Conexant Cuts Q4 Loss
Conexant presents financial results based on generally accepted accounting principles (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.
Fourth quarter fiscal 2006 revenues of $245.9 million decreased 2.3 percent from third quarter fiscal 2006 revenues of $251.6 million, and were up 14.4 percent from $214.9 million in the fourth quarter of fiscal 2005. Core gross margins in the fourth quarter of fiscal 2006 increased to 45.8 percent of revenues, up 60 basis points from the 45.2 percent level of the prior quarter.
Core operating expenses increased in the fourth quarter of fiscal 2006 to $91.8 million from $88.4 million in the prior quarter as a result of increased investments in new product development. Core operating expenses in the year-ago quarter were $79.9 million.
Core operating income in the fourth quarter of fiscal 2006 was $20.7 million, compared to third quarter fiscal 2006 core operating income of $25.5 million. Core operating income in the fourth quarter of fiscal 2005 was $6.7 million. Core net income for the fourth quarter of fiscal 2006 was $14.4 million, or $0.03 per diluted share, compared to $18.6 million, or $0.04 per diluted share in the third quarter of fiscal 2006. In the year-ago quarter, the core net income was $0.3 million, or $0.00 per diluted share.
On a GAAP basis, gross margins for the fourth quarter of fiscal 2006 were 45.7 percent of revenues, compared to 52.3 percent in the prior quarter. Third fiscal quarter gross margins included a gain of $17.5 million related to the termination of a wafer supply and services agreement with Jazz Semiconductor, Inc. GAAP operating expenses decreased to $108.1 million in the fourth quarter of fiscal 2006 from $137.3 million in the prior quarter. Third fiscal quarter operating expenses included a $30.0 million charge for the settlement of litigation. The GAAP operating earnings were $4.4 million in the fourth quarter of fiscal 2006 compared to a loss of $5.7 million in the previous quarter. The GAAP net loss for the fourth quarter of fiscal 2006 was $21.1 million, or $0.04 per diluted share, compared to a GAAP net loss of $67.1 million, or $0.14 per diluted share, in the third quarter of fiscal 2006. The company's fourth fiscal quarter 2006 GAAP results also included a $12.9 million decrease in the value of warrants in Mindspeed Technologies, Inc. For the year-ago quarter, GAAP gross margins were 40.3 percent, GAAP operating expenses were $99.7 million, GAAP operating loss was $13.1 million, and GAAP net income was $50.1 million, or $0.10 per diluted share. GAAP net income for the fourth fiscal quarter of 2005 included a gain of $49.0 million on the sale of equities in SiRF Technology Holdings, Inc., and an increase of $22.0 million in the value of warrants in Mindspeed Technologies, Inc. The GAAP net loss for fiscal 2006 was $122.6 million, or $0.26 per diluted share, compared to a net loss in fiscal 2005 of $176.0 million, or $0.37 per diluted share.
"Fiscal 2006 was another year of significant progress for Conexant," said Dwight W. Decker, Conexant chairman and chief executive officer. "Year-over-year revenues increased 34 percent, we achieved our highest-priority goal of delivering 10 percent core operating margins in the third fiscal quarter, two quarters ahead of schedule, and we remained solidly profitable on a core basis exiting the year. We also improved core gross margins as a percent of revenues by more than five points during the year.
"In the fourth fiscal quarter, despite widely reported weakness in the markets we address, the Conexant team delivered financial results that met the expectations we set entering the quarter," Decker said. "In July, we anticipated that fourth fiscal quarter revenues would be in a range from up 1 percent to down 3 percent sequentially. We delivered revenues of $246 million, down 2 percent sequentially. Broadband Media Processing is now our largest business, and our set-top box business again achieved record revenues and has now delivered five quarters of sequential double-digit revenue growth. We increased core gross margins by approximately 60 basis points sequentially to 45.8 percent of revenues. This was better than we expected at the beginning of the quarter, and our seventh consecutive quarter of sequential core gross margin improvement. Core operating expenses were $92 million for the quarter as we continued to modestly grow new product development investments, primarily in Broadband Media Processing. Core net income came in at $0.03 per diluted share, in line with our expectation entering the quarter of $0.03 to $0.04 per diluted share.
"During the quarter, we announced that we expect to receive approximately $100 million in cash proceeds when the merger of Jazz Semiconductor and Acquicor Technology is closed, which we anticipate in the first quarter of calendar 2007," Decker said. "We exited the quarter with $341 million in cash, cash equivalents, and investments. In last quarter's earnings announcement, we communicated plans for a debt-only financing. We intend to retire our convertible notes due in February 2007 by using a combination of proceeds from such a financing, from the Jazz transaction, and from our current balance of cash, cash equivalents, and marketable securities."
Conexant Systems Inc. (Nasdaq: CNXT)