Conexant Systems, Inc. (NASDAQ:CNXT), a worldwide leader in semiconductor solutions for broadband communications and the digital home, today announced financial results for the third quarter of fiscal 2007 that were consistent with the guidance provided by the company at the beginning of the quarter.

Financial Results

Conexant presents financial results based on accounting principles generally accepted in the United States of America (GAAP) as well as selected non-GAAP financial measures intended to reflect its core results of operations. The company believes these core financial measures provide investors with additional insight into its underlying operating results. Core financial measures exclude non-cash and other non-core items as fully described in the GAAP to non-GAAP reconciliation in the accompanying financial data.

Third quarter fiscal 2007 revenues were $179.5 million. Core gross margins were 43.5 percent of revenues. Core operating expenses were $89.2 million. The core operating loss was $11.0 million. The core net loss was $20.5 million, or $0.04 per share.

On a GAAP basis, gross margins for the third fiscal quarter of 2007 were 43.5 percent of revenues. GAAP operating expenses were $105.0 million. The GAAP operating loss was $27.0 million. The GAAP net loss was $35.2 million, or $0.07 per share.

The company ended the quarter with $224 million in cash, cash equivalents, and marketable securities.

Business Perspective

?Conexant possesses the global talent, the intellectual property, and the customer relationships required to rebuild a successful enterprise,? said Daniel A. Artusi, Conexant's newly appointed president and chief executive officer. ?We also face significant challenges. Moving forward, we need to clearly understand our core competencies and be disciplined enough to focus our resources in the areas where we have the best chance to create profitable growth.

?We also have to dramatically improve our financial performance as quickly as possible.

?In the next few weeks, I plan to continue deepening my understanding of Conexant's business and operations,? Artusi said. ?We will be making significant changes in the near future, and we will communicate those changes at the appropriate time.?

Business Outlook

For the fourth quarter of fiscal 2007, the company expects flat revenues on a sequential basis.

Conference Call Today

Financial analysts, members of the media, and the public are invited to participate in a conference call that will take place today at 5:00 p.m. Eastern Time / 2:00 p.m. Pacific Time. Dan Artusi, president and chief executive officer, and Scott Blouin, senior vice president and chief financial officer, will discuss third fiscal quarter financial results and the company's outlook.

To listen to the conference call via telephone, dial 866-650-4882 (in the US and Canada) or 706-679-7338 (from other international locations); security code: Conexant. To listen via the Internet, visit the Investor Relations section of Conexant's Web site at www.conexant.com/ir. Playback of the conference call will be available shortly after the call concludes and will be accessible on Conexant's Web site at www.conexant.com/ir or by calling 800-642-1687 (in the US and Canada) or 706-645-9291 (from other international locations); pass code: 7039485.

About Conexant

Conexant's innovative semiconductor solutions are driving broadband communications and digital home networks worldwide. The company's comprehensive portfolio includes products for broadband access and media processing applications. Conexant is a fabless semiconductor company that recorded revenues of $970.8 million in fiscal year 2006. The company has approximately 3,200 employees, and is headquartered in Newport Beach, Calif. To learn more, please visit www.conexant.com.

Safe Harbor Statement

?Safe Harbor? Statement under the Private Securities Litigation Reform Act of 1995: This release includes forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally can be identified by phrases such as Conexant or its management ?believes,? ?expects,? ?anticipates,? ?foresees,? ?forecasts,? ?estimates? or other words or phrases of similar import. Similarly, statements in this release that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. All such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

These risks and uncertainties include, but are not limited to: the risk that capital needed for our business and to repay our indebtedness will not be available when needed; the risk that the value of our common stock may be adversely affected by market volatility; general economic and political conditions and conditions in the markets we address; the substantial losses we have incurred; the cyclical nature of the semiconductor industry and the markets addressed by our products and our customers' products; continuing volatility in the technology sector and the semiconductor industry; demand for and market acceptance of our new and existing products; our successful development of new products; the timing of our new product introductions and our product quality; our ability to anticipate trends and develop products for which there will be market demand; the availability of manufacturing capacity; pricing pressures and other competitive factors; changes in our product mix; product obsolescence; the ability of our customers to manage inventory; our ability to develop and implement new technologies and to obtain protection for the related intellectual property; the uncertainties of litigation, including claims of infringement of third-party intellectual property rights or demands that we license third-party technology, and the demands it may place on the time and attention of our management and the expense it may place on our company; and possible disruptions in commerce related to terrorist activity or armed conflict, as well as other risks and uncertainties, including those detailed from time to time in our Securities and Exchange Commission filings.

