CONEXANT ANNOUNCES PROFITABILITY AHEAD OF SCHEDULE WITH SECOND QUARTER RESULTS
Expansion platform businesses up 18 percent sequentially
NEWPORT BEACH, Calif., April 21, 1999 - Conexant Systems, Inc. (NASDAQ:CNXT), today announced revenues of $316.9 million for the second fiscal quarter ended March 31, 1999, up 8 percent sequentially over the $294.7 million in revenues reported for the first quarter of fiscal 1999. The company reported a return to profitability with net income of $7.6 million, or $0.08 per diluted share, compared to a net loss of $57.1 million, or $0.60 per share on a pro-forma basis, in the prior quarter.
Revenues were up 16 percent over the $274.2 million in the second quarter of fiscal 1998. In the period a year ago, the company incurred a net loss of $15.6 million, or $0.16 per share on a pro-forma basis.
"Returning to profitability a full six months ahead of our original plan, especially during our traditionally weak second quarter, clearly demonstrates the performance momentum of our four expansion platforms: the Wireless Communications, Network Access, Personal Imaging and Digital Infotainment divisions," said Dwight W. Decker, chairman and chief executive officer of Conexant. "In the aggregate, these businesses grew 18 percent sequentially and 34 percent year-over-year, and are now contributing more than 50 percent of total revenues."
Second quarter revenue momentum was led by Conexant's Wireless Communications and Network Access divisions. Wireless Communications revenues were up 26 percent sequentially to $57.1 million. The division had record shipments of power amplifiers for cellular phones and strong demand for other products, including cellular base station receivers, wireless data, and global positioning system (GPS) solutions. Network Access revenues were up 13 percent sequentially to $47.0 million, driven by record sales of all high-speed digital networking products which include synchronous optical network (SONET), T1/E1, asynchronous transfer mode (ATM), and digital subscriber line (DSL) solutions.
Revenue from the Digital Infotainment Division increased 8 percent sequentially to $42.6 million, with solid growth in both the consumer and computer market segments, including satellite set-top box tuners and demodulators, video encoders, and peripheral component interconnect (PCI) decoders for PC-TV applications. The Personal Imaging Division returned to growth with revenue up 29 percent sequentially to $20.6 million. During the quarter, the division commenced volume production of the industry's most complete multi-function peripheral (MFP) chipset.
In a traditionally weak second quarter, Personal Computing Division revenue was essentially flat at $149.6 million. Record modem shipments, driven by continuing share gains in the PC original equipment manufacturer (OEM) and retail aftermarket segments, were offset by normal pricing trends.
"Based on our current performance and order visibility, we expect to grow overall revenues by 5 to 10 percent in the current quarter, with continued strong growth across each of our expansion platforms and supported by an essentially flat Personal Computing Division revenue base," Decker said. "Our Newport Beach and Newbury Park, Calif., fabs are operating at full capacity. Combined with a somewhat more favorable product mix, we expect gross margins to be up modestly this quarter at between 41 and 43 percent of revenue. At the same time, we expect operating expenses to remain at current levels as a percentage of revenue, resulting in continued sequential improvement in operating margin performance.
"We are off to a great start as a public company and I am enormously pleased with our performance to date. The Conexant team is fully committed to maintaining this momentum going forward," Decker added.
Second Quarter Product Highlights
· The Wireless Communications Division announced two new radio frequency (RF) modules for Code Division Multiple Access (CDMA) digital cellular telephones. These new modules provide highly integrated transmit/receive subsystems for Personal Communications Services (PCS) solutions and cellular CDMA/AMPS handsets. The division shipped a record number of CDMA power amplifiers for cellular handsets, with a run rate now exceeding 7 million units per quarter. Significantly expanding its product portfolio for the Global System for Mobile Communications (GSM) digital cellular communications marketplace, the division announced a GSM software stack and a family of dual-band GSM power amplifier (PA) chips.
· The Network Access Division introduced the industry's first single-chip, dual and tri-port line interface units (LIUs) targeted at high-bandwidth, wide-area networking (WAN) applications addressing E3, DS3 and STS-1 specifications. The division also commenced volume production of 155 megabytes-per-second ATM physical-layer products.
· The Digital Infotainment Division announced the InfoSurgeä cable modem, the industry's first single-chip, programmable cable modem solution. The division also announced a set-top box system solution combining a single, highly integrated chip and application software to create a complete system for building interactive broadband digital TV set-top boxes for multiple interactive networks.
· The Personal Imaging Division commenced shipments of its MFC1000 MFP solution with mono copy/color print capability. It also received the first customer orders for a complete complementary metal oxide semiconductor (CMOS) imager-based universal serial bus (USB) chipset for use in Internet video applications.
· The Personal Computing Division's RipTideä audio/modem chipset was selected by Hewlett-Packard for its latest generation of Pavilion PCs. Conexant's RipTide audio/modem solution provides a comprehensive array of communications and advanced audio capabilities. The division also introduced SmartDAAä technology, a single-chip that integrates the previously separate Data Access Arrangement (DAA) portion of a modem product. Conexant's SmartDAA™ solution is the first that will allow a single modem product to be programmed for use in virtually any country in the world, while also adding a variety of new dial-up connectivity features. Demand for embedded modems continued with approximately 500,000 modem chipsets shipped to Sega for use in its Dreamcast gaming platform.
Safe Harbor Statement
This press 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: 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 and restructuring plan; 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.
Conexant Systems, Inc. is the $1.2 billion company that was created when Rockwell International Corporation spun
off its semiconductor systems business to shareowners in December 1998. Conexant is the world's largest independent company focused exclusively on providing semiconductor products for communications electronics. With more than 30 years of experience in developing analog modem technology, the company draws upon its expertise in mixed-signal processing and communications technology 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: Personal Computing, Personal Imaging, Wireless Communications, Digital Infotainment, and Network Access.
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