Conexant (Nasdaq: CNXT) sells semiconductor solutions for the broadband communications systems. In the hi-tech era, thats a good business to be in. But, the stock has not traded as low as it is now (with one brief exception) since early 2003.
A New Product a Day
Conexant releases new products in amazing numbers. Perhaps that is part of the company's problem. Recently it has put out a new video-surveillance system, a system-on-a-chip for fiber optic gateways, and a new cable set-top box (a device that connects a TV to an external signal) reference design.
So many products, and so little revenue - in the last fiscal quarter, revenue for Conexant was just under $200 million, down from $246 million a year ago. The company took special charges for the three months ended March 30, 2007. The special charges totaled $135 million and include non-cash goodwill and intangible asset impairment charges related to its Embedded Wireless Networking. With these charges backed out, the company incurred the highest quarterly operating loss in the last year. (For more on impairment charges, see Impairment Charges: The Good, The Bad And The Ugly.)
Lots of Products, Not Lots of Sales
For the quarter, sales in the company's set-top box business had dropped off. If the company is going to do well, it must be now, since currently we are in an environment where boxes are widely installed for broadband over DSL, fiber and cable.
Forecasts for the current quarter did not improve. "We expect our DSL, analog modem, and embedded wireless networking product lines to be flat to slightly up on a sequential basis in the third fiscal quarter," CEO and chairman, Dwight W. Decker said in a conference call. "In our set-top box business, we expect that our overall customer demand will also be approximately flat with one major exception." (The entire April 2007 conference call can be found on Conexant's Investor Relations page.)
The problem Wall Street has with Conexant is this forecast. At the center of one of the fastest growing segments of tech, the company appears to be contracting.
Based on information from Motorola (NYSE: MOT) and Cisco (Nasdaq: CSCO), the set-top business is doing fine. Apple (Nasdaq: AAPL) has introduced its TV box as has Amazon (Nasdaq: AMZN). It would be hard to say that demand for these products is weak.
A look at the Conexant's online product catalog shows that the company offers central office DSL products, home DSL and cable products, convergence video offerings, modems, wireless, Ethernet and VoIP solutions.
Conexant seems to be a classic example of a firm that needs to sell off or close a number of its low sales products and keep two or three lines that work. Absent that, it is hard to see how the company will survive the next few years.
For related reading, see Mergers And Acquisitions: Break Ups.
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