Conexant Meets Revised First Fiscal Quarter 2005 Performance Expectations; Company Records $141 Million in Revenues and Reduces Channel Inventory by Approximately $50 Million

NEWPORT BEACH, Calif.—(BUSINESS WIRE)—Jan. 26, 2005— Conexant Systems, Inc. (NASDAQ: CNXT) today announced revenues of $140.6 million for the first quarter of fiscal 2005, which ended Dec. 31, 2004, in line with its revised outlook provided on Dec. 13, 2004. During the quarter, the company reduced inventory at its distributors by $40 million and at its direct customers by approximately $10 million, indicating an end-customer demand level of approximately $190 million. In addition, the company achieved its revised expectations for gross margins, pro forma operating expenses, and pro forma earnings per share (EPS).

First fiscal quarter 2005 revenues of $140.6 million decreased 34 percent from fourth fiscal quarter 2004 revenues of $213.1 million, and decreased 21 percent compared to first fiscal quarter 2004 revenues of $177.3 million. The first fiscal quarter 2005 pro forma operating loss was $85.9 million, compared to a pro forma operating loss of $9.6 million in the fourth quarter of fiscal 2004, and a pro forma operating profit of $17.2 million in the year-ago quarter. On a pro forma basis, net loss for the first fiscal quarter of 2005 was $0.20 per diluted share, compared to a net loss of $0.04 in the fourth fiscal quarter, and a net profit of $0.04 per diluted share in the first fiscal quarter of 2004.

Based on generally accepted accounting principles (GAAP), the net loss for the first quarter of fiscal 2005 was $120.7 million, or $0.26 per diluted share, compared to a net loss of $370.5 million, or $0.79 per diluted share, in the fourth quarter of fiscal 2004, and net income of $40.6 million, or $0.13 per diluted share, in the first quarter of fiscal 2004.

Conexant provides pro forma results as a supplement to financial statements based on GAAP. The company uses pro forma information to evaluate its operating performance and believes this presentation provides investors with additional insight into its underlying operating results. A full reconciliation between pro forma and GAAP results is included in the accompanying financial data.

"Our decision to aggressively reduce channel inventory to match revenues with end-customer demand as quickly as possible resulted in a reduction of approximately $50 million in total channel inventory during the first fiscal quarter," said Dwight W. Decker, Conexant's chairman and chief executive officer. "Our significant progress in reducing inventory and the achievement of our revised revenue target of $140 million reinforces our belief that end-customer demand for the quarter was approximately $190 million.

"We maintained gross margins of 40 percent of revenues, excluding the impact of previously announced inventory charges of $53 million," Decker said. "Through a sharp focus on collecting receivables and reducing our internal inventory levels, we significantly improved our working capital metrics and delivered a modest positive net cash flow from operations."

As expected, pro forma operating expenses for the quarter were $93 million, compared to pro forma operating expenses of $95 million for the fourth fiscal quarter of 2004. Pro forma cash flow from operations was approximately $4 million. This was offset by one-time and non-operating items; a $16 million decline in the value of the company's holdings in Skyworks Solutions, Inc. (NASDAQ:SWKS) and SiRF Technology (NASDAQ:SIRF); the $15 million acquisition of Paxonet Communications in India; $12 million in restructuring charges and other payments; an $8 million settlement of intellectual property litigation; and $2 million in capital expenditures. As a result, Conexant's cash, cash equivalents and investments declined by $49 million sequentially, from $440 million in the immediate prior quarter to $391 million at the end of the first fiscal quarter.

Second Fiscal Quarter 2005 Outlook

"Historically, the first calendar quarter is a period of reduced demand for our PC and set-top box related product lines," Decker said. "We expect this seasonal dynamic to result in an overall decline this quarter of approximately 5 percent in end-customer demand, to about $180 million. We also plan to drive the completion of our current inventory reduction initiative, which should result in the further consumption during the quarter of approximately $20 million in channel inventory. Subtracting inventory consumption from our demand estimate, we expect to deliver second fiscal quarter revenues of approximately $160 million, up approximately 15 percent sequentially from the $141 million in revenue we recorded in the just finished quarter.

"We expect to deliver gross margins between 38 percent and 40 percent of revenues for the second fiscal quarter," Decker continued. "We further anticipate that the previously announced cost-reduction actions will result in a decline in operating expenses from $93 million in the December-ending quarter to approximately $89 million in the current quarter. Given our outlook for revenue, gross margin, and operating expenses, we anticipate that our second fiscal quarter pro forma net loss per share will be $0.07 to $0.08, based on approximately 470 million fully diluted shares."

