore they were written down to their estimated values. These charges are not factored into our internal evaluation of net income as we believe they are non-operating charges that do not impact our core operating performance.

Adjustment for taxes relates to the tax effect of various adjustments that we incorporate into non-GAAP measures in order to provide a more meaningful measure of non-GAAP net income. In addition, the tax benefit resulting from a change in a state tax filing position has been excluded. We believe that these adjustments provide us with the ability to more clearly view trends in our core operating performance.

Reconciliations of non-GAAP measures disclosed in this press release are set forth below (in thousands, except percentages):

                             Three Months Ended        Nine Months Ended
                               September 30,             September 30,
                             2008         2007         2008         2007

    GAAP gross profit      $68,125      $52,259     $187,642     $147,810
      Amortization of
       acquisition-related
       step-up value of
       inventory                 -            -          572          160
      Stock-based
       compensation            145          146          441          391
    Non-GAAP gross profit  $68,270      $52,405     $188,655     $148,361

    GAAP gross profit as
     a % of revenue          49.3%        49.2%        50.2%        48.8%
      Amortization of
       acquisition-related
       step-up value of
       inventory                -%           -%         0.1%         0.1%
      Stock-based
       compensation           0.1%         0.1%         0.1%         0.1%
    Non-GAAP gross profit
     as a % of revenue       49.4%        49.3%        50.4%        49.0%

    GAAP operating
     expense               $54,291      $42,934     $157,456     $121,562
      Stock-based
       compensation         (7,466)      (5,660)     (21,113)     (14,751)
      Acquisition-related
       deferred
       compensation              -       (1,163)        (373)      (1,258)
      Amortization of
       acquired intangible
       assets              (2,927)      (1,790)      (9,346)      (5,358)
    Non-GAAP operating
     expenses              $43,898      $34,321     $126,624     $100,195

    GAAP income from
     operations            $13,834       $9,325      $30,186      $26,248
      Amortization of
       acquisition-related
       step-up value
       of inventory              -            -          572          160
      Stock-based
       compensation          7,611        5,806       21,554       15,142
      Acquisition-related
       deferred compensation     -        1,163          373        1,258
      Amortization of
       acquired intangible
       assets                2,927        1,790        9,346        5,358
    Non-GAAP income from
     operations            $24,372      $18,084      $62,031      $48,166

    GAAP income from
     operations as a
     % of revenue            10.0%         8.8%         8.1%         8.7%
      Amortization of
       acquisition-related
       step-up value of
       inventory                -%           -%         0.1%           -%
      Stock-based
       compensation           5.5%         5.4%         5.8%         5.0%
      Acquisition-related
       deferred compensation    -%         1.1%         0.1%         0.4%
      Amortization of acquired
       intangible assets      2.2%         1.7%         2.5%         1.8%
    Non-GAAP income from
     operations as a %
     of revenue              17.7%        17.0%        16.6%        15.9%

SOURCE: Atheros