Conexant Reports Third Fiscal Quarter Results for 2001; Company Performance In Line with Earnings Preview.Business Editors and High-Tech Writers NEWPORT BEACH Newport Beach, residential and resort city (1990 pop. 66,643), Orange co., S Calif., on Newport Bay and the Pacific Ocean; inc. 1906. It is a popular seaside resort and yachting center. Manufactures include electrical and medical equipment, computers, boats, and adhesives. , Calif.--(BUSINESS WIRE)--July 19, 2001 Conexant Systems, Inc. (Nasdaq:CNXT) today announced revenues of $200.1 million for the third quarter of fiscal 2001, which ended June 30, 2001. Revenues were down 20 percent from second quarter fiscal 2001 revenues of $251 million, and slightly below the lower end of guidance established in April. The pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma net loss for the third quarter was $220.4 million, or $0.89 per share, using a tax rate of zero. This compares with a pro forma net loss in the prior quarter of $187.5 million, or $0.77 per share, using a 38 percent tax rate. The pro forma net loss for the third quarter includes a $45.1 million reserve for inventory and other items. Excluding this charge and using a normalized 36 percent tax rate, the third-quarter pro forma net loss was $112 million, or $0.45 per share, which is at the low end of the prior guidance range. Pro forma results exclude amortization of intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. and special charges. In the third fiscal quarter, Conexant's personal networking business recorded revenues of $164 million, down three percent sequentially. Mindspeed Technologies, the company's Internet infrastructure business, delivered revenues of $36.1 million during the third fiscal quarter, down 56 percent sequentially. "The market environment continues to be challenging," said Dwight W. Decker, Conexant's chairman and chief executive officer. "However, we are encouraged by signs of revenue stabilization Stabilization The action undertakes a country when it buys and sells its own currency to protect its exchange value. Actions registered competitive traders undertake by on the NYSE to meet the exchange requirement that 75% of their traded be stabilizing, meaning that sell orders in our personal networking business, comprised of wireless communications wireless communications System using radio-frequency, infrared, microwave, or other types of electromagnetic or acoustic waves in place of wires, cables, or fibre optics to transmit signals or data. , digital infotainment (INFOrmation enterTAINMENT) Refers to all the information and entertainment services delivered to the home, which are essentially telephone, TV and Internet access. and personal computing Refers to users working on their own computers rather than a terminal to a mainframe. Sometimes, the term refers to using computers at home for work and/or entertainment in contrast to business use only. See personal computer. . Despite continued high channel inventory levels and weak end-market demand, third-quarter personal networking revenues were only slightly down from the previous quarter and in line with the expectations we established for this business at the beginning of the quarter. "Mindspeed Technologies experienced a weaker communications infrastructure market environment than we expected, driven by the continuing slowdown in new broadband service See broadband and broadband service provider. offerings and the overall decline in incumbent carrier See ILEC. capital spending capital spending Spending for long-term assets such as factories, equipment, machinery, and buildings that permits the production of more goods and services in future years. ," said Decker. Conexant recently announced a strategic shift away from volume digital CMOS (Complementary Metal Oxide Semiconductor) Pronounced "c-moss." The most widely used integrated circuit design. It is found in almost every electronic product from handheld devices to mainframes. process development and wafer (1) A small, thin continuous-loop magnetic tape cartridge that has been used from time to time for data storage and specialized applications. (2) The base unit of chip making. It is a slice taken from a salami-like silicon crystal ingot up to 12" (300mm) in diameter. manufacturing, accelerating the company's transition towards a fully fabless CMOS business model. As a result of this strategic manufacturing realignment re·a·lign tr.v. re·a·ligned, re·a·lign·ing, re·a·ligns 1. To put back into proper order or alignment. 2. To make new groupings of or working arrangements between. , the company incurred a one-time charge of $430 million associated with manufacturing asset write-downs. The company also previously announced additional expense-reduction initiatives, which included a resizing of manufacturing operations Manufacturing operations concern the operation of a facility, as opposed to maintenance, supply and distribution, health, and safety, emergency response, human resources, security, information technology and other infrastructural support organizations. and a reduction in workforce. As a result of these actions, the company expects to realize $175 million in annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. cost savings, a total of $375 million annually when combined with the cost-reduction measures announced in March. Quarterly Business Overview In the personal networking business, the company commenced volume shipments of its tri-band GSM (Global System for Mobile Communications) A digital cellular phone technology based on TDMA that is the predominant system in Europe, but also used worldwide. Developed in the 1980s, GSM was first deployed in seven European countries in 1992. power amplifier Power amplifier The final stage in multistage amplifiers, such as audio amplifiers and radio transmitters, designed to deliver appreciable power to the load. to handset The part of the