Interim Results

     
BW20030729002115  20030730T060354Z UTC


( BW)(ARC-INTL-PLC)(ARK) Interim Results

    Business Editors
    UK REGULATORY NEWS

    LONDON--(BUSINESS WIRE)--July 30, 2003--

                        ARC INTERNATIONAL PLC
                  INTERIM RESULTS FOR THE SIX MONTHS
                          ENDED 30 JUNE 2003

ARC International plc (LSE: ARK), a world leader in configurable
System-On-Chip (SoC) platform technologies, today announces unaudited
financial results for the second quarter and the six months ended 30
June 2003.

Financial and Operational Highlights

Second Quarter ended 30 June 2003:

--  Turnover of £2.4 million, down 17% sequentially (Q1 2003: £2.9
    million)

--  Operating expenses before exceptional, amortisation and
    depreciation reduced by 4% to £6.8 million (Q1 2003: £7.1 million)

--  Pre-exceptional net loss of £5.6 million (Q1 2003: £4.4 million)

--  Cash burn (excluding the share buyback) reduced by 23% to £3.4
    million

--  Increase in royalty income from £0.2 million to £0.4 million, a
    sequential increase of 130%

--  10 new design licenses won, 8 for USB Now? and 2 for the
    ARCtangent? processor

--  Software and development tools shipped to more than 50 customers

--  Launched ARC CertiPHY Programme to address need for
    interoperability between USB Solutions

--  Completed share buyback

Six months ended 30 June 2003:

--  Turnover at £5.3 million up 3% at constant exchange rates, down 8%
    over the same period in the prior year after currency impact
    (2002: £5.7 million)

--  Operating expenses before exceptional, amortisation and
    depreciation reduced by 6% to £14.0 million (2002: £14.8 million)

--  Pre-exceptional net loss of £10.0 million (2002: £10.4 million)

--  Cash burn (excluding the buyback) reduced by 13% to £7.8 million

--  Strong cash position of £44.9 million following completion of the
    share buyback

--  24 design licences and additional customers won in the first half
    2003, 15 for USB peripheral products and 9 for the ARCtangent?
    processor

--  Launched several new products including: OS Changer, VoIP codec,
    Embedded Software for Motorola(R) ColdFire(TM) MCF5282 Processor
    and USB Class and Device Drivers.

Commenting on the results, Mike Gulett, Chief Executive Officer, said:

"Customers continued to be cautious in their decisions to license IP
and we experienced a number of license deferrals this past quarter. In
spite of not closing as many licensing deals as in previous quarters,
we are encouraged that these deals have not been lost to competitors."

"As a result of the configurability of the ARCtangent, an increasing
number of customers are now integrating multiple ARCtangent cores into
their designs. Most recent examples include iStor Networks and Xiran."

"Our pipeline for new products is stronger than ever. In the third
quarter, we are on track to introduce a significant number of products
across the processor, peripheral and software business units. We also
had our highest quarter for royalty payments which accounted for 16%
of the revenue base and we expect royalty income growth to continue."

"We will continue to focus on optimising our cost structure and
reducing quarterly cash burn. In the last six months, we have
completed the share buy back as planned and maintain a strong balance
sheet."

For further information, please contact:

ARC International plc
Mike Gulett CEO,    [phone]
Monica Johnson CFO, [phone]


Tulchan Communications
Julie Foster Consultant,    [phone]

ARC will host an analyst briefing today at 9:30am. The slides in the
briefing presentation may be accessed on the presentations page of the
Investor Relations section of ARC's website: www.ARC.com . An audio
replay of the briefing will also be available on ARC's website.

Chief Executive's Review

Overview

In the first half of 2003, ARC reported a 3% increase in turnover at
constant exchange rates to £5.3 million, down 8% with currency impact
from £5.7 million over the same period last year. Operating expenses
before exceptionals, amortisation and depreciation were reduced by 6%
to £14 million.

Many of our current and prospective customers continue to delay new
product development and a high number of license deals were deferred.
However, we booked 10 new design licenses including 2 customers for
the ARCtangent processor and 8 licenses for USB in the second quarter,
bringing the total for the first half of the year to 24 new peripheral
and processor customers. We also continue to license more than 50 new
software customers per quarter.

As a result of the prolonged SARs epidemic, we did not reach our
projected growth in Asia, but the region contributed a 10% increase in
our overall turnover stream, up to 10% of turnover from the 8%
reported in Q1 2003.

