Conexant to Spin Off Mindspeed

NEWPORT BEACH, Calif. -- Conexant Systems, Inc. (Nasdaq: CNXT) today announced that its board of directors has approved a plan to separate its Mindspeed Technologies™ Internet infrastructure business in a tax-free spin-off to shareowners. The spin-off, which is expected to be completed during the summer, will create two independent, publicly traded communications semiconductor companies and will mark the culmination of Conexant’s focused business creation strategy.“This decision represents the final step in Conexant’s transformation from a broad-based communications supplier into a family of focused, pure-play semiconductor businesses,” said Dwight W. Decker, Conexant chairman and chief executive officer. “Internally, Conexant’s Broadband Communications business and Mindspeed have been operating separately, and as a result of last quarter’s $215 million early debt repayment from Skyworks Solutions, we have the flexibility and the capital required to provide solid financial foundations for both of these independent companies.”“We are enthusiastic about this last step in our transformation into an independent public company,” said Raouf Halim, chief executive officer of Mindspeed. “The Mindspeed team has worked diligently over the past two years to focus our product portfolio and strengthen our market positions. With the worst of the Internet infrastructure market downturn behind us, we will separate with strong design-win momentum across all our core product lines, excellent relationships with tier-one networking equipment customers worldwide, and a clear focus on the access and metropolitan area network markets where we see the greatest growth opportunities.”Mindspeed Spin-off Transaction OverviewAt the time of spin-off, Conexant shareowners will receive a dividend comprised of all of the outstanding shares of Mindspeed on a pro rata basis. Application will be made to list the new shares on the American Stock Exchange. Mindspeed will receive an initial capital funding of $100 million in cash from Conexant, plus an additional $50 million cash in contingent financing.As part of the transaction, Conexant will receive warrants for up to 20 percent fully diluted equity ownership of Mindspeed, enabling Conexant to participate in the company’s future success.“Although Mindspeed is not yet profitable, the $150 million flexible financing structure provided by Conexant will yield a solidly capitalized new company,” Halim said. “In addition, we are taking steps to reduce our operating cost structure by a further 25 percent. Coupled with the restructuring activities we have completed over the past six months, these actions are expected to lower Mindspeed’s operating break-even level from $55 million in revenue per quarter to approximately $45 million per quarter, including the addition of incremental public company operating expenses.“Industry conditions remain challenging, but we are convinced that our design-win momentum over the past year and new products now ramping into production will drive significant Mindspeed market share gains going forward,” Halim continued. “We are encouraged by Mindspeed’s improving order rate in the current quarter, which is stronger than it was both last quarter and a year ago. Considering our cost-reduction actions and our revenue growth expectations, we anticipate that Mindspeed will achieve the critical operating profitability milestone before the end of calendar 2004.”Completion of the Mindspeed spin-off is subject to, among other things, customary regulatory approvals and the receipt of an opinion of counsel as to the tax-free status of the transaction.Mindspeed TechnologiesConexant Systems Inc.