Note to Editors, Analysts and Investors

Conexant's conference call will take place on Wednesday, Jan. 26, 2005, at 2 p.m. Pacific time/5 p.m. Eastern time. To listen to the conference call via telephone, dial 866-710-0179 (domestic) or 334-323-9854 (international); security code: Conexant. To listen via the Internet, visit the Investor Relations section of Conexant's Web site at www.conexant.com/ir. Playback of the conference call will be available shortly after the call concludes and will be accessible on Conexant's Web site at www.conexant.com/ir or by calling 877-919-4059 (domestic) or 334-323-7226 (international); pass code: 49087300.

About Conexant

Conexant's innovative semiconductor solutions are driving broadband communications, enterprise networks and digital home networks worldwide. The company has leveraged its expertise and leadership position in modem technologies to enable more Internet connections than all of its competitors combined, and continues to develop highly integrated silicon solutions for broadband data and media processing networks.

Key products include client-side xDSL and cable modem solutions, home network processors, broadcast video encoders and decoders, digital set-top box components and systems solutions, and dial-up modems. Conexant's suite of networking components includes a leadership portfolio of IEEE 802.11a/b/g-compliant WLAN chipsets, software and reference designs, as well as solutions for applications based on HomePlug(SM) and HomePNA(TM). The company also offers a complete line of asymmetric and symmetric DSL central office solutions, which are used by service providers worldwide to deliver broadband data, voice, and video over copper telephone lines.

Conexant is a fabless semiconductor company that recorded more than $900 million in revenues in fiscal year 2004. The company has approximately 2,400 employees worldwide, and is headquartered in Newport Beach, Calif. To learn more, please visit us at www.conexant.com.

Safe Harbor Statement

This press release contains statements relating to our future results (including certain projections and business trends) that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected as a result of certain risks and uncertainties. These risks and uncertainties include, but are not limited to: the substantial losses the company has incurred recently; the cyclical nature of the semiconductor industry and the markets addressed by the company's and its customers' products; demand for and market acceptance of new and existing products; successful development of new products; the timing of new product introductions and product quality; the company's ability to anticipate trends and develop products for which there will be market demand; the availability of manufacturing capacity; pricing pressures and other competitive factors; changes in product mix; product obsolescence; the ability to develop and implement new technologies and to obtain protection for the related intellectual property; the uncertainties of litigation and the demands it may place on the time and attention of company management; and the risk that the businesses of Conexant and GlobespanVirata have not yet been completely and may not be integrated successfully, as well as other risks and uncertainties, including those detailed from time to time in our Securities and Exchange Commission filings. These forward-looking statements are made only as of the date hereof, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

Conexant is a registered trademark of Conexant Systems, Inc. Other brands and names contained in this release are the property of their respective owners.
                        Conexant Systems, Inc.
              GAAP Consolidated Statements of Operations
          (Unaudited, in Thousands, Except Per Share Amounts)

                                                 Three months ended
                                                                  Dec.  31,          Dec.  31,
                                                                                                    2004                  2003

Net  revenues  (See  Note  1)                                                $140,621        $177,333
Cost  of  goods  sold  (See  Note  1)                                      133,465            98,196
Gross  margin                                                                                7,156            79,137
Operating  expenses:
  Research  and  development  (including  non-cash
    stock  compensation  of  $2,245  and  $23  for
    the  three  months  ended  Dec.  31,  2004,  and
    2003,  respectively)                                                            72,541            39,154
  Selling,  general  and  administrative
    (including  non-cash  stock  compensation  of
    $744  and  $0  for  the  three  months  ended
    Dec.  31,  2004,  and  2003,  respectively)                      30,006            22,809
  Amortization  of  intangible  assets                                    8,293                  955
  Special  charges  (See  Note  2)                                            19,257                  605
        Total  operating  expenses                                            130,097            63,523

Operating  income  (loss)                                                    (122,941)          15,614

Other  income,  net                                                                    (2,755)        (25,281)

Income  (loss)  before  income  taxes                                (120,186)          40,895

Provision  for  income  taxes                                                        532                  248

Net  income  (loss)                                                              $(120,718)        $40,647

Basic  income  (loss)  per  share                                            $(0.26)            $0.15

Diluted  income  (loss)  per  share                                        $(0.26)            $0.13

Number  of  shares  used  in  per  share
  computation  -  basic                                                            468,369          277,190

Number  of  shares  used  in  per  share
  computation  -  diluted                                                        468,369          307,545

The  GAAP  consolidated  statements  of  operations  include  the  results
of  operations  of  GlobespanVirata,  Inc.  from  Feb.  27,  2004,  the  date  of
the  company's  merger  with  GlobespanVirata.  No  restatement  has  been
made  to  earlier  periods.