Share Buyback

ARC completed its share buyback in May 2003. The Company purchased
162,413,705 shares at a strike price of 29 pence, amounting to a total
consideration of £48.3 million (including expenses). Following the
buyback, the company is left in a strong position with £44.9 million
in cash remaining.

Product Strategy and Customer Focus

The Company continues to build on its strategy of offering more
elements to build a total system solution. Applications such as
digital still cameras (DSC) and storage networking, utilize products
from across all of ARC's business units. Success of this approach is
increasingly evidenced by the reported turnover split. In the first
half of the year, 35% of turnover came from processors, 30% from
toolsets and software and 35% from peripherals. Providing more
vertically integrated solutions makes it easier for our customers to
minimize development costs and risk while designing complex products.
We believe that this approach will benefit the company over the long
term.

Consumer Electronics

A growing number of companies are evaluating ARC's technology for
consumer electronics. Recently announced companies, which are now
using ARC's products include:

Altek Labs, Inc., a Taiwanese-based company, manufactures digital
cameras for Konica, HP and Kodak. It licensed the ARCtangent processor
and ARC's MetaWare software development tool suite to aid the
development of next generation products.

Pictos/ESS Technology used ARCtangent technology and elements of the
MetaWare software development tool suite in both the Raptor 2 and 3
processors for digital cameras. Raptor 3, their latest product, was
just qualified by TSMC fabrication facility and is expected to go into
production soon.

SMal Camera Technologies selected both the processor and USB IP for
use in the world's thinnest digital camera.

Fujitsu Microelectronics introduced its new highly integrated IP-phone
VoIP chip for internet telephony applications in April. This product
is based on a user-customized ARCtangent processor.

Multiple-processor designs

More than two dozen companies have integrated multiple ARCtangent
cores into a variety of multiprocessor applications over the years.
Most recently:

iStor Networks developed a complete new line of network processors
based on the ARCtangent and its associated software development tools.
It selected ARC's technology because it filled iStor's need for power,
scalability and architectural agnosticism.

Xiran credits the ARCtangent as a key reason their new network
processing engine won a best-in-breed award at this year's National
Association of Broadcasters Conference. It integrated eight ARCtangent
processors into this award-winning product.

USB and ARCtangent Processors

In April, ARC introduced the VoIP software codec for the ARCtangent.
The voice coding library is the first in a new family of software
codecs that increases the number of building blocks ARC provides for
its customers. Several new multimedia codecs will be introduced later
this year.

ARC also introduced the first six USB On-the-Go (USB-OTG) class and
device drivers. These new products complement the Company's existing
USB software to provide the industry's first complete software package
for primary USB OTG applications. Until now, class drivers for USB OTG
were not readily available to system designers, so offering complete
driver solutions is extremely attractive to developers looking for a
time-to-market advantage. Additional drivers will be announced this
year.

Software and Development tools

In February, the ARC-OS Changer was introduced. This software product
reduces the time it takes an engineering team to transfer their
software from one development environment to another. In April, the
Company announced software support for the popular ColdFire(TM)
processor from Motorola(R). These offerings, and others to be
announced, are aimed at easing the development of complex products
based on non-ARC processors.

Strategic Alliances

ARC has expanded and successfully signed new strategic partnerships
with industry leaders to assist engineers with the development of
complex embedded systems. In the first half of the year, ChipIdea,
Genesys Logic America, IBM, Innovative, LSI Logic, Metrowerks, Royal
Philips Electronics, SMSC and TSMC either expanded their relationships
or entered into new relationships with us, opening new customer
channels.

--  ChipIdea, Genesys, Innovative, Philips and SMSC joined ARC's
    industry-leading USB team to introduce the ARC CertiPHY(TM)
    Programme, which aids SoC developers with interoperability testing
    and eases industry certification of their products.

--  IBM Blue Logic IP Collaboration Programme IBM upgraded ARC to gold
    status in the IBM Blue Logic IP Collaboration Programme with
    successful production of ARC-based product.

--  LSI Logic added ARC's high-speed USB OTG to its CoreWare® library
    of Intellectual Property. LSI makes this library available to
    internal and external customers for new product development.

--  Metrowerks Our relationship with Metrowerks, an independent
    operating subsidiary of Motorola Inc., continues to expand. Over
    the next two quarters, ARC will introduce software development
    boards for four major new processors.

