APPLIED SIGNAL TECHNOLOGY, INC. RECEIVES $4.5 MILLION ORDER FROM THE ITALIAN MILITARY

Sunnyvale, CA. July 12, 2004 – Applied Signal Technology, Inc. (NASDAQ - APSG) announced that it has received a $4.5 million order from the Embassy of Italy. Under the terms of the contract, Applied Signal Technology will provide the Italian Military two mobile microwave receiving systems capable of intercepting and demodulating signals.

Regarding the new order, Mr. Gary Yancey, President and Chief Executive Officer of the Company, commented, “This program is the largest foreign contract we have had and provides for the development of a complete collection system including full signal survey and analysis capability. The system can generate wideband tape recordings for further analysis.

The fixed site portion of the system can operate on the wideband tapes generated by the mobile system. The fixed site system has robust analysis capabilities for more detailed analysis of the intercepted signals.

It is encouraging that we will be able to get export authorization from the State Department for this system. I am hopeful that this anticipated export license could be an indication of better diplomatic relations with some foreign countries and that we might get opportunities to sell more systems of this magnitude internationally.”

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 that could cause actual results to differ materially. Forward-looking statements discussed in this release include statements as to the Company’s belief concerning better diplomatic relations between the United States and foreign countries; the future spending by foreign countries on intelligence gathering and the Company’s ability to obtain this business; the Company’s ability to obtain the necessary export approvals for its products and services; and the Company’s beliefs concerning international marketplace opportunities for its products and services. The risks and uncertainties associated with these statements include whether orders will be issued by foreign procurers; whether the Company will be successful in obtaining foreign contracts for these orders if they are forthcoming; whether any foreign contracts obtained by the Company will be profitable and whether any such contracts might be terminated prior to completion; the ability to successfully enter new marketplaces; 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, 2003. The Company assumes no obligation to update the information provided in this news release.