Conexant Systems to Buy Component Firm HotRail

Conexant Systems Inc., a high-speed communications chip maker in Newport Beach, said Tuesday that it will buy a privately held technology developer in a stock swap worth about $394 million.

The acquisition of San Jose-based HotRail Inc., which is expected to close later this week, will add to the product line of a company that is one of the biggest players in the market for communications equipment chips.

HotRail’s products--switching and transceiver components--are aimed at speeding the transmission of data through computer networks.

With the new technology, Conexant gains the potential to provide such customers as Lucent Technologies Inc., Nortel Networks Corp. and Cisco Systems Inc. with the three components needed to process data traffic over the Internet: equipment that receives the information, processes it and sends it on its way.

“This is a major step, and this is what major semiconductor makers in the networking space are attempting to do,” said Dwight Decker, Conexant’s chairman.

Conexant will trade 7.8 million shares for HotRail. The transaction was announced after the stock markets closed Tuesday. Conexant shares dropped $2.75, or 5.2%, to close at $50.56 on Nasdaq.

Bala Iyer, Conexant’s chief financial officer, said in a conference call that the purchase is expected to reduce Conexant’s earnings for about 18 months.

No layoffs are expected at 55-employee HotRail, which has yet to bring a product to market or to turn a profit.

Decker said he expects to see revenue of about $10 million to $20 million from the purchase in the next fiscal year, which begins Oct. 1.