--  TSMC Five Star IP Alliance Programme ARC is a Five Star IP
    Alliance member for the ARCtangent processor and the USB product
    line. In order to be admitted into TSMC's Five Star IP Alliance
    Programme, at least one customer must have its ARC-based product
    go through the complete production process at one of TSMC's
    fabrication facilities. To date, twenty-three of ARC's customers
    have had their prototypes produced by TSMC. Six of those customers
    are in production.

Outlook

Our pipeline for new products is stronger than ever. In the third
quarter, we are on track to introduce a significant number of products
across the processor, peripheral and software business units. We will
continue to focus on optimising our cost structure and reducing cash
burn. In the last six months, we have completed a share buy back and
maintain a strong balance sheet. We now believe that ARC is in a much
stronger position to benefit from any pick-up in customer spending.

Financial Review

Second Quarter ended 30th June 2003

Turnover

Total turnover for the second quarter was £2.4 million, down 17% from
the first quarter turnover of £2.9 million and 20% year over year (Q2
2002: £3.0 million). Prior to currency translation, with virtually all
sales in US$, underlying turnover was down 15% sequentially and 11%
over Q2 2002. License income was 33% lower than the previous quarter
at £1.5 million (Q1 2003: £2.2 million). Maintenance and service
income was similar to that in the previous quarter at £0.5 million (Q1
2003: £0.5 million). The number of designs being shipped by our
customers and contributing to royalties increased significantly
resulting in a 130% increase in royalties to £0.4 million (Q1 2003:
£0.2 million).

Costs

Cost of sales of £0.4 million increased 2% sequentially and 16% year
over year (Q1 2003: £0.4 million, Q2 2002: £0.3 million) which,
combined with the turnover decrease, resulted in a gross margin of 84%
(Q1 2003: 87%). Total operating expenses (excluding exceptional costs,
amortisation of goodwill and depreciation) decreased by 4%
sequentially and 7% year over year to £6.8 million (Q1 2003: £7.1
million, Q2 2002: £7.4 million).

The Company had 205 employees at 30 June 2003 compared with 209 at 31
March 2003. Research and development costs were down 9% sequentially
and unchanged year over year at £3.1 million (Q1 2003: £3.4 million,
Q2 2002: £3.1 million). Sales and marketing costs decreased 9%
sequentially and 13% year over year to £2.2 million (Q1 2003: £2.4
million, Q2 2002: £2.6 million). General and administration costs at
£1.1 million were up 23% sequentially and down 17% year over year (Q1
2003: £0.9 million, Q2 2002: £1.4 million) due to foreign exchange
losses and one-time expenses.

Interest

Interest income decreased 25% sequentially and 36% year over year to
£0.7 million (Q1 2003: £1.0 million, Q2 2002: £1.1 million) due to
lower cash balances.

Net Loss

The net loss prior to exceptional items was £5.6 million representing
a sequential increase of 9% (not including the Q1 2003 tax credit) and
a 12% increase year over year (Q1 2003: £5.2 million, Q2 2002: £5.0
million). Loss per share prior to exceptional items increased to (2.3)
p (Q1 2003: (1.5) p, Q2 2002: (1.7) p) as a result of the significant
reduction in share count following the share buyback. During the share
buy back, the Company purchased 162,413,705 shares resulting in
143,980,214 shares outstanding as of 30 June 2003. Net loss including
exceptional items was £5.9 million (Q1 2003: £3.8 million, Q2 2002:
£4.9 million). The £0.2 million exceptional item relates to reductions
in the workforce announced in April 2003.

Cash flow and balance sheet

The net cash outflow from operations was £4.1 million (Q1 2003: £5.4
million, Q2 2002: £4.8 million). Capital expenditure was £0.6 million
and the outflow related to the share buyback was £48.3 million. The
movement in net funds during the quarter was an outflow of £49.5
million. Net assets at 30 June 2003 were £57.1 million, including net
cash of £44.9 million.

Six months ended 30 June 2003

Turnover

Total turnover at £5.3 million was up 3% at constant exchange rates
and down 8% from the previous year with currency impact (2002: £5.7
million). License income was £3.8 million (2002: £4.4 million).
Maintenance and service income was £1.0 million (2002: £1.1 million)
and royalties were £0.5 million (2002: £0.2 million).

Costs

Cost of sales was £0.8 million (2002: £0.7 million), resulting in a
gross margin of 85% (2002: 87%). Total operating expenses (excluding
exceptional costs, amortisation of goodwill and depreciation)
decreased 6% to £14.0 million (2002: £14.8 million).