telephone that contains the speaker and the microphone. On a desktop phone, the part you hold in your hand is the handset. On a cellphone, the entire phone is the handset. See multihandset cordless and headset. manufacturers domestically and abroad. The company also secured multiple design wins for its single-chip, direct conversion transceiver (TRANSmitter reCEIVER) An electronic device or circuit that transmits and receives analog or digital signals. It comes in many forms; for example, a transponder on a satellite, a network adapter in the computer or the circuits in a cellphone. , announced last quarter, with volume production scheduled for the end of the calendar year. Additional mobile communications highlights included three platform design wins for the company's recently announced GSM/GPRS system solution. In broadband access See broadband and wireless broadband. , the company experienced sequential growth in shipments across a number of key product areas, including ADSL See DSL. ADSL - Asymmetric Digital Subscriber Line modems, cable modems cable modem Modem used to convert analog data signals to digital form and vise versa, for transmission or receipt over cable television lines, especially for connecting to the Internet. , set-top box The cable TV box that sits on "top" of the TV "set," although it is often located several feet away in an equipment rack. The set-top box descrambles the premium channels and provides a tuner for the higher cable numbers that very old TVs did not support. system solutions and home network processors. Design-win activity in these areas increased as well, with new engagements for the AccessRunner(TM) ADSL solution, two new CableLabs(R)-certified customer cable modem platforms, and a record number of design wins for the company's new home network processor products. Within the Mindspeed business, the company strengthened its product portfolio with the introduction of a number of new products for switch fabric, wide area network and optical networking Communications between computers, telephones and other electronic devices using light. An optical network is far more reliable and has far greater potential transmission capacity than networking in the electrical domain. See optical fiber. applications. The iScale(TM) switch fabric chipset A group of chips designed to work as a unit to perform a function. For example, a modem chipset contains all the primary circuits for transmitting and receiving. A PC chipset provides the electronic interfaces between all subsystems (see PC chipset for illustration). , targeted at high capacity, high-speed switching applications, was developed by Mindspeed's HotRail(TM) team. This team also launched the industry's first CMOS-based quad serializer/deserializer transceiver. Building on its product and technology base, Mindspeed's Maker team introduced a higher-speed version of the Traffic Stream Processor, a programmable OC-48 network processor engine solution optimized for packet and cell-based traffic management. Fourth Quarter Fiscal 2001 Outlook "With respect to the fourth fiscal quarter, we believe that the personal networking business has found its bottom, with a stabilization in demand for many of our products in the mobile communications, personal computer and PC peripheral market segments, and we anticipate relatively flat sequential revenues for this business," said Decker. "With the continuing weak infrastructure market, we believe that Mindspeed revenues will be down again this quarter, though significantly less than in the prior two quarters. Recently, we have seen a steady increase in new order activity and a decline in cancellations, which makes us hopeful that the fourth fiscal quarter will represent a bottom for the Mindspeed business. In total, we expect Conexant revenues to be down slightly from the prior quarter." The company anticipates gross margins of approximately 20 percent in the fourth fiscal quarter, reflecting the initial benefits of its strategic manufacturing realignment and resizing activities. The company also expects to realize a further sequential reduction in operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. driven by the implementation of its cost-reduction initiatives. "Even though we anticipate slightly lower revenues, as a result of the broad set of actions we are now taking we expect to deliver a 20 percent sequential improvement in pro forma operating losses operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. ," Decker said. Third Quarter Product Initiatives Mindspeed announced iScale, an intelligent switch fabric for high-capacity switching equipment, and OptiPHY(TM)-F10G, a 10 gigabit-per-second framer that complements iScale and Mindspeed's network processors in high-speed networking applications. Mindspeed also expanded its optical networking portfolio with the introduction of OC-48 and OC-192 framers for organizing and identifying packets for transport over high-speed SONET-based networks. Wireless Communications announced its two-chip Bluetooth(TM) system solution, the lowest power consumption Bluetooth chipset system solution offered today. The company also announced that its Bluetooth baseband processor achieved 1.1 certification. Other new products include a complete radio frequency (RF) subsystem A unit or device that is part of a larger system. For example, a disk subsystem is a part of a computer system. A bus is a part of the computer. A subsystem usually refers to hardware, but it may be used to describe software. for wideband code division multiple access (WCDMA (Wideband CDMA) A 3G high-speed digital data service provided by cellular carriers that use the TDMA or GSM technology worldwide, including AT&T (formerly Cingular) and T-Mobile in the U.S. ) handsets. The WCDMA RF subsystem includes a transmitter A device that generates signals. Contrast with receiver. , receiver, synthesizer synthesizer Machine that