Conexant Reports Financial Results for the Third Quarter of Fiscal 2008

NEWPORT BEACH, Calif.—(BUSINESS WIRE)—July 31, 2008— Conexant Systems, Inc. (NASDAQ: CNXT) today announced financial results for the third quarter of fiscal 2008 that exceeded the companys expectations entering the quarter. The company also increased its previously provided guidance for the fourth fiscal quarter.

Third Fiscal Quarter Financial Results

Conexant presents financial results based on Generally Accepted Accounting Principles (GAAP) as well as select non-GAAP financial measures intended to reflect its core results of operations. The company believes these core financial measures provide investors with additional insight into its underlying operating results. Core financial measures exclude non-cash and other non-core items as fully described in the GAAP to non-GAAP reconciliation in the accompanying financial data.

On April 29, 2008 Conexant announced the planned sale of its Broadband Media Processing (BMP) product lines to NXP Semiconductors in a transaction valued at up to $145 million. The transaction is expected to be completed in August 2008, and the financial results of the BMP business unit have been classified as discontinued operations in the companys third fiscal quarter financial statements. Because the companys guidance for the third fiscal quarter included expected financial results for BMP, third fiscal quarter non-GAAP financial measures including and excluding the BMP business have been provided in the accompanying financial tables.

Including results from discontinued operations related to the BMP business, Conexants non-GAAP core revenues for the third quarter of fiscal 2008 were $171.1 million. Core gross margins were 47.1 percent of revenues, and core operating expenses were $69.6 million. Core operating income was $11.0 million, and core net income was $2.0 million, or $0.04 per share.

Excluding results from discontinued operations related to the BMP business, Conexants core net revenues for the third quarter of fiscal 2008 were $115.6 million. Core gross margins were 50.6 percent of revenues. Core operating expenses were $46.0 million, and core operating income was $12.5 million. Core net income was $6.0 million, or $0.12 per diluted share.

On a GAAP basis, net revenues for the third quarter of fiscal 2008 were $115.6 million. GAAP gross margins were 50.5 percent of revenues. GAAP operating expenses were $184.8 million. GAAP operating loss was $126.4 million. GAAP net loss from continuing operations was $126.4 million, or $2.56 per share, and GAAP net loss was $149.9 million, or $3.03 per share. The GAAP net loss in the quarter included a loss of $23.5 million from discontinued operations and asset impairment charges of $120.4 million related to the write-down of goodwill and certain tangible and intangible assets associated with the companys Broadband Access business.

The company ended the quarter with $134.6 million in cash and cash equivalents due to the reclassification of $29.0 million to restricted cash.

Business Perspective

During the third fiscal quarter, the Conexant team continued to make outstanding progress across multiple fronts, said Scott Mercer, Conexants chief executive officer. For the third consecutive quarter, we met or exceeded our expectations on every major financial metric. Revenues of $171.1 million, which included our Broadband Media Processing business, came in at the high end of the range we previously provided. Core gross margins of 47.1 percent of revenues exceeded the high end of our expectations by 160 basis points, and core operating expenses of $69.6 million were below the low end of the range we provided entering the quarter. During the quarter, we also introduced innovative new products targeted at high-growth market segments, and we executed a 1-for-10 reverse stock split.

After the close of the quarter, we announced the acquisition of Freescale Semiconductors SigmaTel multi-function printer imaging business, which is consistent with our strategy of augmenting our investments in new-product development with select acquisitions in the high-growth market segments we address, Mercer said.

Moving forward, we will continue to focus on delivering improved financial performance, Mercer said.

Business Outlook

In June, the company said that it expected revenues for the fourth quarter of fiscal 2008 to be in a range between $115 million and $120 million. The company now expects revenues for the fourth fiscal quarter to be in a range between $120 million and $125 million, which includes a modest revenue contribution from the SigmaTel acquisition.

The company expects core gross margins for the fourth fiscal quarter to be between 51.5 and 52.5 percent of revenues, compared with previous expectations of 49.5 to 50.5 percent.

The company also anticipates fourth fiscal quarter core operating income in a range between $14 million and $16 million, resulting in core net income of $0.13 to $0.17 per share. Previously, the company expected core net income of $0.08 to $0.12 per share.

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