Total headcount in the business at 30 June 2003 was 205 employees
compared with 212 at 30 June 2002. Research and development costs were
up 6% to £6.5 million (2002: £6.1 million), sales and marketing costs
were down 12% to £4.7 million (2002: £5.3 million) and general and
administration costs were down 23% to £2.1 million (2002: £2.7
million).

Interest

Interest income was £1.7 million (2002: £2.2 million).

Net loss

The net loss before exceptional costs was £10.0 million (2002: £10.4
million).

Cash flow and balance sheet

The net cash outflow from operations was £9.5 million (2002: £10.8
million). Capital expenditure was £1.4 million (2002: £1.5 million).
The movement in net funds during the half-year was a £55.2 million
outflow, £48.3 million was related to the share buy back. On 2 April
2003 the court approved the reduction in share capital resulting in
the cancellation of the share premium account, write-off of the
accumulated deficit on the profit and loss account, creation of a
distributable reserve of £73.5 million and the balance credited to a
special reserve. Net assets at 30 June 2003 were £57.1 million (30
June 2002: £126.6 million), including net cash of £44.9 million.

Dividend

No interim dividend payment will be made in respect of the six months
ended 30 June 2003.

ARC International plc
Consolidated profit and loss account
for the six months ended 30 June 2003




                                           ----------------------
                                             3 months   3 months    6 months    6 months
                                               ended      ended       ended       ended
                                              30 June    30 June     30 June     30 June
                                                2003       2002        2003        2002
                                           (unaudited)(unaudited) (unaudited) (unaudited)
                                               £'000      £'000       £'000       £'000

Turnover                                        2,394      3,011       5,285       5,742

Operating costs
----------------------------------------------------------------- ----------- -----------
     Goodwill amortisation                       (968)    (1,024)     (1,936)     (2,046)
     Exceptional costs                           (240)       139         296         139
     Other operating costs                     (7,796)    (8,141)    (15,854)    (16,356)
----------------------------------------------------------------- ----------- -----------
                                               (9,004)    (9,026)    (17,494)    (18,263)

Loss before interest and tax                   (6,610)    (6,015)    (12,209)    (12,521)
Interest receivable and similar income            722      1,117       1,686       2,242
Interest payable and similar charges               (2)         -          (3)          -
                                           ---------------------- ----------- -----------
Loss on ordinary activities before tax         (5,890)    (4,898)    (10,526)    (10,279)
Tax on loss on ordinary activities                  1          -         822          (2)
                                           ---------------------- ----------- -----------
Retained loss for the period                   (5,889)    (4,898)     (9,704)    (10,281)
                                           ====================== =========== ===========

Basic loss per share                          (2.45)p    (1.67)p     (3.63)p     (3.51)p
Diluted loss per share                        (2.45)p    (1.67)p     (3.63)p     (3.51)p
Pre-exceptional loss per share                (2.35)p    (1.72)p     (3.74)p     (3.56)p
                                           ----------------------


Summary of operating expenses

Operating costs
   Cost of sales                       (393)   (338)    (780)    (735)
   Research and development          (3,093) (3,104)  (6,493)  (6,147)
   Sales and marketing               (2,228) (2,572)  (4,664)  (5,306)
   General and administration        (1,131) (1,360)  (2,053)  (2,659)
   Depreciation of fixed assets        (951)   (767)  (1,864)  (1,509)
   Amortisation of goodwill            (968) (1,024)  (1,936)  (2,046)
   Exceptional costs - Provision
    release                               -     139      536      139
   Exceptional costs - restructuring   (240)      -     (240)       -
                                     ------- ------- -------- --------
Total operating expenses             (9,004) (9,026) (17,494) (18,263)
                                     ------- ------- -------- --------



ARC International plc
Consolidated statement of total recognised gains and losses 
for the six months ended 30 June 2003

                       ----------- -----------
                         3 months    3 months    6 months    6 months
                           ended       ended       ended       ended
                          30 June     30 June     30 June     30 June
                           2003        2002        2003        2002
                       (unaudited) (unaudited) (unaudited) (unaudited)
                           £'000       £'000       £'000       £'000

Loss for the period        (5,889)     (4,898)     (9,704)    (10,281)

