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Friday, July 28, 2006

Conexant Falls Too Far

It does not take much bad news in this market for a stock to be flogged within an inch of its life. Conexant Systems, which makes semiconductors for broadband communications and digital home systems, has some big one-times expenses including a write-down of some Mindspeed warrants and a patent litigation settlement with Texas Instruments.

The company also guided that the next quarter will be about flat with the one just reported. Not great news.

But, the company is hardly going out of business. Revenue for the quarter ending June 30 was $251.6 million compared to $197.4 million in the quarter a year ago. The company's operating loss was $5.7 million compared to a loss of $37.8 million in the quarter last year. The company's non-GAAP core operating income was $$25.5 million compared to a loss on that basis of $11.2 million last year.

Conexant has shown revenue growth in each of the last four sequential quarters, and it is now saying it will have a period when it does not grow for at least a quarter.

Although the company has seen a slowdown in some of its business segments, all is not lost. One of the Conexant's key markets is still growing quickly according to the company: "In Broadband Media Processing, we continue to see strong customer demand across our set-top box portfolio, and we anticipate that these products will deliver yet another quarter of double-digit revenue growth".

Conexant's stock is off from $3.90 in late April to $1.68, very near its 52-week low. Is the company really worth less than half of what it was three months ago? That's probably a bit of an overreaction.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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