APPLIED SIGNAL TECHNOLOGY, INC.
ANNOUNCES $5 MILLION LETTER SUBCONTRACT

Sunnyvale, CA. March 28, 2005 – Applied Signal Technology, Inc. (NASDAQ - APSG) announced today that it was awarded a $5 million letter subcontract. Under the terms of the agreement, Applied Signal Technology will begin system development; submit a proposal for the development phase; and work with the customer to finalize all the subcontract terms. If the development phase is agreed to as proposed the company estimates the total value of this subcontract, including the $5 million awarded under this letter subcontract, to be approximately $35 million. The effort will be performed over a three year period.

Mr. Gary Yancey, President and Chief Executive Officer of the Company stated, “We are obviously very pleased with this award. We felt that our team had developed an excellent technical solution and yet we knew that we were competing against an equally excellent team.”

About Applied Signal
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 our 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 from those expected. Statements as to the estimated value of the subcontract and period of time over which revenue may be generated are forward-looking statements. The risks and uncertainties associated with these statements include whether the subcontract will be awarded for our anticipated price; whether this subcontract will be profitable; whether the subcontract might be terminated prior to completion; whether we will be able to hire qualified staff as needed; and other risks detailed from time to time in our SEC reports including our latest Form 10-K filed for the fiscal year ended October 31, 2004.