Currency translation
 difference                   (87)       (640)         45        (178)
Adjustment to other
 reserves                       -           -           -           -
                       ----------- ----------- ----------- -----------
Total loss for the
 period                    (5,976)     (5,538)     (9,659)    (10,459)
                       ----------- ----------- =========== ===========


ARC International plc
Consolidated balance sheet
as at 30 June 2003

                                         30 June     30 June       31
                                                              December
                                           2003        2002      2002
                                     (unaudited) (unaudited) (audited)
                                          £'000       £'000     £'000

Fixed assets
Intangible assets                         5,830      10,312     7,765
Tangible assets                           5,914       6,600     6,419
Investments                               1,660           -     1,660
                                     ----------- ----------- ---------
                                         13,404      16,912    15,844
                                     ----------- ----------- ---------


Current assets
Stock                                        86         156        88
Debtors                                   3,841       4,067     4,981
Investments - bank deposits              42,900     109,979    98,064
Cash at bank and in hand                  1,983       1,744     2,921
                                     ----------- ----------- ---------
                                         48,810     115,946   106,054
Creditors - amounts  fully due
 within one year                         (3,947)     (4,304)   (4,578)
                                     ----------- ----------- ---------
Net current assets                       44,863     111,642   101,476
Total assets less current
 liabilities                             58,267     128,554   117,320
Creditors - amounts fully due after
 more than one year                           -          (3)        -
Provisions for liabilities and
 charges                                 (1,144)     (1,949)   (2,566)

                                     ----------- ----------- ---------
Net assets                               57,123     126,602   114,754


Capital and reserves
Called up share capital                     144         293       300
Share premium account                     1,355     152,248   152,661
Exchangeable shares                         751       4,040     4,040
Capital Redemption Reserve                  162           -         -
Merger reserve                              107         107       107
Other reserves                           60,524      24,719    23,065
Profit and loss account                  (5,920)    (54,805)  (65,419)
                                     ----------- ----------- ---------
Total shareholders' funds                57,123     126,602   114,754


ARC International plc
Consolidated cash flow statement 
for the six months ended 30 June 2003


                       ----------- -----------
                          3 months    3 months    6 months    6 months
                           ended       ended       ended       ended
                          30 June     30 June     30 June     30 June
                            2003        2002        2003        2002
                       (unaudited) (unaudited) (unaudited) (unaudited)
                           £'000       £'000       £'000       £'000

Net cash outflow from
 operating activities      (4,068)     (4,829)     (9,510)    (10,792)
Returns on investments
 and servicing of
 finance
Taxes paid                     (5)          -         (44)          -
Tax refund                      -           -         871           -
Interest received             988         927       1,892       2,244
Bank interest paid              -           -          (1)          -
                       ----------- ----------- ----------- -----------
                              983         927       2,718       2,244
                       ----------- ----------- ----------- -----------

Capital expenditure
 and financial
 investment
Purchase of tangible
 fixed assets                (628)       (183)     (1,529)     (1,505)
Disposal of intangible
 fixed assets                   -           -           -           -
Disposal of tangible
 fixed assets                   2           -         170           -
Share Buyback             (48,280)                (48,280)
Investment in own
 shares                         -           -           -           -
                       ----------- ----------- ----------- -----------
                          (48,906)       (183)    (49,639)     (1,505)
                       ----------- ----------- ----------- -----------
Net cash outflow
 before management of
 liquid resources and
 financing                (51,991)     (4,085)    (56,431)    (10,053)
                       ----------- ----------- ----------- -----------

Management of liquid
 resources
Movement on term
 deposits                  49,505       3,561      55,164       9,422
                       ----------- ----------- ----------- -----------
Financing
Financing - issue of
 ordinary share
 capital to satisfy
 share option
 exercises                    303         429         308       1,021
Capital element of
 finance lease rentals          -          (3)         (1)         (4)
                       ----------- ----------- ----------- -----------
Net cash inflow from
 financing                    303         426         307       1,017
                       ----------- ----------- ----------- -----------
(Decrease)/Increase in
 cash during the
 period                    (2,183)        (98)       (960)        386
                       ----------- ----------- ----------- -----------


1. Basis of preparation

The interim financial statements comprise the unaudited consolidated
accounts of ARC International plc group at 30 June 2003 and for the
six months then ended.

