Business

Conexant Slips on Outlook, Cuts

Conexant Systems (Nasdaq: CNXT) fell to US$10.94 in morning trading Monday, down 19 cents, after the communications chipmaker warned that continued weak demand and inventory overhang would result in a weaker-than-expected second fiscal quarter.

The Newport Beach, California-based company also said it would cut 20 percent of its workforce and cut top managers’ pay by 10 percent.

Conexant said it expects revenue for the quarter ending in March to be 35 to 40 percent below the $410.4 million recorded in the first quarter, with a 45 to 50 percent drop in Internet infrastructure revenue and a 25 to 30 percent decline in sales of personal networking equipment.

The revenue drop will result in a loss of 35 to 40 cents per share before charges relating to the job cuts and other cost-reduction measures, as well as $125 million of inventory reserves, Conexant said.

“The slowdown in the global economy and the ongoing inventory correction is impacting virtually all of the communications end-markets we address,” said Conexant chairman and chief executive officer Dwight W. Decker. “As inventories are depleted, we expect ordering patterns to return to normal levels, but we see no clear indications of a recovery at this time.”

The job cuts, to be made over the next six months, will reduce headcount by about 1,500 full-time employees and 125 contractors. The plan includes temporary shutdowns of the company’s wafer manufacturing and assembly and test facilities, as well as the pay cuts for senior management and a “significant reduction in capital spending,” Conexant said.

Conexant said it is also beginning a “comprehensive reassessment” of its operations, and that it is considering the sale of its digital imaging business. The company also said it will exit the board-level sub-assembly business, getting rid of its El Paso, Texas module assembly plant. Both moves are targeted for completion in three to six months.

The cost cuts are designed to save more than $200 million a year, though they will result in charges of about $57 million in the current quarter, Conexant said.

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