CONEXANT SYSTEMS 
By Conexant Systems, Inc. (NASDAQ:CNXT) today announced financial results for the second quarter of fiscal 2007, which ended March 30, 2007. For the second fiscal quarter, the company reported revenues of $199.9 million, consistent with the updated revenue outlook provided on April 9, 2007.
Conexant presents financial results based on accounting principles generally accepted in the United States of America (GAAP) as well as selected 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.
Second quarter fiscal 2007 revenues of $199.9 million were down 18.6 percent from first quarter fiscal 2007 revenues of $245.5 million, and 17.6 percent from $242.6 million in the second quarter of fiscal 2006. Core gross margins in the second quarter of fiscal 2007 were 45.0 percent of revenues, compared to 44.6 percent in the prior quarter, and 43.5 percent in the year-ago quarter.
Core operating expenses decreased in the second quarter of fiscal 2007 to $89.9 million from $93.6 million in the prior quarter. Core operating expenses in the year-ago quarter were $86.1 million.
Core operating income in the second quarter of fiscal 2007 was $0.1 million, compared to first fiscal quarter core operating income of $16.0 million. Core operating income in the second quarter of fiscal 2006 was $19.3 million. Core net loss for the second quarter of fiscal 2007 was $9.9 million, or $0.02 per share, compared to core net income of $7.4 million, or $0.02 per diluted share, in the first quarter of fiscal 2007. In the year-ago quarter, core net income was $13.1 million, or $0.03 per diluted share.
On a GAAP basis, gross margins for the second fiscal quarter of 2007 were 45.0 percent of revenues, compared to 44.6 percent in the prior quarter.
In accordance with the Statement of Financial Accounting Standards (SFAS) Nos. 142 and 144, ?Goodwill and Other Intangible Assets? and ?Accounting for the Impairment or Disposal of Long-Lived Assets,? the company took a non-cash impairment charge of $155.0 million in the second quarter of fiscal 2007 to write-down the carrying value of goodwill and intangible assets associated with its Embedded Wireless Networking product line. This impairment occurred as a result of a reduced forecast for wireless products targeted at the embedded cellular handset market.
GAAP operating expenses for the second quarter of fiscal 2007, which included the impairment charge, were $262.5 million. GAAP operating expenses were $108.1 million in the first fiscal quarter of 2007. The GAAP operating loss was $172.7 million in the second quarter of fiscal 2007, compared to GAAP operating income of $1.4 million in the previous quarter. The GAAP net loss for the second fiscal quarter of 2007 was $133.4 million, or $0.27 per share, compared to GAAP net income in the first fiscal quarter of $1.0 million, or $0.00 per diluted share. The company's second fiscal quarter 2007 GAAP results also included $44.0 million of gains on equity method investments, including a $43.5 million gain that resulted from the merger of Acquicor Technology and Jazz Semiconductor, Inc., $1.3 million of gains on sales of equity securities, and a $3.9 million increase in the value of warrants in Mindspeed Technologies, Inc. The company's first fiscal quarter 2007 GAAP results included $5.1 million of gains on sales of equity securities and a $3.0 million increase in the value of warrants in Mindspeed Technologies, Inc.
For the year-ago quarter, GAAP gross margins were 43.8 percent, GAAP operating expenses were $147.8 million, GAAP operating loss was $41.6 million, and GAAP net loss was $10.1 million, or $0.02 per diluted share.
?The second fiscal quarter proved to be significantly more challenging than we expected entering the quarter,? said Dwight W. Decker, Conexant chairman and chief executive officer. ?In January, we anticipated that revenues would decline in a range between 8 percent and 10 percent. However, greater-than-expected weakness in our set-top box and multifunction peripheral product lines resulted in a revenue decline of 18.6 percent. Set-top box revenues were down by approximately $17.5 million sequentially as a result of schedule delays in several key programs with satellite service providers in the U.S. and Europe. Shipments of our multifunction peripheral solutions, which declined by approximately $10.4 million sequentially, were impacted by higher-than-expected inventories at key customers and more-pronounced-than-anticipated seasonality.
?We exited the quarter with approximately $234 million in cash, cash equivalents, and marketable securities,? Decker said. ?During the second fiscal quarter, we redeemed $457 million in convertible debt that matured in February 2007. We also received approximately $98 million when the merger of Acquicor Technology and Jazz Semiconductor was completed in February 2007.?