The interim financial statements of ARC International plc have been
prepared on the basis of the accounting policies set out in the Annual
Report of ARC International plc for the year ended 31 December 2002.
The prior year comparatives are derived from the audited financial
information for ARC International plc as set out in the Annual Report
for the year ended 31 December 2002. The interim financial statements
for the six months ended 30 June 2003 are unaudited but have been
reviewed by the auditors. The report of the auditors is set out on
page 13. The interim financial statements for the six months ended 30
June 2003 were approved by the directors on 29 July 2003.

2. Movement on reserves and share capital


                                                Share                                Capital
                                      Share   premium Exchangeable   Merger        Redemption     Other  Profit
                                    capital   account       Shares reserves         Reserve      reserves  and    Total
                                                                                                          loss
                                                                                                        account
Group                                £'000     £'000        £'000    £'000             £'000    £'000    £'000    £'000
----------------------------------- ------- --------- ------------ -------------------------- -------- -------- --------
At  1 January 2003                     300   152,661        4,040      107                     23,065  (65,419) 114,754
Exchangeable Shares exercised            4     3,285       (3,289)                                                    0
Shares Issued                            2       306                                                                308
Reduction of Share Premium Account          (154,897)                                          85,739   69,158        0

Share Buyback                         (162)                                              162  (48,280)          (48,280)
Exchange Loss                                                                                               45       45
Retained loss for 6 months ended 30
 June 2003                                                                                              (9,704)  (9,704)
----------------------------------- ------- --------- ------------ -------------------------- -------- -------- --------

At 30 June 2003                        144     1,355          751      107               162   60,524   (5,920)  57,123
----------------------------------- ------- --------- ------------ -------------------------- -------- -------- --------


Other reserves include £59,120,000 for the cancellation of share
premium in 2003 arising from the capital reduction set out in the
court order approved on 2 April 2003, giving rise to a distributable
reserve of £25,220,000 with the balance of £33,900,000 remaining
non-distributable (2002: £21,661,000). In addition other reserves
include the fair value of options issued of £1,276,000 (2002:
£1,276,000) as consideration for the acquisition of ARC International
Nashua, Inc. (formerly V Automation Inc.); and £128,000 (2002:
£128,000) in relation to share option grant credits under UITF 17.

3. Reconciliation of operating profit to net cash flow from operating
activities

                         3 months    3 months    6 months    6 months
                           ended       ended       ended       ended
                          30 June     30 June     30 June     30 June
                            2003        2002        2003        2002
                       (unaudited) (unaudited) (unaudited) (unaudited)
                            £'000       £'000       £'000       £'000

Operating loss             (6,610)     (6,015)    (12,209)    (12,521)
Depreciation                  951         767       1,864       1,509
Amortisation of
 goodwill                     968       1,024       1,936       2,046
Loss on disposal of
 fixed assets                   -           -           -          44
Share option grant
 credit                         -          28           -          17
Decrease/(increase) in
 stocks                         3          (1)          2          (3)
Decrease/(increase) in
 debtors                    1,233        (263)        949        (661)
(Decrease) in
 creditors                   (539)        (80)       (630)       (739)
(Decrease)/increase in
 provisions                   (74)       (289)     (1,422)       (484)
                       ----------- ----------- ----------- -----------
Net cash flow from
 operating activities      (4,068)     (4,829)     (9,510)    (10,792)
                       ----------- ----------- ----------- -----------

4 Copies of this report are being sent to shareholders and are
available to the public at the Company's Registered Office: ARC House,
Waterfront Business Park, Elstree Road, Elstree, Hertfordshire WD6
3BS.

The financial information contained in this announcement does not
constitute statutory accounts within the meaning of Section 240 (3) of
the Comapnies Act 1985. Statutory accounts of the Company in respect
of the financial year ended 31 December 2002 have been delivered to
the Registrar of Companies, upon which the Company's auditors have
given a report which was unqualified and did not contain a statement
under Section 237 (3) of that Act.

Independent review report to ARC International plc

Introduction

We have been instructed by the company to review the financial
information which comprises consolidated profit and loss, consolidated
statement of total recognised gains and losses, consolidated balance
sheet, consolidated cash flow statement and the notes supporting these
primary statements set out on pages 7 to 12. We have read the other
information contained in the interim report and considered whether it
contains any apparent misstatements or material inconsistencies with
the financial information.

Directors' responsibilities

The interim report, including the financial information contained
therein, is the responsibility of, and has been approved by the
directors. The directors are responsible for preparing the interim
report in accordance with the Listing Rules of The Financial Services
Authority which require that the accounting policies and presentation
applied to the interim figures should be consistent with those applied
in preparing the preceding annual accounts except where any changes,
and the reasons for them, are disclosed.