electronically generates and modifies sounds, frequently with the use of a digital computer, for use in the composition of electronic music and in live performance. and Conexant's recently announced WCDMA power amplifier. Personal Computing participated in a large-scale powerline home networking field trial conducted by the HomePlug Powerline Alliance HomePlug is an industry trade group for power line communication. This organization of about 50 companies defines power line communication specifications. HomePlug 1.0 and AV are the two versions of the specification for home networking technology that connects devices to each , to validate that the technology meets prerequisites listed in the Market Requirements Document (MRD MRD or mrd abbr. minimal reacting dose ). The MRD encompasses critical category requirements including regulatory, interoperability The capability of two or more hardware devices or two or more software routines to work harmoniously together. For example, in an Ethernet network, display adapters, hubs, switches and routers from different vendors must conform to the Ethernet standard and interoperate with each other. , performance, non-interference, reliability, scalability, and diagnostic and maintenance capabilities. Digital Infotainment announced a new interactive television decoder A hardware device or software that converts coded data back into its original form. See decode and MPEG decoder. chip (CX22492/3) that has been optimized for personal video recorder See DVR. (PVR See DVR. ) set-top boxes. PVR functionality allows consumers to store live television and rewind re·wind tr.v. re·wound , re·wind·ing, re·winds 1. To wind again or anew. 2. To reverse the winding of (recording tape or camera film). n. 1. The act or process of rewinding. , fast-forward or pause it during playback. The CX22492/3 also makes it possible for users to record one television show while watching another, or record two shows simultaneously. Digital Infotainment also announced a collaboration with NDS Group NDS Group plc is a DRM and conditional access firm. It is listed on the NASDAQ (symbol NNDS), but its major shareholder is News Corporation. The company is headquartered in West Drayton (near Heathrow), United Kingdom. The CEO of NDS is Abe Peled. plc to develop a new interactive set-top box reference design platform that will be optimized for PVR applications. Note to Editors, Analysts and Investors The Conexant Q3 FY01 conference call will take place Thursday, July 19, 2001, at 2 p.m. PDT PDT abbr. Pacific Daylight Time PDT Pacific Daylight Time PDT n abbr (US) (= Pacific Daylight Time) → hora de verano del Pacífico PDT and 5 p.m. EDT EDT abbr. Eastern Daylight Time EDT Eastern Daylight Time EDT n abbr (US) (= Eastern Daylight Time) → hora de verano de Nueva York EDT . To listen to the conference call via telephone, call 800/680-9685 (domestic) or 334/323-9854 (international); security code: Conexant. To listen via the Internet, visit www.conexant.com. Playback of the conference call will begin at 5 p.m. (PDT) on Thursday, July 19, and end at 5 p.m. (PDT) on Friday, July 20. The replay will be available on Conexant's Web site at www.conexant.com or by calling 800/858-5309 (domestic) or 334/260-0890 (international); access code: 40313; pass code: 16809. About Conexant Conexant Systems, Inc. is a worldwide leader in semiconductor system solutions for communications applications. Conexant leverages its expertise in mixed-signal processing to deliver integrated systems and semiconductor products through two separate businesses: Conexant and Mindspeed Technologies. Conexant's personal networking business is focused on wireless communications, digital infotainment and personal computing products that are used in mobile communications and the broadband digital home. Mindspeed Technologies is focused on Internet infrastructure products including WAN transport, multiservice access and broadband access for applications that extend from the edge of the Internet all the way to its optical core. Conexant is headquartered in Newport Beach, Calif., and delivered revenues of $2.1 billion for fiscal 2000. The company is a member of the S&P 500 and NASDAQ-100 indices. To learn more, visit us at www.conexant.com or www.mindspeed.com. Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. Statement This news release contains statements relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc future results of Conexant (including certain projections and business trends) that are "forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. " as defined in the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and 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: global economic and market conditions, such as the cyclical cyclical Of or relating to a variable, such as housing starts, car sales, or the price of a certain stock, that is subject to regular or irregular up-and-down movements. 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 ob·so·les·cent adj. 1. Being in the process of passing out of use or usefulness; becoming obsolete. 2. Biology Gradually disappearing; imperfectly or only slightly developed. ; the ability to develop and implement new technologies and to obtain protection for the related intellectual property; the successful separation of the company's Internet infrastructure and personal networking businesses; the ability to attract and retain qualified personnel; labor relations of the company, and its customers and suppliers; maintaining a consistent and reliable source of energy; and the uncertainties of litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called 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. NOTE TO EDITORS: Conexant, Mindspeed Technologies, HotRail, AccesRunner, iScale and OptiPHY are trademarks of Conexant Systems, Inc. Other brands and names contained in this release are the property of their respective owners.
