Conexant Makes a Profit, but Western Digital Keeps Losing
Two Orange County high-technology companies posted quarterly earnings Wednesday that reflected the highs and lows of the industry.
Newport Beach-based Conexant Systems Inc. unexpectedly turned a modest profit in its first quarter since being spun off from its parent company, but Irvine-based Western Digital Corp. reported its sixth consecutive quarterly loss.
Powered by strong growth in each of its four major expansion divisions, Conexant returned to profitability six months ahead of schedule, earning $7.6 million, or 8 cents a share, compared to a $15.6-million loss a year earlier when the company was a unit of Rockwell International Corp. Sales grew 15.5% to $316.9 million from $274.2 million.
“We were strong across the board,” said Dwight Decker, chairman and chief executive of Conexant, during an upbeat conference call with financial analysts.
The company, which designs and manufactures semiconductors for communications equipment, said sales of chips for personal computer modems, which made up nearly half the company’s revenue, countered expectations by remaining flat instead of falling.
Meanwhile, revenue from chips for wireless communications, networking, cable modems and imaging applications rose 34% during the quarter over the previous year.
The 8 cents per share that the company earned beat analysts’ expectations of a two-cent loss, according to Zacks Investment Research, and many observers expect things to only get better.
Western Digital, on the other hand, is expected to lose more money before it staunches the red ink.
In the fiscal third quarter, the producer of computer hard drives lost $114.3 million, or $1.27 a share, which included one-time charges of $41 million from consolidating manufacturing facilities and operations in Singapore and $12 million from acquiring San Jose-based Crag Technologies last February. A year earlier, the company lost $45 million, or 51 cents a share.
Before the one-time charges, the company’s loss of 68 cents a share was in line with analysts’ expectations, according to Zacks.
Sales for the three months ended March 27 dropped 19.6% to $668.5 million from $831.3 million.
President and Chief Executive Charles Haggerty said gross margins have improved, demand has been strong, particularly for its high-end enterprise products, and restructuring the company will pay off.
“The progress has been very steady and on course to what we told everybody,” Haggerty said. “We have made sustained progress in the company’s financial performance and continue to prepare to return to profitability.”
At the same time, Haggerty told financial analysts that “we would steer you to the more conservative end” of expectations for the next two quarters.
Over the last six quarters, the company has reported losses of $744 million.
On a brighter note, the company said it plans to break even in its operating results in the quarter ending in September.
Being the first to market with higher-performing products is key in the hard-drive industry, and Western Digital has been trying to move out of the low-margin parts of the business.
But the industry as a whole, not just Western Digital, is moving up the margin chain, with the emphasis shifting from higher capacity hard drives to faster ones.
The company also said it was putting on “indefinite hold” plans announced two years ago to move to a new corporate headquarters. Since then, the number of Western Digital employees in its Irvine headquarters has shrunk from 1,100 to 785.
Taking Different Paths
The stocks of two Orange County high-tech companies are headed in opposite directions. Western Digital Corp. hit a 52-week low Wednesday, having dropped more than 50% since December. Conexant Systems, which was spun off from Rockwell International Corp., has more than doubled in the same period. Weekly closing prices:
1998
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Western Conexant Digital Dec. 11 $16.69 $15.63 Dec. 18 $16.25 $16.25 Dec. 25 $14.50 $15.94 1999 Jan. 1 $16.75 $15.06 Jan. 8 $14.88 $18.19 Jan. 15 $16.19 $19.88 Jan. 22 $18.25 $15.31 Jan. 29 $18.19 $13.63 Feb. 5 $16.38 $12.88 Feb. 12 $17.38 $11.75 Feb. 19 $17.38 $10.69 Feb. 26 $17.00 $9.50 March 5 $18.69 $9.38 March 12 $21.75 $9.38 March 19 $23.50 $9.31 March 26 $23.75 $8.56 April 2 $27.13 $8.00 April 9 $26.94 $7.25 April 16 $29.50 $7.06 Wednesday close $34.00 $6.63
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Note: Conexant shares traded on “when issued” basis in December 1998, before the company went public in January.
Source: Bloomberg News
