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Conexant’s CEO Shift: Clash Over Direction?

Last week’s executive shake-up at Conexant Systems Inc. may have come down to a clash over how to proceed with a turnaround of the Newport Beach-based chipmaker.

Former chief executive Dan Artusi, who had been on the job for about nine months, was abruptly replaced by longtime director D. Scott Mercer.

Conexant said in a statement Artusi left to “pursue outside opportunities.” A source who follows the company said he may have been ousted by the board, headed by Conexant’s longtime driving force, Dwight Decker.

Decker led the company for nearly all of its life since Conexant spun off from former aerospace contractor Rockwell International Corp. in 1999.

As chief executive, Decker pushed a steady restructuring until he passed the reins to Artusi last June and went into semi-retirement. Decker now is non-executive chairman of Conexant.

The dispute may have come down to how much to pare Conexant, a maker of chips for DSL connections, mod-ems, set-top boxes and other uses.

“Dan wanted to do some restructuring that was much more than the board wanted to do,” said one analyst who asked not to be named. “Part of the problem is that Decker is on the board. The CEO ego might be coming into play,it’s his baby.”

A source close to the company called the move to let Artusi go a board decision that wasn’t spearheaded by Decker.


Austin Guy

Artusi was recruited by Decker after spending two years as chief executive of Austin, Texas-based ColdWatt Inc., a maker of electronics that convert power from wall outlets for use in computers.

Before that, he served for four years at Austin chip designer Silicon Laboratories Inc., including a year as chief executive.

He joined Silicon Laboratories in 2001 from what now is Freescale Semiconductor Inc., a Motorola Inc. spinoff in Austin.

For most of Artusi’s career, he was with Motorola Inc.’s chip division, serving as vice president and general manager of various units.

Artusi’s home and his family are in Austin.

He had an office at Conexant’s engineering operations in Austin and often traveled to its Newport Beach headquarters.

He kept a low profile and declined several requests for an interview by the Business Journal.


Changes

Artusi made some drastic changes while at Conexant. He brought in executives, including a chief financial officer, chief legal officer and general manager of Conexant’s broadband division.

He cut about 20% of the company’s workers around the world, or some 700 jobs, and stopped funding chip programs that were slow to grow or that weren’t profitable.

The company broke even in the December quarter after being in red ink for a while.

“It was clear that Conexant was undertaking a full restart under Mr. Artusi, which we fully supported after years of disappointing performance under the old leadership,” said Colin LeStrange, an analyst at Oppenheimer & Co. in New York.

Artusi’s ousting could have come down to a disagreement over the company’s operations in India, according to one analyst.

Back in 2004 Decker pushed a big shift in work to India. He hired as many as 900 engineers and other workers there.

The operations became a bit bloated and were expensive to run, the analyst said.

“Most of the guys they hired in India only had a few years of experience,” he said. “Even though the labor was cheaper, they weren’t getting any bang for their buck.”

Artusi could have faced board resistance while pushing to cut more jobs there and scale back other product lines, the analyst said.

“When he came on as CEO he wanted carte blanche,” he said. “I got the impression that there was a bit of push and pull between the board and Dan.”

Wall Street didn’t take the news of his departure so well.

Conexant’s shares slumped further after the announcement. The stock’s down some 70% in the past year on a recent market value of about $235 million.

Oppenheimer analyst LeStrange downgraded the stock to “perform” from “outperform” after word of Artusi’s departure.

He called the stock “cheap” and said the executive shake-up leaves the company “vulnerable” to losing market share to competitors, including Irvine’s Broadcom Corp.

“The unexpected departure of Dan Artusi is likely to interrupt Conexant’s turnaround, which was the entire basis for our thesis,” LeStrange said in a research note. “We have been supportive of Conexant’s turnaround because it appeared that the deep, necessary cuts were being made to remake the company.”


Wall Street Concerns

Wall Street has some concerns about Mercer, whose background largely is in finance.

He’s now chairman at Milpitas-based Adaptec Inc., having served as its interim chief executive for a few months in 2005.

He also was at Lake Forest’s Western Digital Corp. as its chief financial officer in the early 1990s and then returned to the post from 2001 to 2004. He has done stints in finance at Dell Inc., TeraLogic Inc. and LSI Logic Corp.

Mercer started as an accountant at what’s now PricewaterhouseCoopers LLC.

A big concern is that Mercer hasn’t run a chip company for an extended period.

“Scott isn’t really a proven guy in the chip industry,” the analyst said. “I view him as one of Dwight Decker’s group. I’m guessing it was difficult to attract a quality guy from the outside.”

Others worry that Mercer won’t continue the turnaround path set by Artusi.

“We fear that the new regime, led by current Conexant board member Scott Mercer, will attempt to retain much of its scale and market focus,” LeStrange said.

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