Conexant Systems’ Technological Edge Reflects Shifting Sands in Global Industry
Conexant Systems Inc. makes computer chips that, among other things, help link television sets with broadcast satellites. But it’s the Newport Beach company’s own links to China and India and beyond that really tell you the way U.S. industry is headed.
The company started life in the 1970s as a high-tech division of Rockwell International Corp., back when that firm was an aerospace giant. Because of its nexus to Rockwell, Conexant enjoyed a decided advantage in filling its research-and-development coffers.
“We had a lot of R&D; dollars poured into the technology we developed -- much more than if we had grown up as a public company” that stood alone, says Conexant Chairman Dwight Decker.
Those funds helped Conexant develop dial-up modems to connect personal computers to the Internet. Conexant remains a world leader in modem production, selling 60 million of the devices each year.
But today, Conexant is on its own as a public company after Rockwell spun it off to shareholders in 1999. Since then, Conexant has gone through good times and terrible times, reducing its total workforce by 2,000 employees and splitting itself, like an amoeba, into five companies in an effort to concentrate its operations and win the support of fickle stock market investors.
All along, Conexant has retained its technological edge.
It is a highly competitive supplier of computer chips for digital-subscriber-line equipment that provides broadband access to the Internet. The company also is a leading designer of semiconductors for the set-top boxes that connect TV sets with broadcast satellites.
With such advanced products contributing a bit more than half of its $600 million in annual sales (and modems providing the rest), the firm recently turned a profitable quarter after two years of losses.
“We’re looking to double profit in the next quarter,” says Decker, who has a doctorate in applied mathematics from Caltech as well as degrees in physics and math from McGill University in his native Canada.
Yet although staying ahead with the latest technology has been a constant for Conexant, many things have changed over the years, from the company’s supply chain to its customer base.
As recently as the last decade, Conexant manufactured semiconductors here in Southern California. Now, it farms out that manufacturing to others in China. “All the tech manufacturing jobs are simply gone,” Decker says.
Meanwhile, certain software engineering also is relocating abroad. Some of Conexant’s information technology work is now performed in India, Decker notes.
The reason is simple: Setting up shop there fattens the bottom line. In India, says Decker, “you can get five to 10 degreed engineers for the price of one here.”
Nonetheless, not every function is fleeing overseas. Conexant still has 1,500 employees in Newport Beach designing its sophisticated semiconductor products. It also keeps its R&D; local. The “superior higher education and flexible capital markets” in the United States, Decker explains, “are the foundation of our ability to innovate.”
That said, Decker sees potential danger ahead.
Asia, long a source of low-cost labor and parts, is now becoming a growing consumer market as well, especially for broadband Internet services in the home. Among U.S. households that have Internet access, according to various studies, broadband penetration is between 17% and 29%. That compares with 35% to 40% for Japan and 60% for South Korea, Decker says.
The way Decker looks at things, that spells trouble. By using broadband, he believes, people in Asia are more likely to come up with the next generation of Internet-related technology as each advance feeds the next.
This sort of thing, after all, has happened before. The U.S. market overwhelmingly was the first to adapt the personal computer in the 1980s -- and, by no accident, most of the innovations in computer hardware and software originated here.
If the U.S. falls too far behind on consuming broadband, “that could pose a challenge for the U.S.,” says Decker. “It would be extremely bad if we lost the power to innovate, to come up with new products.”
If that happened, he adds, “we would become like Europe -- a declining continent where they look at the old buildings and talk about the cheese.”
Just as you can see “the universe in a grain of sand,” in the poetic words of William Blake, so can you see shifts in global business in Conexant. If the U.S. isn’t careful, its technological prowess could be washed to sea.
*
James Flanigan can be reached at jim.flanigan @latimes.com.