Conexant Systems, Inc.
Pro Forma Consolidated Condensed Statements of Operations
(unaudited, in thousands, except per share amounts)
Three Months Ended Nine Months Ended
June 30, June 30,
2001 2000 2001 2000
Net revenues $ 200,146 $ 530,474 $ 861,510 $ 1,542,165
Cost of goods sold 228,998 282,185 859,769 829,090
Gross margin (28,852) 248,289 1,741 713,075
Operating expenses:
Research and
development 115,230 106,017 359,413 294,589
Selling, general and
administrative 75,371 71,017 244,016 205,209
Total operating
expenses 190,601 177,034 603,429 499,798
Pro forma operating
income (loss) (219,453) 71,255 (601,688) 213,277
Other income (expense),
net (620) 2,082 (997) 3,592
Pro forma income (loss)
before income taxes (220,073) 73,337 (602,685) 216,869
Provision (benefit)
for income taxes 367 21,792 (137,374) 64,863
Pro forma income (loss)
before extraordinary
item $(220,440) $ 51,545 $ (465,311) $ 152,006
Pro forma income (loss) per share before extraordinary item(1):
Basic $ (0.89) $ 0.24 $ (1.92) $ 0.74
Diluted $ (0.89) $ 0.22 $ (1.92) $ 0.66
Number of shares used in per share computation:
Basic 246,777 218,249 242,138 206,735
Diluted 246,777 248,491 242,138 239,123
(1) Excluding the effect of inventory and other special reserves
aggregating $45.1 million and after consideration of a pro forma
income tax benefit, pro forma loss per share for the three months
ended June 30, 2001 was $0.45.
Pro forma operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. (loss), pro forma income (loss) before extraordinary item and pro forma income (loss) per share before extraordinary item exclude the amortization of intangible assets and special charges. The pro forma loss before extraordinary item for the nine months ended June 30, 2001 includes a 36% income tax benefit for the period prior to the quarter ended June 30, 2001. These measures of earnings are not in accordance with, or an alternative for, generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting and may not be consistent with measures used by other companies. However, the company believes these measures of earnings provide its investors additional insight on its underlying operating results and the company uses these measures internally to evaluate its operating performance. A reconciliation of pro forma income (loss) before extraordinary item presented above with the company's income (loss) before extraordinary item as determined under generally accepted accounting principles is presented on the following table.
Conexant Systems, Inc.
Reconciliation of Pro Forma Income (Loss) Before
Extraordinary Item to Reported Results
(unaudited, in thousands, except per share amounts)
Three Months Ended Nine Months Ended
June 30, June 30,
2001 2000 2001 2000
Pro forma income (loss)
before extraordinary
item $ (220,440) $ 51,545 $ (465,311) $ 152,006
Amortization of intangible assets and special items:
Amortization of intangible
assets 85,307 55,861 251,651 83,603
Asset impairments 429,000 -- 429,000 --
Restructuring charges 1,027 -- 8,605 --
Separation costs 2,435 -- 14,632 --
Stock compensation 2,585 -- 7,291 --
Write-off of terminated
credit facility fees 4,146 -- 4,146 --
Debt conversion costs -- -- 42,584 --
Write-down of investments -- -- 5,000 --
Purchased in-process
research and development -- 50,462 -- 196,362
Income taxes -- (1,457) (14,409) 5,873
Loss before extraordinary
item $ (744,940) $ (53,321)$(1,213,811) $ (133,832)
Basic income (loss) per share:
Pro forma income (loss)
before extraordinary
item $ (0.89) $ 0.24 $ (1.92) $ 0.74
Amortization of
intangible assets
and special items (2.13) (0.48) (3.09) (1.39)
Loss before extraordinary
item $ (3.02) $ (0.24)$ (5.01) $ (0.65)
Diluted income (loss) per share:
Pro forma income (loss)
before extraordinary
item $ (0.89) $ 0.22 $ (1.92) $ 0.66
Amortization of
intangible assets
and special items (2.13) (0.46) (3.09) (1.31)
Loss before extraordinary
item $ (3.02) $ (0.24)$ (5.01) $ (0.65)
Conexant Systems, Inc.
