Conexant Divests from Broadband

Conexant Systems Inc. (CNXT - Snapshot Report) recently completed the sale of its Broadband Access product lines to Ikanos Communications Inc. for $54 million. Conexant received about $47 million in cash, while the remaining payment is subject to an escrow to be released in one year. The company expects to record a gain of approximately $35 million in the current quarter from the sale.

With the sale of its broadband access business, the company completed a major part of its restructuring and now plans to concentrate solely on providing solutions for imaging, audio, video and various embedded-modem applications.

Management said that the company will use all proceeds to strengthen its balance sheet by retiring debt. Conexant had already announced plans to retire $80 million aggregate principal amount of floating rate senior secured notes due in November 2010. It will commence a tender offer for $73 million notes and intends to buy an additional $7 million of the notes. As a result of this retirement of debt, Conexant will reduce its annual interest burden by more than $5 million. Management also plans to reduce its workforce by 100 employees to lower operating expenses by approximately $3 million per quarter.

Headquartered in Newport Beach, California, Conexant Systems designs and develops semiconductor solutions that enable consumers to access the digital world. It operates in an intensely competitive market with many rivals in and outside the United States, including Analog Devices (ADI - Analyst Report) Broadcom Corp. (BRCM - Analyst Report) and Texas Instruments (TXN - Analyst Report).

While Conexant continues to face challenges with eroding sales in WLAN, a flattening ADSL market and declining revenue in its modem business, the new management is making drastic changes to overhaul the company’s strategic positioning and return to profitability.

Management continues to evolve the new Conexant and believe they are getting to the final stages. However, we would like to get more comfortable with the direction of the company and further confidence in the sustainability of recent results.