Note  1  -  Includes  $52.9  million  of  inventory  charges  during  the
period  ending  Dec.  31,  2004,  consisting  of  $45.0  million  of  charges
for  internal  inventory  and  approximately  $7.9  million  of  channel
inventory  charges.

Note  2  -  Special  charges  consist  of  asset  impairments,
restructuring  charges,  integration  costs,  and  other  special  items.

                                                Conexant  Systems,  Inc.
            Pro  Forma  (Non-GAAP)  Consolidated  Statements  of  Operations
                    (Unaudited,  in  Thousands,  Except  Per  Share  Amounts)

                                                                                                Three  months  ended
                                                                                              Dec.  31,          Dec.  31,
                                                                                                  2004                  2003

Net  revenues  (See  Note  3)                                            $140,621          $177,333
Cost  of  goods  sold  (See  Note  3)                                  133,465              98,196
Gross  margin                                                                            7,156              79,137

Operating  expenses:
  Research  and  development                                                66,665              39,131
  Selling,  general  and  administrative                          26,361              22,809
        Total  operating  expenses                                          93,026              61,940

Pro  forma  operating  income  (loss)                              (85,870)            17,197

Other  expense,  net                                                                8,929                4,603

Pro  forma  income  (loss)  before  income  taxes          (94,799)            12,594

Provision  for  income  taxes                                                    532                    248

Pro  forma  net  income  (loss)                                        $(95,331)          $12,346

Basic  income  (loss)  per  share  pro  forma
  (non-GAAP)                                                                            $(0.20)              $0.04

Diluted  income  (loss)  per  share  pro  forma
  (non-GAAP)                                                                            $(0.20)              $0.04

Number  of  shares  used  in  per  share
  computation  -  basic                                                        468,369            277,190

Number  of  shares  used  in  per  share
  computation  -  diluted                                                    468,369            300,181

The  pro  forma  (non-GAAP)  consolidated  statements  of  operations
include  the  results  of  operations  of  GlobespanVirata,  Inc.  from  Feb.
27,  2004,  the  date  of  the  company's  merger  with  GlobespanVirata.  No
restatement  has  been  made  to  earlier  periods.

Pro  forma  operating  income  (loss),  pro  forma  net  income  (loss),
and  basic  and  diluted  income  (loss)  per  share  pro  forma  (non-GAAP)
excludes  certain  non-cash  and  special  items  related  to  operations  and
certain  non-operating  gains  and  losses.  The  company  believes  these
measures  of  income  provide  a  better  understanding  of  its  underlying
operating  results  and  the  company  uses  these  measures  internally  to
evaluate  its  underlying  operating  performance.  These  measures  of
income  are  not  in  accordance  with,  or  an  alternative  for,  generally
accepted  accounting  principles  and  may  be  different  from  pro  forma
measures  used  by  other  companies.

A  reconciliation  of  GAAP  consolidated  statements  of  operations  and
per  share  information  as  determined  under  generally  accepted
accounting  principles  with  the  pro  forma  net  income  (loss)  and  pro
forma  per  share  information  presented  above  is  presented  in  the
following  table.

Note  3  -  Includes  $52.9  million  of  inventory  charges  during  the
period  ending  Dec.  31,  2004,  consisting  of  $45.0  million  of  charges
for  internal  inventory  and  approximately  $7.9  million  of  channel
inventory  charges.

                                                Conexant  Systems,  Inc.
            Reconciliation  of  Consolidated  Statements  of  Operations  to
            Pro  Forma  (Non-GAAP)  Consolidated  Statements  of  Operations
                    (Unaudited,  in  Thousands,  Except  Per  Share  Amounts)

                                                                                                Three  months  ended
                                                                                            Dec.  31,              Dec.  31,
                                                                                                2004                      2003

Net  income  (loss)  (unaudited)                                $(120,718)              $40,647

Non-cash  and  special  items:
  Amortization  of  intangible  assets                              8,293                        955
  IP  litigation  support  costs                                          2,197                          --
  Special  charges  (See  Note  4)                                      19,257                        605
  Stock  compensation                                                            2,989                          23
  Transitional  salaries  and  benefits
    (See  Note  5)                                                                      4,335                          --
  Equity  in  losses  (earnings)  of  equity
    method  investees                                                              3,089                (10,165)
  Unrealized  loss  on  note  receivable  from
    Skyworks                                                                                    --                    4,911
  Unrealized  gain  on  Mindspeed  warrant                    (14,773)              (24,630)
Pro  forma  net  income  (loss)                                      $(95,331)              $12,346

Income  (loss)  per  share,  basic:
  Net  income  (loss)  (GAAP)                                              $(0.26)                  $0.15
  Non-cash  and  special  items                                              0.06                    (0.11)
  Pro  forma  (non-GAAP)  income  (loss)                          $(0.20)                  $0.04

Income  (loss)  per  share,  diluted:
  Net  income  (loss)  (GAAP)                                              $(0.26)                  $0.13
  Non-cash  and  special  items                                              0.06                    (0.09)
  Pro  forma  (non-GAAP)  income  (loss)                          $(0.20)                  $0.04

Note  4  -  Special  charges  consist  of  asset  impairments,
restructuring  charges,  integration  costs,  and  other  special  items.

