Conexant plans to split itself into two chip companies in 2001

Conexant plans to split itself into two chip companies in 2001
NEWPORT BEACH, Calif.--About 21 months after being spun out of Rockwell International Corp., Conexant Systems Inc. today announced plans to split itself into two separate chip companies, focused on two different communications market segments.

One of the new companies will focus on Internet infrastructure applications and will consist of Conexant's current Network Access Division. The other company will concentrate on personal networking applications, including mobile products and broadband digital communications systems for the home.

The new Internet infrastructure chip company will be a fabless semiconductor supplier, while the personal networking company will retain Conexant's process technology and manufacturing assets, under the plan announced today. Officials said the two companies will enter into a multi-year technology and marketing alliance in order to continue Conexant's strategy of providing end-to-end connectivity solutions that leverage the shared communications link between Internet and personal networking products.

Conexant said additional details concerning the separation, including the management and which new company will retain the Conexant name, will be announced in the coming months.

"The creation of two strong communications semiconductor companies focused on the Internet infrastructure and personal networking markets is a strategic milestone for Conexant," said Dwight W. Decker, Conexant chairman and chief executive officer of the Newport company. "Over the past five years, we have successfully focused our efforts and investments on building these two leadership businesses," he said referring to Conexant's time as an independent chip company and the time when it was the semiconductor division of Rockwell.

At the start of 1999, Rockwell completed the spin off of its chip business. Since then, Conexant's revenues and profits have grown rapidly in the booming market for communications devices. In the company's third fiscal quarter, ended June 30, Conexant reported a 39% increase in revenues to $530.5 million compared to $380.3 million in the period last year. It's profits doubled to a net income of $51.5 million in the quarter, compared to $25.7 million in the 1999 period.

Conexant said it intends to spin off the Internet infrastructure business as an independent public company through a two-step process. The first step will consist of an initial public offering of stock in the new company set for January 2001. Conexant said this will be followed within six months by a tax-free distribution of the remaining shares to its shareowners. Completion of the spin-off is conditional upon receiving a U.S. government ruling that it will qualify as a tax-free distribution, said the company.

Decker said the split up of Conexant businesses into independent chip companies is needed to allow each of the operations to sharpen their focus on customers and to enhance their competitive positions. "Our Internet infrastructure business has grown 100% per year over the past two years and is currently delivering gross margins of approximately 65%," Decker said. "In the past eight months, we have augmented our strong internal product portfolio development with six acquisitions to build an Internet infrastructure powerhouse capable of approaching $1 billion in revenues over the next calendar year.

"The personal networking company will continue its focus on high volume, high-growth opportunities with breakthrough solutions for DSL and cable modems, digital set-top boxes, and accelerating diversification from CDMA to GSM and TDMA digital cellular handsets," Decker said. "Over the past two years, this business has more than doubled its shipments of personal networking products. This year alone, it will bring the power of mobile communications and the Internet to more than 200 million people worldwide."

Conexant said personal networking product sales are expected to exceed $1.5 billion in its current fiscal year, which ends later this month. This segment accounts for about 70% of company's total revenues.