Conexant Starts Off With a Buzz
As this morning’s bell on the Nasdaq market rings in trading for the new year, it also signals the long-awaited birth of semiconductor manufacturer Conexant Systems Inc.
Despite Conexant’s massive losses while part of Rockwell International Corp., industry analysts insist the Newport Beach-based billion-dollar firm has a very promising future.
“They have a lot of great process technology and a unique combination of skills,” said Jeff Lipton, an industry analyst at Hambrecht & Quist. “Right now, they’re doing all the right things.”
So far, investors are buying into Conexant Chief Executive Dwight D. Decker’s vision of leading the next communication revolution with the company’s emerging technologies.
Though the company’s stock officially begins trading today, Conexant shares debuted on a “when-issued” basis in early December. Starting at $13 a share, the stock has soared as high as $22. On Thursday, these conditional shares closed at $16.75, up $1.
Part of this investor buzz, analysts say, comes from early signs that the semiconductor industry is beginning to rebound after struggling for months with sluggish personal-computer sales and an oversupply of memory products.
Foreign chip sales in Japan are on the rise, while South Korean semiconductor exports jumped to $2.09 billion in November, a 3.1% gain over the same period last year, according to the Electronic Industry Assn. of Korea. Analysts attribute the rise to a manufacturing boom in consumer electronic devices.
“The future looks encouraging, both for us and the industry as a whole,” Decker said. “It should. We have worked very hard to reach this point.”
Upon reflection, 1998 is a year that both Conexant and its former parent in Costa Mesa would like to forget. After enjoying several years of double-digit growth, the semiconductor firm lost $262 million and watched its sales drop about 15% for the fiscal year ended Sept. 30, according to regulatory filings. The company also expects to lose another $80 million for the quarter ended Dec. 31.
To help stem the flow of red ink, the company, then named Rockwell Semiconductor Systems, said it would close its manufacturing plant in Colorado Springs and cut 900 jobs from its 7,000-member work force.
The revenue decline was caused by decreased sales of personal communication chip sets, price competition and falling demand in the modem market.
Yet the battle over modem standards between Conexant and Santa Clara-based 3Com Corp. was what really hurt the Orange County chip maker. In late 1996, the two firms unveiled dueling technologies for 56K modems, or devices that transmit information at approximately 56,000 bits per second.
After the modems hit the market, the companies immediately jumped into a pricing war. And sales slowed as consumers, confused over which standard might survive, refused to buy into either platform.
“It was a war with few winners,” Decker admitted.
This slump, in turn, ate into Rockwell International’s overall profitability and sent Rockwell’s normally stable stock into a nose dive. It also spurred Rockwell to spin off the semiconductor division, a move that Decker insists will help the realigned companies run more effectively.
It also taught the new company, Conexant, to diversify. On its own, Conexant hopes it can leverage its modem experience to move into a slew of new communication markets, from cell phones to digital cameras to computer network devices.
Conexant has spent millions of dollars to get the word out to the computer industry and investors that it’s in business for itself.
It hired Siegel & Gale, a Los Angeles-based branding consulting firm, and spent nearly $500,000 to find a new name and image behind its red, stylized “C” logo.
It launched a monthlong, $1-million print advertising campaign in December, focusing specifically on the business and trade press.
It also spent $2 million at the fall 1998 Comdex computer trade show in Las Vegas. Using the event as a public forum for its new moniker, Conexant built a multilevel mock “home of the future,” complete with consumer electronic devices that use Conexant technology.
Dennis Miller sat in the booth’s faux backyard, signing autographs and musing about the “pervasive nature” of digital devices. And at the Conexant party, Miller acted as an opener for the wacky ‘80s rock act the B-52s. The caustic comedian set the tone for the evening when, much to the delight of the cheering crowd, he called Decker a “freak.”
The overwhelming corporate message was clear: Conexant isn’t Rockwell.
With all this effort to create a new brand, one question remains: How will the new company balance its engineering past with its consumer-oriented future? Eyeing Intel Corp. and its famous “Intel Inside” campaign, many high-tech firms have longed for a similar higher profile in the crowded, competitive marketplace.
The crossover is apparent in the Internet battle, where online services have spent millions placing their ads offline.
Several Internet companies--N2K Music, online travel firm Priceline.com and search engine Mining Co., among others--have launched national advertising blitzes aimed at making their brands as recognizable as the Intel sticker.
Even Netscape Communications Corp. is taking its message to the masses. The browser giant announced it would spend $30 million in a marketing effort--including broadcast, cable TV and billboards--aimed at the “educated masses” of savvy Net users.
But chip makers say that making this jump into the public consciousness is both expensive and risky. Though Conexant says it’s important for the technology world to recognize its new brand and corporate approach, company officials remain undecided whether they will follow the industry trend and expand their marketing campaign to the general public.
“Our customers aren’t necessarily the end-consumer, but the companies that make the products that end-consumers buy,” Decker said.