Third Fiscal Quarter 2007 Outlook
?After a very difficult second fiscal quarter, our business segments are showing clear signs of stabilization,? Decker said. ?We expect our DSL, analog modem, and embedded wireless networking product lines to be flat to slightly up on a sequential basis in the third fiscal quarter. In our set-top box business, we expect that our overall customer demand will also be approximately flat with one major exception. This exception is the end of an almost $20 million quarterly revenue stream due to the completion of a single, major program at a key North American cable set-top box customer. As a result, in total, we expect Conexant revenues for the third quarter of fiscal 2007 to be in a range between $178 million and $182 million.
?We expect core gross margins for the third fiscal quarter to remain between 44 percent and 45 percent of revenues,? Decker said. ?Based on our weakened outlook, we have initiated cost-cutting actions intended to reduce our core operating expenses by approximately $20 million annually by the end of the calendar year. We expect the completion of the initial phase of this plan to result in third fiscal quarter core operating expenses in a range between $88 million and $89 million. Combining these estimates, we anticipate that our core operating loss will be in a range between $6 million and $10 million. As a result, we expect our core net loss to be between $0.03 and $0.04 per share.?
Note to Editors, Analysts and Investors
To listen to the conference call via telephone, dial 866-650-4882 (in the US and Canada) or 706-679-7338 (from other international locations); 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 800-642-1687 (in the US and Canada) or 706-645-9291 (from other international locations); pass code: 5962832.
About Conexant
Conexant's innovative semiconductor solutions are driving broadband communications 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 802.11-compliant WLAN chipsets, software and reference designs, as well as solutions for applications based on HomePlug® and HomePNA?. 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 revenues of $970.8 million in fiscal year 2006. The company has approximately 3,200 employees worldwide, and is headquartered in Newport Beach, Calif. To learn more, please visit www.conexant.com.
Safe Harbor Statement
?Safe Harbor? Statement under the Private Securities Litigation Reform Act of 1995: This release includes forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally can be identified by phrases such as Conexant or its management ?believes,? ?expects,? ?anticipates,? ?foresees,? ?forecasts,? ?estimates? or other words or phrases of similar import. Similarly, statements in this release that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. All such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.
These risks and uncertainties include, but are not limited to: the risk that capital needed for our business and to repay our indebtedness will not be available when needed; the risk that the value of our common stock may be adversely affected by market volatility; general economic and political conditions and conditions in the markets we address; the substantial losses we have incurred; the cyclical nature of the semiconductor industry and the markets addressed by our products and our customers' products; continuing volatility in the technology sector and the semiconductor industry; demand for and market acceptance of our new and existing products; our successful development of new products; the timing of our new product introductions and our product quality; our 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 our product mix; product obsolescence; the ability of our customers to manage inventory; our ability to develop and implement new technologies and to obtain protection for the related intellectual property; the uncertainties of litigation, including claims of infringement of third-party intellectual property rights or demands that we license third-party technology, and the demands it may place on the time and attention of our management and the expense it may place on our company; and possible disruptions in commerce related to terrorist activity or armed conflict, as well as other risks and uncertainties, including those detailed from time to time in our Securities and Exchange Commission filings.
