Conexant Announces First Quarter Results; Performance Improvements On Track and 11 Percent Sequential Revenue Growth

Business Wire, Jan 19, 1999

NEWPORT BEACH, Calif.--(BUSINESS WIRE)--Jan. 19, 1999--Conexant Systems, Inc. (NASDAQ:CNXT), which was spun-off from Rockwell International on December 31, 1998, today announced revenues of $294.7 million for the first fiscal quarter ended January 1, 1999, up 11 percent over the $264.6 million in revenues reported for the fourth quarter of 1998. The company reported a net loss of $57.1 million, or $.60 per share on a pro-forma basis, compared to a net loss of $233.8 million in the prior quarter.

Revenues in the comparable first quarter of fiscal 1998 were $383.4 million, resulting in net income of $20.6 million.

The company's first-quarter loss on a pre-tax basis was $97.3 million, which included $91 million in unusual and special charges, detailed in the First Quarter Charges section below.

"Our performance improvement program is on track as we start to reap the benefits of our restructuring activities," said Dwight W. Decker, chairman and chief executive officer of Conexant. "Excluding the various one-time charges, we were approaching break-even performance for the quarter.

"Revenue growth was led by the seasonally strong performance of our Personal Computing Division, which also experienced slower-than-expected modem price erosion. In addition, we are encouraged by the order activity and design wins achieved during the quarter in our expansion platforms: the Wireless Communications, Network Access, Personal Imaging and Digital Infotainment divisions," Decker said.

"Based on our first quarter performance and current order visibility, our expectations for the second quarter are stronger than they were 90 days ago. The sequential revenue decline anticipated in our seasonally weak second quarter should be between five and ten percent, less than previously expected," said Decker. "In addition, with improved factory utilization, and elimination of the costs associated wit our restructuring and spin-off programs, we believe we can deliver gross margins of between 38 and 42 percent of revenue. At the same time, operating expenses should decline by approximately 10 percent from reported first quarter levels.

"Most importantly, we remain on track for a return to profitability in the second half of calendar 1999," Decker added.

First Quarter Charges

The company's first-quarter loss included $91 million in unusual and special pre-tax charges:

-- $40 million related primarily to unusually high inventory costs,
   flowing through cost of sales, as a result of lower manufacturing
   capacity utilization over the last four months of fiscal 1998.

-- $13 million of operating expenses was associated with
   Conexant's new corporate identity campaign, payroll-related
   restructuring costs and corporate set-up expenses.

-- A special charge of $18 million resulted from the voluntary
   employee retirement program completed by the company during the
   quarter.

-- An additional special charge of $20 million resulted from
   Rockwell's recent decision to further write-down wafer
   fabrication facilities in Colorado Springs, Colo., which were
   retained by Rockwell as part of the Conexant spin-off. Accounting
   rules require that this non-cash charge be reported in Conexant's
   last quarterly results as a subsidiary of Rockwell.

     First Quarter Product Highlights

-- The Network Access Division began volume shipments of the first
   product in its AnyPort(TM) family of remote access Internet
   concentrators. The high density, three-port-per-chip CSMV/3
   offers Internet service providers integrated Voice-over-IP and
   data access in a complete system-level semiconductor solution.
   The AnyPort family is designed to meet the growing demand for
   multi-service remote access driven by the convergence of voice
   and data networking.

-- During the quarter, the Wireless Communications Division shipped
   its 25-millionth digital cellular power amplifier device since
   entering this market segment in 1996. Conexant is the leading
   provider of these devices in the code division multiple access
   (CDMA) cellular and personal communication systems (PCS) handset
   segments, and is currently shipping in excess of two million
   power amplifiers per month.

-- The Personal Imaging Division announced a family of high
   performance, multi-function peripheral (MFP) chipsets, the first
   complete system solutions enabling color inkjet printing
   capability with black-and-white scan, copy and fax functionality.

-- Enabling simple and affordable networking in the home, the
   Personal Computer Division began volume shipments of its
   LANfinity(TM) family of home networking chipsets to retail PC
   add-in card manufacturers. The division also commenced volume
   shipments of its RipTide(TM) combination audio/modem chipset to
   Hewlett Packard and other personal computer manufacturers.
   Expanding the applications for analog modems, the division
   shipped almost 500,000 modems for use in the Sega Dreamcast
   next-generation gaming platform offering Internet multi-player
   capabilities.