Conexant Acquires Microcosm Communications; Acquisition Broadens Conexant's Physical-Layer Optical Networking Portfolio.

Business Editors and High-Tech Writers

NEWPORT BEACH, Calif.--(BUSINESS WIRE)--Jan. 6, 2000

Conexant Systems, Inc. (Nasdaq: CNXT), Thursday announced that it has acquired Microcosm Communications, based in Bristol, United Kingdom, a leading supplier of high-speed integrated circuits for fiber optic communications.

Founded in 1995, Microcosm was the first company to deliver optical networking components based on complimentary-metal-oxide-semiconductor (CMOS) process technology, and is expected to achieve an annualized revenue run-rate exceeding $10 million in the current quarter.

Microcosm's products are primarily targeted for high-volume data communications traffic aggregation at the edge of optical (SONET/SDH) networks and will significantly broaden Conexant's extensive physical-layer product portfolio currently focused on the high-speed core of optical networking infrastructures.

Microcosm's products address the 155-megabit-per-second (Mbps) OC-3, 622 Mbps OC-12, and 2.5-gigabit-per-second OC-48 market segments.

The all-stock transaction, which has been approved by the boards of directors of both companies, is valued at approximately $128 million, plus certain payments tied to future performance, for a potential total consideration of up to $180 million. The shares will be issued at $66.48 per share, based on the average price of Conexant's stock during the 10 trading days ending Jan. 4, 2000.

Conexant expects the acquisition will contribute to earnings per share in its current fiscal year.

"The acquisition of Microcosm is a key next step in our strategy of accelerating the growth of our network access business by providing our customers with the most complete and most synergistic product portfolio in the industry," said Dwight W. Decker, chairman and chief executive officer of Conexant.

"With this acquisition, our optical networking portfolio will span the entire spectrum of optical networking transceiver solutions from OC-3 to OC-192 speeds.

"Microcosm is a technology innovator and has achieved many industry firsts in designing CMOS-based optical networking solutions.

"The company's products complement our already extensive family of physical-layer optical networking devices by adding driver and transceiver solutions at the edge of the network where Internet service providers aggregate data communications traffic for transmission.

"Equally important, Microcosm's cadre of talented analog and mixed-signal design engineers will more than double the size of our team focused on developing system solutions for the high growth, high-margin optical networking market segment," Decker added.

"Joining forces with Conexant in the optical networking market will allow both companies to take advantage of complementary sales channels and broaden the available market for our combined products," said Gary Steele, president and CEO of Microcosm.

"In particular, Microcosm brings strong customer relationships with the industry's leading manufacturers of optical transceiver modules, including the top five: AMP, Infineon, Lucent Microelectronics, Sumitomo and Nortel who, in turn, sell modules to a broad base of customers.

"Going forward, we believe there is a significant opportunity to integrate our products into more complete system solutions and to take advantage of Conexant's global sales force and strong relationships with the world's top-tier networking systems manufacturers," Steele added.

"This transaction will utilize the purchase method of accounting and is expected to be accretive to our fiscal year 2000 earnings, before one-time charges and goodwill amortization," said Bala Iyer, senior vice president and chief financial officer of Conexant.

"We expect fiscal 2000 revenues from the combined optical networking businesses of Conexant and Microcosm to exceed $50 million, and we further expect to build the business to annual revenues of more than $100 million in fiscal 2001."

Conexant, through its Network Access Division, provides the industry's broadest portfolio of physical-layer communications products, including asynchronous transfer mode (ATM), T1/E1 and T3/E3 carrier, optical networking (SONET/SDH), digital subscriber line (DSL), and multi-service voice and data access concentration.

Note To Analysts and Editors

Conexant will conduct a telephone conference Thursday at 5 p.m. PST. The dial-in number is 888/433-1680 (Domestic) and 212/346-6563 (International). A recorded playback of the teleconference will be available on Jan. 6, from 8 p.m. PST until 5 p.m. PST on Jan. 7. To access the playback, call 800/633-8284 (Domestic) or 858/812-6440 (International); enter reservation number: 14087084.

About Conexant

With revenues of approximately $1.5 billion, Conexant is the world's largest independent company focused exclusively on providing semiconductor products and systems solutions for communications electronics.

With more than 30 years of experience in developing communications technology, the company draws upon its expertise in mixed-signal processing to deliver integrated systems and semiconductor products for a broad range of communications applications.

These products facilitate communications worldwide through wireline voice and data communications networks, cordless and cellular wireless telephony systems, personal imaging devices and equipment, and emerging cable and wireless broadband communications networks.

The company aligns its business into five product platforms: Network Access, Wireless Communications, Digital Infotainment, Personal Imaging, and Personal Computing. Conexant is a member of the Nasdaq-100 Index, which represents the largest and most active stocks listed on The Nasdaq Stock Market across major industry groups. For more information, visit Conexant at www.conexant.com.

About Microcosm Communications

Microcosm Communications develops and supplies pure-CMOS & BiCMOS/SiGe integrated circuits for high volume fiber-optic data, LAN and telecommunication physical layer applications. The company has assembled the world's largest analog design team targeted at fiber-optic ICs.

Products include high-speed LED, laser and VCSEL drivers, fixed- and variable-gain PIN pre-amps, integrated photo-receivers, post amps/quantizers, clock recovery, and Ethernet/Fast Ethernet transceivers. The company's mission is to offer the highest performance yet lowest cost ICs on a worldwide basis.

Key areas of concentration include physical layer chips and chipsets for ATM, FDDI, ESCON, Ethernet, Fast Ethernet, Gigabit Ethernet, Fibre Channel, SONET and fiber-array applications. For additional information, visit Microcosm Communications Ltd. at www.mcosm.co.uk.

Safe Harbor Statement

This news release contains statements relating to future results of the company (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 company's ability to integrate Microcosm into its operations and realize marketing and other synergies, to produce accretion to cash earnings, and to achieve annual revenues from combined optical networking products of $50 million in fiscal 2000 and $100 million in fiscal 2001; growth of the market for Microcosm's products; global and market conditions including, but not limited to, 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; the availability and extent of utilization of manufacturing capacity; pricing pressures and other competitive factors; changes in product mix; fluctuations in manufacturing yields; product obsolescence; the ability to develop and implement new technologies and to obtain protection for the related intellectual property; the successful implementation of the company's diversification strategy; labor relations of the company, its customers and suppliers; timely completion of Year 2000 modifications by the company and its key suppliers and customers; and the uncertainties of litigation, as well as other risks and uncertainties, including but not limited to those detailed from time to time in the company's Securities and Exchange Commission filings. These forward-looking statements are made only as of the date hereof, and the company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. Other brands and names contained in this release are the property of their respective owners.