Conexant Posts Strong Results, Plans Purchases

Semiconductor firm Conexant Systems Inc. posted strong quarterly operating results Wednesday as it announced plans to pay $245 million in stock for two closely held companies with products that speed data on optical networks.

Separately, QLogic Corp., an Aliso Viejo designer of chips and circuit boards, reported record quarterly sales and an 83% hike in income that was well ahead of analysts’ expectations.

But like other technology companies reporting solid quarterly earnings and sales gains Tuesday and Wednesday, Conexant and QLogic saw their stock drop on Wall Street. Conexant lost $2.50 to close at $48.06 a share, while QLogic fell $5.75 to close at $84 a share.

Conexant’s income before acquisition costs and other special charges was $51.5 million, or 22 cents a share, matching what analysts had expected for the Newport Beach company’s fiscal third quarter, which ended June 30. The profit was double the comparable quarter last year, when Conexant earned $25.7 million, or 12 cents a share, before special charges.

But the expense of its aggressive buying spree, plus other one-time charges, gave it a net loss of $53.3 million, or 24 cents a share, compared with last year’s quarterly net profit of $24.4 million, or 12 cents a share.

Quarterly revenue rose 39% to $530.5 million from $380.3 million a year ago.

Conexant had to reckon with flat sales in its wireless communications business, stemming from a downturn in cellular handset sales in Korea, where government restrictions curbed demand.

The company also left analysts somewhat surprised by its inability to secure adequate packaging capacity for its products--a glitch that caused it to miss out on about $7 million in potential revenue.

Conexant Chairman Dwight Decker said those shortfalls were offset by outstanding results in the company’s networking business, which grew nearly 90% for the year to $155.3 million in quarterly revenue.

“Our networking business is right in there with the best competitors” in terms of growth, Decker said.

Yet he conceded that the company’s share price is likely to be punished.

“Perfection is what everybody wants,” Decker said. The downturn in Korean business “is probably going to get more of the focus than we think is appropriate.”

Conexant’s stock will likely suffer short term, said analyst Charles Glavin of Credit Suisse First Boston. While the packaging glitches and loss of business in Korea had been anticipated, he said, the long-term costs of the company’s recent acquisitions might “spook” investors.

“The numbers [seemed] a little bit weaker because everyone else in the industry is growing at a faster rate,” Glavin said. “They reported a decent quarter, but people are looking for bigger numbers.”

Conexant provided some indication of its plans. It anticipates revenue growth of 6% to 8% this quarter, Decker said, and 30%, to $2.7 billion, for the fiscal year beginning Oct. 1.

Already on an aggressive and somewhat costly buying spree, the company also said it intends to acquire two more companies.

It will issue 2.4 million shares of stock, worth $115.3 million, to buy Novanet Semiconductor, a designer of high-speed networking solutions in Ra’anana, Israel. It also will make payments of up to $35 million if Novanet meets future performance targets.

The transaction has already been approved by the boards of directors of both companies and is scheduled to close within 45 days.

Conexant also has agreed to purchase NetPlane Systems in Dedham, Mass., for 2.7 million Conexant shares, a deal worth $129.8 million. NetPlane, a software developer, is expected to complement Conexant’s semiconductor portfolio and to speed the company’s entry into the network switching business.

Meantime, at QLogic, the company’s net income jumped to $21.1 million, or 27 cents a share, for its fiscal first quarter, which ended July 2. The profit was well ahead of a consensus figure of 24 cents expected by analysts polled by Zacks Investment Research.

QLogic is boosting revenue by selling products that support so-called fibre-channel technology, which allows corporations to greatly expand their computer networks. In May, QLogic said it would buy Ancor Communications Inc. to expand its fibre-channel product line. The purchase is pending.

“Fibre-channel revenues continued to outpace the rest of our . . . business in the first quarter,” H.K. Desai, the company’s chairman, said in a statement.

Fibre-channel revenue tripled to $28.4 million and accounted for 42% of the quarter’s revenue, the company said.