Consolidated Condensed Statements of Operations
(unaudited, in thousands, except per share amounts)
Three Months Ended Nine Months Ended
June 30, June 30,
2001 2000 2001 2000
Net revenues $ 200,146 $ 530,474 $ 861,510 $ 1,542,165
Cost of goods sold 228,998 282,185 859,769 829,090
Gross margin (28,852) 248,289 1,741 713,075
Operating expenses:
Research and
development 117,128 106,017 364,545 294,589
Selling, general and
administrative 76,058 71,017 246,175 205,209
Amortization of
intangible assets 85,307 55,861 251,651 83,603
Asset impairments 429,000 -- 429,000 --
Restructuring charges 1,027 -- 8,605 --
Separation costs 2,435 -- 14,632 --
Purchased in-process
research and
development -- 50,462 -- 196,362
Total operating
expenses 710,955 283,357 1,314,608 779,763
Operating loss (739,807) (35,068) (1,312,867) (66,688)
Debt conversion costs -- -- (42,584) --
Other income (expense),
net (4,766) 2,082 (10,143) 3,592
Loss before income
taxes (744,573) (32,986) (1,365,594) (63,096)
Provision (benefit)
for income taxes 367 20,335 (151,783) 70,736
Loss before
extraordinary
item (744,940) (53,321) (1,213,811) (133,832)
Extraordinary gain on
extinguishment of debt,
net of income taxes of
$4,426 -- -- 7,284 --
Net loss $(744,940) $ (53,321)$(1,206,527) $ (133,832)
Loss per share, basic and diluted:
Loss before
extraordinary item $ (3.02) $ (0.24)$ (5.01) $ (0.65)
Extraordinary item -- -- 0.03 --
Net loss $ (3.02) $ (0.24)$ (4.98) $ (0.65)
Number of shares used
in per share
computation 246,777 218,249 242,138 206,735
Conexant Systems, Inc.
Consolidated Condensed Balance Sheets
(unaudited, in thousands)
June 30, March 31,
2001 2001
ASSETS
Current assets:
Cash, cash equivalents and
marketable securities $ 377,487 $ 438,509
Receivables, net 159,793 249,135
Inventories 162,550 253,657
Deferred income taxes 110,306 110,306
Other current assets 52,515 73,778
Total current assets 862,651 1,125,385
Property, plant and equipment, net 418,237 852,087
Goodwill and intangible assets, net 1,329,060 1,355,089
Other assets 283,345 283,990
Deferred income taxes 151,064 151,064
Total assets $ 3,044,357 $ 3,767,615
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 90,531 $ 123,204
Deferred revenue 30,356 29,357
Accrued compensation and benefits 50,467 56,852
Other current liabilities 95,565 98,060
Total current liabilities 266,919 307,473
Convertible subordinated notes 709,849 709,849
Other long-term liabilities 52,606 55,446
Total liabilities 1,029,374 1,072,768
Shareholders' equity 2,014,983 2,694,847
Total liabilities and
shareholders' equity $ 3,044,357 $ 3,767,615
CONEXANT SYSTEMS, INC.
Selected Corporate Data
(unaudited, dollars in thousands)
Three Months Ended
June 30, 2001 March 31, 2001 June 30, 2000
% of % of % of
Revenue Revenue Revenue Revenue Revenue Revenue
Revenue by Business
Mindspeed
Technologies 18% $36,147 32% $81,285 29% $ 155,267
Personal Networking:
Personal
Computing(1) 38% 75,558 31% 78,212 40% 211,576
Digital
Infotainment 18% 35,875 14% 35,185 13% 71,032
Wireless
Communications 26% 52,566 23% 56,321 18% 92,599
Revenue by Region
Americas 25% $49,842 35% $87,075 34% $182,085
Europe 12% 23,423 13% 32,620 12% 63,249
Japan 9% 18,312 4% 10,956 9% 48,050
Asia-Pacific 54% 108,569 48% 120,352 45% 237,090
Three Months Ended
June 30, March 31, June 30,
Other Data: 2001 2001 2000
Depreciation(2) $51,240 $50,559 $48,448
Capital expenditures 30,501 53,168 71,176
(1) Includes revenues for the Personal Imaging business, which has
been combined into the Personal Computing business.
(2) Does not include amortization of intangible assets.
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