The forward-looking statements are made only as of the date hereof. We undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

Conexant is a registered trademark of Conexant Systems, Inc. Other brands and names contained in this release are the property of their respective owners.

CONEXANT SYSTEMS, INC.

GAAP Condensed Consolidated Statements of Operations

(unaudited, in thousands, except per share amounts)

 
Three Months Ended Nine Months Ended
 
June 29, March 30, June 30, June 29, June 30,
  2007     2007     2006     2007     2006  
 
Net revenues $ 179,549 $ 199,865 $ 251,635 $ 624,948 $ 724,924
Cost of goods sold 101,503 110,016 137,598 347,564 408,924
Gain on cancellation of supply agreement (Note 1)   ?     ?     (17,500 )   ?     (17,500 )
Gross margin 78,046 89,849 131,537 277,384 333,500
 
Operating expenses:
Research and development 68,890 69,345 70,096 209,685 199,286
Selling, general and administrative 26,234 26,803 27,037 80,513 101,958
Amortization of intangible assets 4,823 6,254 7,520 17,315 23,185
Special charges (Note 2)   5,071     160,121     32,610     168,090     72,379  
Total operating expenses   105,018     262,523     137,263     475,603     396,808  
 
Operating loss (26,972 ) (172,674 ) (5,726 ) (198,219 ) (63,308 )
 
Interest expense (11,349 ) (13,220 ) (10,426 ) (37,605 ) (29,280 )
Other income (expense), net   3,656     9,660     (49,259 )   26,377     (3,120 )
Loss before income taxes and gain (loss) of equity method investments

(34,665

)

(176,234

)

(65,411

)

 

(209,447

)

(95,708

)

Provision for income taxes   741     1,232     1,031     2,444     2,482  

Loss before gain (loss) of equity method investments

(35,406

)

(177,466

)

(66,442

)

 

(211,891

)

(98,190

)

Gain (loss) of equity method investments (Note 3)   179     44,020     (648 )   44,194     (3,303 )
 
Net loss $ (35,227 ) $ (133,446 ) $ (67,090 ) $ (167,697 ) $ (101,493 )
 
Basic and diluted net income (loss) per share $ (0.07 ) $ (0.27 ) $ (0.14 ) $ (0.34 ) $ (0.21 )
 
Shares used in basic and diluted per-share computations   490,558     489,302     481,626     488,613     477,716  

Note 1 ? During the three months ended June 30, 2006, Conexant and Jazz Semiconductor, Inc. terminated a wafer supply and services agreement. In lieu of credits towards future purchases of product from Jazz, we received an additional investment in Jazz and recorded a gain of $17.5 million during the three and nine months ended June 30, 2006.

Note 2 ? Special charges for the nine months ended June 29, 2007 include non-cash goodwill and intangible asset impairment charges related to our Embedded Wireless Networking business of $135.0 million and $20.0 million, respectively. Special charges for the three and nine months ended June 30, 2006 include charges of $30.0 million and $70.0 million, respectively, related to the settlement of our litigation with Texas Instruments Incorporated.

Note 3 ? Gain (loss) of equity method investments for the nine months ended June 29, 2007 include a gain on the sale of our investment in Jazz Semiconductor, Inc. of $43.5 million.

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© Business Wire - 2007

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CONEXANT SYSTEMS, INC.

Reconciliation of GAAP Financial Measures to Non-GAAP Core Financial Measures

(unaudited, in thousands, except per share amounts)

 
Three Months Ended Nine Months Ended
June 29, March 30, June 30, June 29, June 30,
  2007     2007     2006     2007     2006  
 
GAAP gross margin $ 78,046 $ 89,849 $