Note  5  -  Transitional  salaries  and  benefits  of  $4,335  for  the
three  months  ended  Dec.  31,  2004,  represent  amounts  earned  by
employees,  from  the  beginning  of  the  period  presented,  who  have  been
notified  of  their  termination  as  part  of  our  restructuring  activities.
Included  in  the  above  amount  is  $296  of  facilities-related  costs.

                                                Conexant  Systems,  Inc.
                                  Consolidated  Condensed  Balance  Sheets
                                              (Unaudited,  in  Thousands)

                                                                                            Dec.  31,            Sept.  30,
                                                                                                2004                      2004
                                                                ASSETS
Current  assets:
  Cash  and  cash  equivalents  (See  Note  6)                $132,326            $139,031
  Marketable  securities  (See  Note  6)                          135,597              163,040
  Receivables,  net                                                                92,864              185,037
  Inventories                                                                        136,438              194,754
  Mindspeed  warrant  -  current  portion                            5,634                  3,599
  Other  current  assets                                                        17,521                20,768
        Total  current  assets                                                520,380              706,229

Property,  plant  and  equipment,  net                              53,266                55,741
Goodwill                                                                                714,852              708,544
Intangible  assets,  net                                                    128,947              135,241
Mindspeed  warrant                                                                35,737                23,000
Marketable  securities  -  long  term
  (See  Note  6)                                                                      123,266              137,604
Other  assets                                                                        112,936              114,163
        Total  assets                                                          $1,689,384        $1,880,522

                                  LIABILITIES  AND  SHAREHOLDERS'  EQUITY
Current  liabilities:
  Accounts  payable                                                              $89,171            $141,533
  Accrued  compensation  and  benefits                              44,511                40,423
  Restructuring  and  reorganization
    liabilities                                                                        28,205                22,427
  Other  current  liabilities                                              51,502                67,044
        Total  current  liabilities                                      213,389              271,427

Convertible  subordinated  notes                                    711,825              711,825
Other  liabilities                                                                64,741                68,883
        Total  liabilities                                                      989,955          1,052,135

Shareholders'  equity                                                        699,429              828,387
        Total  liabilities  and  shareholders'
          equity                                                                    $1,689,384        $1,880,522

Note  6  -  Total  cash,  cash  equivalents  and  marketable  securities  at
Dec.  31,  2004,  and  Sept.  30,  2004,  are  as  follows:

                                                                                            Dec.  31,            Sept.  30,
                                                                                                2004                      2004

Cash  and  cash  equivalents                                          $132,326              $139,031
Other  short-term  marketable  securities
  (primarily  mutual  funds,  domestic
  government  agencies  and  corporate  debt
  securities)                                                                          2,587                  13,764
Long-term  marketable  securities
  (primarily  domestic  government  agencies
  and  corporate  debt  securities)                                123,266                137,604
Subtotal                                                                              258,179                290,399
Equity  securities  -  Skyworks  Solutions,
  Inc.  (6.2  million  shares  at  Dec.  31,
  2004  and  Sept.  30,  2004)                                              58,305                  61,767
Equity  securities  -  SiRF  Technologies,
  Inc.  (5.9  million  shares  at  Dec.  31,
  2004  and  Sept.  30,  2004)                                              74,705                  87,509
Subtotal  Skyworks  and  SiRF                                          133,010                149,276

                                                                                            $391,189              $439,675

                                                Conexant  Systems,  Inc.
                                                    Selected  Other  Data
                                              (Unaudited,  in  Thousands)

                                                                                                  Three  months  ended
                                                                                              Dec.  31,              Dec.  31,
                                                                                                  2004                      2003
Selected  Data:
  Depreciation  (See  Note  7)                                            $4,838                  $3,155
  Capital  expenditures                                                        2,082                    4,857

Revenues  By  Region:
  Americas                                                                            $18,439                $22,401
  Asia-Pacific                                                                    105,472                140,362
  Europe,  Middle  East  and  Africa                                  16,710                  14,570
                                                                                            $140,621              $177,333

Note  7  -  Does  not  include  amortization  of  intangible  assets,  as
applicable.
 


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