Conexant Falls on Loss of Credit Line
- Share via
Shares of Conexant Systems Inc. fell 12% Wednesday after the largest maker of chips for dial-up modems said lenders terminated a $475-million line of credit because of mounting losses.
The Newport Beach company, which last month reported a wider-than-expected quarterly loss and a 50% drop in sales, fell below some financial ratios required under the credit agreement, according to a document filed late Tuesday with the Securities and Exchange Commission.
Following negotiations between Conexant and lenders led by Credit Suisse First Boston, the banks canceled the credit line Tuesday. Conexant had not used the credit since June 1999, according to the filing. Companies raise credit lines as backup in case other funding sources dry up.
Conexant stock, which had dropped as much as 15% during the trading day, lost $1.33 to close at $9.87 a share on Nasdaq. The stock has lost 36% of its value this year.
Industry analyst Drake Johnstone of Davenport & Co. attributed the stock drop to the nearly $2.7-billion quarterly loss posted Tuesday by one of its major customers, Cisco Systems Inc.
Analysts, however, had mixed reactions to the canceled credit line.
“The outlook is bleak,” said Arun Veerappan of Robertson Stephens. Losing the credit line “is even more important because of the company’s current cash position.”
Conexant’s cash reserves fell by more than 50% since Sept. 30 to $438.5 million as of March 31. Working capital dropped to $818 million from $1.3 billion in the same period.
But Johnstone said the canceled line of credit will not hurt the company’s ability to function. Conexant’s lowered cash level “ought to give them plenty of liquidity to fund operations until they become cash-flow positive,” he said.
“If the business deteriorated substantially, that could create problems going forward,” Johnstone said. “But I think the company is near its bottom.”
The company plans to negotiate two new credit lines, said spokeswoman Gwen Carlson. Conexant would use one, and Mindspeed Technologies, the Internet equipment business that Conexant plans to spin off, would use the other, Carlson said.
*
Times staff writer Karen Alexander contributed to this report. Bloomberg News was used in compiling the report.
Inside the business of entertainment
The Wide Shot brings you news, analysis and insights on everything from streaming wars to production — and what it all means for the future.
You may occasionally receive promotional content from the Los Angeles Times.
