Conexant Systems to cut 450 more jobs The Newport Beach-based chip maker's layoffs -- which follow 1,500 in March -- come after a year of sinking sales.

July 10, 2001

By CHRIS FARNSWORTH The Orange County Register

NEWPORT BEACH Conexant Systems Inc. capped a long, troubled year with a new round of layoffs, announcing plans Monday to cut 450 more jobs, most of them at its Newport Beach headquarters.

Since last July, the communications chip maker's sales have dropped by more than half as its customers in the computer and telecommunications industries have reduced orders. But analysts and management are hopeful that Monday's cuts will help stem the tide of red ink for one of Orange County's largest high-tech employers.

About 325 of the layoffs will be at Conexant's Newport Beach headquarters. More than half the cuts are in management, including "several vice presidents," said Chief Executive Dwight Decker. Combined with the termination of 1,500 employees announced in March, Con exant will have cut its work force by 25 percent.

"In the last restructure, two-thirds (of the layoffs) were really in operations," Decker said. "This time, it's quite a bit more across the board, particularly in senior management."

The measures are a response to almost a year of bad news for the company.

"This is shaping up to be the worst year in the entire history of the entire semiconductor industry," Decker said. "There's never been a decline that's been as fast, or as quick to fall from the peak, in the entire 50-year history of the industry."

Since its spinoff from Rockwell International in 1999, Con exant has been involved in nearly every facet of the electronic-communications business. Its divisions make modems used in personal computers, components in high-speed Internet access and telecom networks, and chips for wireless phones, among other things.

At the height of the tech boom, that brought revenue from every sector of the communications market into the company's coffers.

But as the downturn started, it also gave Conexant vulnerability on every side.

Conexant's wireless business was hit hard in July 2000, when its major customers in Korea canceled orders in response to a government-ordered freeze on expansion of mobile-phone networks.

The company then tried to jump on the Internet bandwagon by announcing a spin off of its Mindspeed division, which makes network-access chips, in September - just before telecommunications companies stopped buying Internet equipment because of slow sales and high inventories.

And in December, the company's sales of modems and other parts for personal computers were dragged down when the tech spending slump reached that market.

Conexant said Monday that sales for the quarter ended last month will fall short of previous estimates at about $200 million - down 62 percent from the same quarter last year. The company also said it will have a loss of about 40 to 45 cents per share.

Conexant now hopes to change its fortunes with an initiative to reduce manufacturing at its Newport Beach and Newbury Park locations. The company will focus on manufacturing specialty chips for wireless and networking uses, and will outsource other production to overseas facilities.

"What we're doing is actually going to be cutting the output of the Newport Beach facility almost in half," Decker said.

Along with the layoffs, the restructure should save $175 million annually after a one-time $475 million charge, Conexant said. The latest layoffs will be carried out over the next 30 days.

Investors and analysts saw Monday's announcement as a sign that Conexant is correcting its course.

Conexant stock rose 10 percent to close at $8.09 per share, compared with a 52-week low of $6.90 per share.

"This is definitely a company in turnaround mode," said Jeremy Lopez, an analyst with Morningstar in Chicago. "This isn't a company that's going to be in the red forever, by any means."

But others say the bad times may not be over yet.

Arun Veerappan, an analyst with Robertson Stephens in San Francisco, said the slump isn't sparing anyone in the communications field.

"It's a cause for concern across the industry," Veerappan said. "This is hurting everyone."

Veerappan expects Conexant will sell off several of its divisions to raise cash. Last week, Conexant said it would sell its Global Positioning System chip division to SiRF Technology Inc.

There's also still the question of what will happen to Mindspeed, Conexant's Internet-access chip division.

Many of Monday's layoffs will be at Mindspeed, which has enough employees to support sales of $1 billion annually - but is actually selling far less.

Mindspeed's sales will be down 56 percent from last quarter to about $36 million. Previously, Conexant anticipated a decline of 35 percent to 45 percent.

In response, Conexant will delay Mindspeed's spinoff again until at least the end of the year, Decker said.

"It's difficult to say whether we are at the bottom or near the bottom. However, what I do feel is we are closer," Decker said. "Maybe we can say that most of the worst is behind us."

-- PHO (owennos@bigfoot.com), July 10, 2001