Nearly 1,500 Conexant Workers to Be Laid Off
Caught in the throes of a brutal slowdown in the technology market, communications chip maker Conexant Systems Inc. is expected to disclose today that it is cutting about 1,500 jobs, or nearly 18% of its work force worldwide, over the next six months, company sources said.
The layoffs include 370 from the financially strapped company’s Newport Beach headquarters and semiconductor plant and 125 others at facilities in San Diego and Ventura counties.
The cuts at Conexant are among the deepest in Southern California’s tech industry in the last year and show how the retrenchment at major computer and electronics manufacturers has worked its way down to the next level of production: the supplier.
The reductions are the first at a major chip supplier to such broad-based and already hard-hit companies as Cisco Systems Inc., Lucent Technologies Inc. and Nortel Networks Corp.--which also are Conexant’s three biggest customers.
Conexant, which was spun off from defense contractor Rockwell International Inc. two years ago, makes communication chips for such products as cellular telephones, modems, digital cameras and computer networking equipment.
Since December, a growing number of tech manufacturers have been forecasting slower sales, slashing work forces and reducing orders for components as the demand for wireless telephones and personal computer modems slows.
And as the national economy slows, and California’s begins to show signs of weakening, the belt-tightening in the tech industry is not over, industry analysts say.
Giants such as Motorola Inc., another Conexant customer, continue massive layoffs. Motorola said Friday that it would dismiss 4,000 employees from its networking business to bring total reductions since December to 22,000 worldwide.
In Southern California, consumer electronics maker Toshiba America Inc. said last month that it will eliminate 500 assembly and engineering jobs at its computer manufacturing operations in Irvine. Computer maker Gateway Inc. in San Diego said in January that it will cut 3,000 jobs systemwide, dismissing 140 people at a Lake Forest assembly plant and an unspecified number of others in the Southland.
Also today, Conexant is expected to say it will proceed with revised plans to split the company in two, making its most promising business unit independent. The move is intended to provide shareholders with better value.
Analysts and workers say they have been expecting cuts at the 8,400-employee Conexant. Besides laying off 14% of its 2,700-employee staff in Orange County, the company will slash about 100 at the 585-person Newbury Park chip plant, 25 of the 475 jobs at a design facility in San Diego and about 200 jobs at a test and assembly plant that currently employs 2,150 in Mexicali, Mexico. The rest of the dismissals will come from other operations worldwide.
Though some jobs will be eliminated through attrition, most of the reduction will come through layoffs, some of which will become effective by the end of this week.
Conexant quietly began cutting jobs more than a month ago, dismissing about 75 people at a 500-person assembly plant in El Paso, Texas. Over the weekend, executives huddled to determine the details of the latest cutbacks, which are to be announced before the financial markets in New York open today, company sources said.
Rumors of possible layoffs have been rippling through the company for more than a month.
“It’s a brutal place to be,” one manager said Friday. “These are some tough times, and it’s especially brutal when it’s outside of your control. This company is great. The people are great, and we’ve got a lot of great products. It’s just a tough place right now.”
Two years ago, Conexant held promise for engineers fleeing the Southland’s decimated aerospace and defense industry. It was separated from Rockwell to devote itself to commercial applications for semiconductors.
But even though its stock enjoyed an all-time high of $124.42 a share in February of last year, the company hasn’t lived up to its potential and Wall Street has consistently valued it at half to a third of rival Broadcom Corp. in Irvine. Conexant shares closed Friday at $11.13, down 19 cents on Nasdaq.
“They are very diversified and perceived as not focused,” said analyst Jim Liang of brokerage WR Hambrecht & Co. “In a downturn, that situation can be the worst.”
Critics said Conexant was hard-pressed to shed its lumbering, “old-economy” corporate culture, a legacy from its aerospace roots.
With its five different business units, competitors said Conexant is sometimes slow to react to changes in fast-paced markets and, some employees said, can take a long time to make decisions. As one of the few communications chip makers with U.S. manufacturing operations, it also has higher overhead than competitors who manufacture overseas, analysts said.
Executives hope to solve one issue by splitting the company. Conexant said in September that it would spin off its fastest-growing unit, now called Mindspeed Technologies. Originally, an initial public offering was planned for early this year that would have given the public 20% of the stock and Conexant shareholders the rest. But the market soured so much that the company put those plans on hold in January.
Today, Conexant instead is expected to announce that it will spin off from Mindspeed, giving shareholders the same stakes in both companies without a public offering, company sources said. The separation should be completed by September, they said.
“They have got to do it in order for the company to survive and to keep some of its market value,” analyst Arun Veerappanq of the investment bank Robertson, Stephens & Co. said Friday.
Mindspeed makes networking-access equipment for the Internet industry and is the company’s crown jewel, said analyst F. Drake Johnstone of Davenport & Co.
The remaining business consists of four Conexant divisions that make chips for mobile communications and such broadband products as cable modems, wireless telephones, digital cameras and video games.
Conexant still faces other problems, including a dwindling supply of cash. Analyst David Wong of investment bank UBS Warburg said in a note to investors last week that Conexant’s cash and marketable securities are about equal to its debt, giving the company little cushion in hard times.
With the layoffs and other restructuring measures to be disclosed today, the company expects to save more than $200 million annually, a source said. It is unknown, though, what charges the company will take to cover the layoffs and restructuring.
With slumping sales from a sharp slowdown in the personal computer market, Conexant posted a loss of $199.6 million for its fiscal first quarter, ended Dec. 31. Its quarterly revenue fell 20% to $410.4 million from same period a year ago.
The company said in January that it expects sales to decline further in the current quarter, down 10% to 15% from the first quarter. But analysts predict that revenue could fall as much as 40% from the previous three months.
