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News Article

Conexant Realigns Manufacturing, Announces Additional Restructuring and Expense-Reduction Initiatives

Source: Conexant Systems, Inc.

Company Also Provides Preliminary Third Fiscal Quarter Financial Results

July 9, 2001

Newport Beach, CA. Conexant Systems, Inc. (Nasdaq:CNXT) today announced a strategic manufacturing realignment intended to accelerate the company s transition to a fabless CMOS business model and detailed additional restructuring and expense-reduction initiatives, including a reduction in workforce of approximately 450 people. The additional measures are necessary to further rationalize Conexant s operations with current and anticipated revenue levels and position the company for a return to profitable growth. The company also provided preliminary third fiscal quarter financial results that, excluding the impact of one-time charges, were at the low end of prior earnings guidance.

Manufacturing Realignment With today s announcement, Conexant is shifting away from volume digital CMOS manufacturing and accelerating its move toward a fully fabless CMOS business model. Conexant will now discontinue advanced CMOS process technology development efforts beyond the company s current 0.13-micron capability, as well as further investments in CMOS manufacturing capacity. As part of this strategic realignment, Conexant expects to take a one-time manufacturing asset write-down in its June-ending third fiscal quarter.

Specialty-process manufacturing will remain an important component of Conexant s business strategy. The company is resizing its Newport Beach wafer fabrication facility to match only its expected specialty-process demand, which will be increasingly concentrated on silicon germanium process technology. Silicon germanium, which enables integrated circuits featuring higher performance and lower power consumption while retaining the cost and integration benefits of conventional silicon, is the emerging process technology of choice for mobile communications and optical networking applications.

The company will also continue to operate and invest in next-generation technology at its gallium arsenide wafer manufacturing facility in Newbury Park, Calif. Gallium arsenide is particularly well suited for wireless communications products such as power amplifiers.

"This strategic realignment will allow us to avoid the ever-increasing research and development investments and capital requirements of mainstream digital CMOS process development and manufacturing," said Dwight W. Decker, Conexant chairman and chief executive officer. "Instead, we can increase the allocation of our resources toward the design and marketing of innovative communications semiconductor products."

Conexant is in discussions with several current CMOS foundry partners and expects to announce a broadened, long-term supply agreement covering the majority of its future CMOS wafer requirements.

Restructuring and Expense-Reduction Initiatives Conexant s restructuring and expense-reduction initiatives include the resizing of manufacturing operations, temporary wafer fabrication plant shutdowns, and reduced workweeks for employees at the company s assembly and test facility. Non-manufacturing expense reductions will be achieved for the most part through headcount reductions, primarily in support functions. These restructuring and expense-reduction initiatives, which are in addition to those announced in March, will result in one-time charges in the company s third and fourth fiscal quarters.

The reduction in workforce announced today, which will occur over the next 30 days, will affect approximately 420 full-time employees and 30 contractors worldwide, for a total reduction of approximately 6 percent. These reductions in workforce, combined with reductions announced in March, will result in an overall headcount reduction of approximately 25 percent when the actions are complete.

Temporary plant shutdowns totaling two weeks during the September-ending fourth fiscal quarter will occur at the company s wafer fabrication facilities in Newport Beach and Newbury Park. Employees at the company s Mexicali, Mexico, assembly and test facility will take off one day per week without pay through the end of the fourth fiscal quarter. Product shipments to customers will not be affected by these cost-saving activities.

"Business and semiconductor industry conditions continue to be extraordinarily challenging," Decker said. "Taking actions that affect Conexant s talented and dedicated workforce are extremely difficult, but these measures are absolutely necessary in order to position Conexant for a return to profitability."

When complete, the manufacturing realignment, restructuring and expense-reduction initiatives announced today are expected to reduce annual operating expenses by approximately $175 million. These actions, combined with the measures announced in March, are expected to result in a reduction in annual operating expenses of more than $375 million.

Preliminary Third Fiscal Quarter Financial Results Preliminary third fiscal quarter revenues for Conexant s personal networking business are approximately $164 million, down 3 percent sequentially and in line with expectations established in April. The company anticipates that Mindspeed Technologies, its Internet infrastructure business, will deliver revenues of approximately $36 million for the quarter, down 56 percent sequentially due to continued weakness in the networking sector. Previously, Mindspeed revenues were expected to decline by 35 to 45 percent.

In total, Conexant expects third fiscal quarter revenues of approximately $200 million, slightly below the lower end of the company s previous guidance of $206 million. Excluding the impact of special and one-time charges, the pro forma net loss for the third fiscal quarter is expected to be $0.45 per share, which is at the low end of the $0.40 to $0.45 per share prior guidance range. Third fiscal quarter results will include a one-time, pre-tax charge of approximately $475 million, primarily for asset write-downs associated with the realignment and resizing of manufacturing operations. Additionally, the company intends to establish a valuation reserve for its deferred tax assets. Essentially all of these charges are non-cash.

"Although we are encouraged that in this challenging market environment Conexant s results were in the range of our earlier third fiscal quarter expectations, our focus on near-term profitability improvements necessitated the cost-reduction actions we have launched today," Decker said. "We are confident in the long-term growth prospects of the communications markets we address with our personal networking and Internet infrastructure businesses. We remain committed to completing the separation of Conexant into two independent, publicly traded companies as soon as business and market conditions are clearly on a recovery path." The company, which closes the books on its third fiscal quarter July 11, will report complete third-quarter financials on July 19, 2001. Conexant will provide further financial detail at that time.

Note to Editors, Analysts and Investors The Conexant Q3 FY01 conference call will take place Thursday, July 19, 2001, at 2 p.m. PDT and 5 p.m. 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 digital infotainment, personal imaging, wireless communications 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.

Safe Harbor Statement This press release contains statements relating to future results of Conexant (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: maintaining a consistent and reliable source of energy; global economic and market conditions, such as 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 planned disposition of certain assets; 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, its customers and suppliers; 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.

Note to Editors: Conexant and Mindspeed Technologies are trademarks of Conexant Systems, Inc. Other brands and names contained in this release are the property of their respective owners.

Contact: Conexant Systems, Inc. Editorial Contact: Gwen Carlson, 949/483-7363 Investor Relations Contact: Thomas Schiller, 949/483-4707

 

Thomas Schiller, 949/483-4707
 
Web site: http://www.conexant.com
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