Applied Signal Technology, Inc.
Announces Second Quarter Operating Results

Sunnyvale, CA. May 20, 2003 – Applied Signal Technology, Inc. (NASDAQ - APSG) announced its operating results for the second quarter of fiscal year 2003 ended May 2, 2003.

Revenues for the second quarter of fiscal year 2003 were $22,081,000, representing a 19% increase compared with revenues of $18,584,000 recorded during the second quarter of fiscal year 2002. Revenues for the first six months of fiscal year 2003 were $40,259,000, up 16% from revenues of $34,815,000 recorded during the first six months of fiscal year 2002. The increase in revenues recorded during the second quarter and the first six months of fiscal year 2003, when compared to the same periods of fiscal year 2002, is due to increased revenues generated by the Company's engineering development programs. The revenues generated by these programs were primarily a result of the new orders received during the third and fourth quarters of fiscal year 2002.

Net income for the second quarter of fiscal year 2003 was $2,227,000 or $0.21 per diluted share, an increase of 71% when compared to the second quarter of fiscal year 2002 net income of $1,301,000 or $0.13 per diluted share. Net income for the first six months of fiscal year 2003 was $4,012,000 or $0.38 per diluted share, an increase of 34% when compared to net income of $2,992,000 or $0.30 per diluted share for the first six months of fiscal year 2002. The increase in net income for the second quarter and the first six months of fiscal year 2003, when compared to the same periods of fiscal year 2002, is primarily due to the growth in revenues.

New orders received during the second quarter of fiscal year 2003 were $19,479,000, up 13% compared to orders received during the second quarter of fiscal year 2002 of $17,219,000. Order levels for the first six months of fiscal year 2003 were $31,523,000, up 4% when compared to the $30,381,000 reported for the same period of fiscal year 2002. The increase in new orders during the second quarter and the first six months of fiscal year 2003, when compared to the same periods of fiscal year 2002, is due to what the Company believes to be the typical fluctuations experienced in the U.S. Government procurement process.

Regarding the second quarter operating results, Mr. Gary Yancey, President and Chief Executive Officer of the Company, commented, “The growth we are experiencing is heavily weighted towards engineering development programs and is expected to remain that way for the remainder of fiscal 2003. This requires additional technical staff and we are in an aggressive hiring mode. Fortunately, with the current state of the economy, we are able to meet our hiring needs at this time."

"In some cases, this bias towards engineering development programs will result in subsequent year production orders. I believe the current marketplace requirements are indicative of a re-focusing on intelligence gathering by the U.S. Government which should bode well for our Company into the foreseeable future."

Mr. Yancey went on to say; "I am very pleased with the 34% increase in net income for the first six months compared to fiscal 2002 and I am even more encouraged by the 119% increase in operating income over the same periods. I believe this continues to show that the Company has returned to a healthy, growing state."

The Company will host a conference call on May 20, 2003 to discuss second quarter results. If you wish to participate in the conference call, please dial 1-877-407-8035 for domestic callers or 1-201-689-8035 for international callers on May 20, 2003 at 5:00 p.m. EST/2:00 p.m. PST. There is no pass code required. This call may be listened to simultaneously over the Internet through World Investor Links' Vcall Website, located at www.vcall.com. A rebroadcast of the call will be available upon its completion and will remain available for a limited time.

Applied Signal Technology, Inc. designs, develops, manufactures and markets advanced digital signal processing equipment to collect and process a wide range of telecommunications signals for signal reconnaissance applications. For additional Company-related information, visit the Company's website at www.appsig.com.

Except for historical information contained herein, matters discussed in this news release may contain forward-looking statements that involve risks and uncertainties. Statements as to the Company's continued growth throughout the year and into the foreseeable future; the future spending by the U.S. Government on intelligence gathering; the Company's belief that the fluctuations in the U.S. Government procurement process are typical; the Company's plans for the future, including the steps it may take and the programs it will emphasize; the Company's beliefs concerning marketplace opportunities for its products and services; and beliefs concerning contractual opportunities for orders are forward-looking statements. The risks and uncertainties associated with these statements include whether orders will be issued by procurers, including the U. S. Government; the timing of any orders placed by procurers; whether the Company will be successful in obtaining contracts for these orders if they are forthcoming; whether any contracts obtained by the Company will be profitable and whether any such contracts might be terminated prior to completion; whether the Company will be able to hire additional qualified staff as needed; the ability to successfully enter new marketplaces; the Company's ability to maintain profitability; and other risks detailed from time to time in the Company's SEC reports including its latest Form 10-K filed for the fiscal year ended October 31, 2002.