Review work performed

We conducted our review in accordance with guidance contained in
Bulletin 1999/4 issued by the Auditing Practices Board for use in the
United Kingdom. A review consists principally of making enquiries of
group management and applying analytical procedures to the financial
information and underlying financial data and, based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than
an audit performed in accordance with United Kingdom Auditing
Standards and therefore provides a lower level of assurance than an
audit. Accordingly we do not express an audit opinion on the financial
information. This report, including the conclusion, has been prepared
for and only for the company for the purpose of the Listing Rules of
the Financial Services Authority and for no other purpose. We do not,
in producing this report, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or
into whose hands it may come save where expressly agreed by our prior
consent in writing.

Review conclusion

On the basis of our review we are not aware of any material
modifications that should be made to the financial information as
presented for the six months ended 30 June 2003.

PricewaterhouseCoopers LLP
Chartered Accountants
West London
30 July 2003

Notes:

(a) The maintenance and integrity of the ARC International Plc's
    website is the responsibility of the directors; the work carried
    out by the auditors does not involve consideration of these
    matters and, accordingly, the auditors accept no responsibility
    for any changes that may have occurred to the interim report since
    it was initially presented on the website.

(b) Legislation in the United Kingdom governing the preparation and
    dissemination of financial information may differ from legislation
    in other jurisdictions.

Notes

About ARC

ARC International pioneered the integrated development environment for
SoC design in an effort to minimize design risk for customers
developing next generation wireless, networking and consumer
electronics products. ARC introduced the industry's first
user-customizable 32-bit RISC/DSP processor core. In early 2000, ARC
became the first company to integrate the development tools,
peripherals, RTOS and software that enable the designer to better
design optimization and performance. ARC's approach to providing a
single source for the major SoC building blocks reduces the number of
IP suppliers, reduces cost, reduces the risk of system-on-chip design
and reduces time-to-market.

ARC's products include:

--  The ARCtangent(TM) user-customizable 32-bit RISC/DSP processor;

--  USB 2.0 On-the-Go (OTG) High-Speed Host and Device; small Ethernet
    10/100 MAC, and other peripherals;

--  MetaWare® C/C++ Compiler, the most popular integrated software
    development tool suite for SoC design;

--  SeeCode(TM ), the leading tool for simultaneous, multi-processor
    debugging;

--  Precise/RTCS(TM), embedded Internet stack and related software
    protocols;

--  Precise/MQX(TM), a scalable real-time operating system (RTOS).

--  ARC's software tools, RTOS and embedded software are also
    available for ARM, PowerPC and MIP's processors.

ARC International employs approximately 205 people in research and
development, sales and marketing offices across North America, Europe
and Asia. Full details of the company's locations and other
information are available on the company's website, www.ARC.com. ARC
International is listed on the London Stock Exchange as ARC
International plc (LSE:ARK).

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. The Company disclaims any intention or
obligation to update any forward-looking statements as a result of
developments occurring after the date such statement was first made.
In view of the many applications in which its Licensees may use the
ARC products, ARC cannot warrant that those applications do not
infringe the patents of others ARC strongly encourages its Licensees
to become familiar with the policies governing the use and licensing
of intellectual property established by any organization whose
standards the Licensee wishes to follow, and to review the list most
standards-promulgating organizations publish, of entities that claim
to have patents relating to the relevant standards or underlying
technology.

ARC, the ARC logo, ARCtangent, ARCangel, ARCompact, ARChitect,
ARCform, CASSEIA, High C, High C/C++, SeeCode, MetaDeveloper,
MetaWare, Precise Solution, Precise/BlazeNet, Precise/EDS,
Precise/MFS, Precise/MQX, Precise/MQXsim, Precise/RTCS,
Precise/RTCSsim are trademarks of ARC International. All other brands
or product names are the property of their respective holders.

   Short Name: Arc Intl PLC
   Category Code: IR
   Sequence Number: 00007745
   Time of Receipt (offset from UTC): 20030729T184019+0100

    --30--DB/ny

    CONTACT: ARC International plc

    KEYWORD: UNITED KINGDOM INTERNATIONAL EUROPE
    INDUSTRY KEYWORD: COMPUTERS/ELECTRONICS EARNINGS
    SOURCE: Arc Intl PLC

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