SDL Announces Record Results for 1999 Fourth Quarter and 1999

Terrestrial and Undersea Fiber Optic Markets Drive Q4 Revenues Up 92 Percent Triggering 282 Percent Net Income Growth

SAN JOSE, CA. SDL, Inc. (Nasdaq: SDLI) today announced record revenues and income for the fourth quarter ended December 31, 1999.

Led by significant increase in shipment of products for both terrestrial and undersea fiber optic systems, fourth quarter revenue was a record $58.7 million. This represents a 92 percent increase compared to the corresponding 1998 quarter. Total revenue increased 24 percent from the $47.5 million reported for the September 1999 quarter. Sales of fiber optic communication products increased 44 percent over the third quarter, and by 179 percent over the prior year quarter, as demand for SDL solutions continued to grow in terrestrial, undersea and metro/cable markets.

Fourth quarter net income was a record $12.0 million, or $0.32 per share on a diluted basis. This was an increase of 282 percent compared to net income of $3.1 million, or $0.10 on a diluted basis for the fourth quarter of 1998. Earnings per share increased 45 percent from the preceding quarter and 220% over the fourth quarter of 1998. The Company s operating margin increased to 20.6 percent, up 1.9 points from the September 1999 quarter, and up 10.3 points from the prior year quarter. This improvement was driven by a reduction in expenses relative to revenue, and continued gross margin improvement due to a more profitable product mix, and increases in yields and factory utilization.

For the year ended December 31, 1999, SDL reported revenue of $187.0 million, up 66 percent compared to revenue of $112.8 million for 1998. Revenue from fiber optic communications products grew by 179 percent. Excluding acquisition-related charges in the first half of 1999, net income for 1999 was a record $29.9 million, or $0.87 per diluted share, compared to $7.9 million, or $0.26 per diluted share in 1998.

Commenting on the quarter s performance, SDL s Chairman and Chief Executive Officer Donald R. Scifres said, "We are delighted with the performance of our fiber optics communications business. Over 40% sequential growth was achieved in all three of our major markets; terrestrial, undersea and metro/cable. This growth is driven by our strategy to provide leading edge products that are designed to enable an expanding list of key customers to install the most advanced fiber optic communication systems in the world. Attesting to the strength of these products, over 50 percent of our fourth quarter communications revenue came from products first introduced into production in 1999. We believe these strong products, in addition to the new products planned for introduction at the Optical Fiber Conference in March this year, will continue to broaden our customer base and support strong growth into the future."

Statements in this press release which are not historical including statements regarding SDL s or management s intentions, hopes, beliefs, expectations, representations, projections, plans or predictions of the future are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include statements regarding the continued growth in demand for SDL s products, continued gross margin improvement, the company s strategy to provide leading-edge products designed to enable an expanding list of its key customers to install the most advanced fiber optic communications systems in the world, the company s new product introductions planned for March this year, and the strength of the company s products that should allow the company to broaden its customer base and achieve excellent results in the future. It is important to note that the Company s actual results could differ materially from those in any such forward-looking statements. Factors that could cause actual results to differ materially include risks related to uncertainties in competition in and customer demand for the company s products, the company s inability to manufacture the new products in production volumes to achieve the increased gross margins, competitors introduction of increasingly competitive products, and the risk factors listed from time to time in the Company s SEC reports including but not limited to, the annual report on Form 10-K/A for the year ended January 1, 1999, and the Company s quarterly report on Form 10-Q for the quarters ended March 31, June 30, and September 30, 1999.

SDL s products power the transmission of data, voice and Internet information over fiber optic networks to meet the needs of telecommunications, dense wavelength division multiplexing (DWDM), cable television and satellite communications applications. They enable customers to meet the bandwidth needs of increasing Internet, data, video and voice traffic by expanding their fiber optic communications networks much more quickly and efficiently than would be possible using conventional electronic and optical technologies. SDL s optical products also serve a variety of non-communications applications, including materials processing and printing. Additional information about SDL, Inc. is available on the Internet at www.sdli.com.

Contact:
Donald R. Scifres, Chairman and CEO or
Michael L. Foster, VP Finance and CFO, of SDL, Inc., 408-943-9411;
or
General Info., Lisa Horn Chainey,
Investors, Susan Katz, or
Media, Scott Marx, of
The Financial Relations Board, 415-986-1591