Conexant Suffers Bigger-Than-Expected Loss
Communications chip maker Conexant Systems Inc. said Thursday that its fiscal second-quarter loss was wider than its previously lowered forecast and its revenue shrank by half from the same three-month period last year.
The Newport Beach company’s loss, excluding special charges and amortization of certain assets, amounted to $187.5 million, or 77 cents a share, for the quarter ended March 31. It earned $47.1 million, or 21 cents a share, for last year’s second three-month period.
Quarterly sales plunged to $251 million this year from $501.7 million last year.
Conexant, the largest maker of chips for dial-up computer modems, said last month that it expected to lose 35 to 40 cents a share for its second quarter. A Wall Street consensus forecast from analysts put the loss at 37 cents, according to research firm Thomson Financial/First Call.
The results, though, included a pretax charge of $148.6 million for unsold inventory. Excluding that, Conexant lost $95 million, or 39 cents a share.
The results “reflect the broad slowdown in the technology sector, particularly in the networking equipment market, and abnormally high customer inventory levels,” Conexant’s chairman, Dwight W. Decker, said in a press release.
The company is spinning off its personal networking business, which will keep the Conexant name, from its Internet equipment business, called Mindspeed Technologies.
The personal networking business, which makes chips for personal computers, cable and dial-up modems and wireless products, saw its quarterly revenue fall 31% to $170 million from the first quarter.
Sales for the Mindspeed unit fell 51% to $81 million from the prior quarter, the company said.
“On the personal networking front, we are now seeing the early signs of a firming in demand,” Decker said in an interview.
He expects sales this quarter for the personal networking business to be flat or slightly lower than the previous quarter, while Mindspeed revenue is expected to fall 35% to 45%.
The two units are caught in different stages of the current technology slowdown, Decker said. “I am cautiously hopeful that on the personal networking side, we are now sort of feeling the bottom.”
The personal networking unit began to suffer in late December when demand for personal computer products dropped sharply and wireless sales were falling.
Mindspeed, which has been considered Conexant’s fastest-growing and most promising unit in the long term, felt the pinch more recently and is still hurting, Decker said.
Mindspeed’s top three customers, Cisco Systems Inc., Lucent Technologies Inc. and Nortel Networks Corp., together account for more than half its revenue, Decker said. All three customers have been badly bruised by the downturn.
Conexant’s personal networking business is more diversified, Decker said. Its biggest customer, Samsung Corp., accounts for 10% of sales and buys products from nearly every one of Conexant’s lines. Other major customers, including Apple Computer Inc., Dell Computer Corp., Nokia and Ericsson, each account for less than 10% of the unit’s business.
Last month, Conexant disclosed plans to cut costs, including the elimination of more than 1,500 jobs, or nearly 20% of its work force, and two temporary shutdowns of its manufacturing facilities, a two-week stretch that ends today and an additional closing in the summer.
All but 600 jobs already have been cut. Decker said the remaining reduction will come once it finds buyers for its digital imaging business and its sub-assembly unit in El Paso.
Conexant stock gained 66 cents Thursday to close at $12.45 a share on Nasdaq. It has lost 19% of its value this year and has fallen 90% from its all-time high of $124.42 a share in February of last year.