The forward-looking statements are made only as of the date hereof. 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 Condensed Consolidated Statements of Operations (unaudited, in thousands, except per share amounts) | ||||||||||
| Three Months Ended | Six Months Ended | |||||||||
| March 30, | Dec. 29, | March 31, | March 30, | March 31, | ||||||
| 2007 | 2006 | 2006 | 2007 | 2006 | ||||||
| Net revenues | $ 199,865 | $ 245,534 | $ 242,583 | $ 445,399 | $ 473,289 | |||||
| Cost of goods sold | 110,016 | 136,045 | 136,373 | 246,061 | 271,326 | |||||
| Gross margin | 89,849 | 109,489 | 106,210 | 199,338 | 201,963 | |||||
| Operating expenses: | ||||||||||
| Research and development | 69,345 | 71,450 | 64,831 | 140,795 | 129,190 | |||||
| Selling, general and administrative | 26,803 | 27,476 | 36,320 | 54,279 | 74,921 | |||||
| Amortization of intangible assets | 6,254 | 6,238 | 7,758 | 12,492 | 15,665 | |||||
| Special charges (Note 1) | 160,121 | 2,898 | 38,854 | 163,019 | 39,769 | |||||
| Total operating expenses | 262,523 | 108,062 | 147,763 | 370,585 | 259,545 | |||||
| Operating income (loss) | (172,674) | 1,427 | (41,553) | (171,247) | (57,582) | |||||
| Interest expense | (13,220) | (13,036) | (10,052) | (26,256) | (18,854) | |||||
| Other income, net | 9,660 | 13,061 | 42,792 | 22,721 | 46,139 | |||||
| Income (loss) before income taxes and gain (loss) of equity method investments | (176,234) | 1,452 | (8,813) |
| (174,782) | (30,297) | ||||
| Provision for income taxes | 1,232 | 471 | 735 | 1,703 | 1,451 | |||||
| Income (loss) before gain (loss) of equity method investments | (177,466) | 981 | (9,548) |
| (176,485) | (31,748) | ||||
| Gain (loss) of equity method investments (Note 2) | 44,020 | (5) | (584) | 44,015 | (2,655) | |||||
| Net income (loss) | $ (133,446) | $ 976 | $ (10,132) | $ (132,470) | $ (34,403) | |||||
| Basic and diluted net income (loss) per share | $ (0.27) | $ 0.00 | $ (0.02) | $ (0.27) | $ (0.07) | |||||
| Shares used in basic per-share computations | 489,302 | 485,957 | 477,480 | 487,630 | 475,761 | |||||
| Shares used in diluted per-share computations | 489,302 | 492,583 | 477,480 | 487,630 | 475,761 | |||||
Note 1 ? Special charges for the three and six months ended March 30, 2007 include non-cash goodwill and intangible asset impairment charges related to our Embedded Wireless Networking business of $135.0 million and $20.0 million, respectively. Special charges for the three and six months ended March 31, 2006 include a $40.0 million charge related to the settlement of our litigation with Texas Instruments Incorporated.
Note 2 ? Gain (loss) of equity method investments for the three and six months ended March 30, 2007 include a gain on the sale of our investment in Jazz Semiconductor, Inc. of $43.5 million.
CONEXANT SYSTEMS, INC. Reconciliation of GAAP Financial Measures to Non-GAAP Core Financial Measures (unaudited, in thousands, except per share amounts) | ||||||||||
| Three Months Ended | Six Months Ended | |||||||||
| March 30, | Dec. 29, | March 31, | March 30, | March 31, | ||||||
| 2007 | 2006 | 2006 | 2007 | 2006 | ||||||
| GAAP gross margin | $ 89,849 | $ 109,489 | $ 106,210 | $ 199,338 | $ 201,963 | |||||
| Stock-based compensation (a) | 115 | 103 | 131 | 218 | 429 | |||||
| Other (i) | ? | ? | (883) | ? | (883) | |||||
| Non-GAAP Core gross margin | $ 89,964 | $ 109,592 | $ 105,458 | $ 199,556 | $ 201,509 | |||||
| GAAP operating expenses | $ 262,523 | $ 108,062 | $ 147,763 | $ 370,585 | $ 259,545 | |||||
| Stock-based compensation (a) | (4,656) | (4,234) | (12,621) | (8,890) | (26,639) | |||||
| Transitional salaries and benefits (b) | (1,591) | (740) | (685) | (2,331) | (902) | |||||
| IP litigation support costs (c) | ? | ? | (7,233) | ? | (12,890) | |||||
| Amortization of intangible assets (d) | (6,254) | (6,238) | (7,758) | (12,492) | (15,665) | |||||
| Special charges (e) | (160,121) | (2,898) | (38,854) | (163,019) | (39,769) | |||||
| Other (i) | ? | (400) | 5,515 | (400) | 5,515 | |||||
| Non-GAAP Core operating expenses | $ 89,901 | $ 93,552 | $ 86,127 | $ 183,453 | $ 169,195 | |||||
| GAAP operating income (loss) | $ (172,674) | $ 1,427 | $ (41,553) | $ (171,247) | $ (57,582) | |||||
| Gross margin adjustments (a, i) | 115 | 103 | (752) | 218 | (454) | |||||
| Operating expense adjustments (a-e, i) | 172,622 | 14,510 | 61,636 | 187,132 | 90,350 | |||||
| Non-GAAP Core operating income | $ 63 | $ 16,040 | $ 19,331 | $ 16,103 | $ 32,314 | |||||
| GAAP net income (loss) | $ (133,446) | $ 976 | $ (10,132) |
$ (132,470)
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© Business Wire - 2007
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