Conexant Stock Dives on Dimmer S. Korean Prospects
Shares of Conexant Systems Inc. fell 20% Thursday, a day after its chief executive said the Newport Beach maker of communications chips expects a “significant slowdown” in demand in South Korea.
The stock lost $9.88 to close at $39.06 a share in heavy Nasdaq trading that made it the fourth most active stock in U.S. markets. The stock traded as low as $35.13 during the day and has lost 41% of its value so far this year.
Conexant makes chips for cellular phones that use the so-called CDMA standard, along with other chips for communications products. The company said Wednesday that it had a fiscal third-quarter loss of $53.3 million, or 24 cents a share, compared with net income of $24.4 million, or 12 cents, a year earlier.
“After the report, people are shooting first and asking questions later,” said Ashok Kumar, a U.S. Piper Jaffray analyst. He lowered his 12-month price target for the shares to $65 from $85.
Investors, for instance, appeared to ignore Conexant’s news Thursday that five products containing the company’s single-chip cable modem have received industry certification from Cable Television Laboratories Inc.
The chip will enable consumers, for the first time, to purchase personal computers with high-speed cable modems built in. Until now, cable modem boxes have required on-site installation in the home or office. Cable modems can transmit data as much as 1,000 times faster than the fastest dial-up modems available.
Wall Street, however, was more concerned with the company’s cell phone products.
In announcing earnings, Chief Executive Dwight Decker said during a conference call with investors and analysts that shipments of chips for CDMA phones fell 25% to 30% from the previous quarter. Conexant expects a further slowdown in demand for CDMA-based cell phones in South Korea, where new laws forbid phone companies to offer subsidies on handsets to attract subscribers.
“We expect to see some erosion in those shipments into Korea this quarter, maybe another 25 to 30%,” he said.
Two analysts, meantime, downgraded the company’s stock.
Charles Boucher, a Bear, Stearns & Co. analyst, downgraded Conexant to “attractive” from “buy” and reduced his price target to $80 from $100. Chase H&Q; analyst Jeffrey Lipton cut his rating on the company to “market perform” from “buy.”
Investors also are reacting negatively to news yesterday that Conexant agreed to buy two closely held companies for about $285 million in stock, some analysts said.
“The company has made nine dilutive acquisitions since the end of 1999, which together have taken away much of the operating leverage,” Goldman, Sachs & Co. analyst Nathaniel Cohn wrote in a report Thursday morning.
Cohn and fellow Goldman analyst Joe Moore lowered their estimates of annual earnings to 85 cents a share from 91 cents this year and $1.05 from $1.10 next year.
Cohn also wrote that Conexant’s wireless-chip business accounts for about 17% of sales and was the company’s “most disappointing segment.” Conexant’s sales in the quarter, which ended June 30, rose 39% to $530.5 million from $380.3 million.
Conexant’s chips complement those made by Qualcomm Inc. that power CDMA phones. Qualcomm, which gets about 20% to 25% of its chip sales in Korea, warned about the decline about three weeks ago and is being hurt by the ban on phone discounts. It said chip shipments could fall as much as 20% this quarter from the prior quarter because of a plunge in demand in Korea.
