Slumping sales at Mindspeed Technologies,a once fast-growing maker of networking chips,have prompted Conexant Systems Inc. to indefinitely shelve plans to spin off the unit as a separate publicly traded company, a spokesman said.
“We’ve postponed until things look better,” said Conexant’s Roman Kichorowsky. “We simply don’t know what to say about when things will look better.”
Newport Beach-based Conexant had planned to spin off Mindspeed by September. The decision to delay Mindspeed’s separation marks another episode in a long-running saga that started last November.
Back then, Conexant officials said they planned to raise money by spinning off Mindspeed in a public offering. The company planned to publicly sell a portion of Mindspeed shares and distribute others tax-free to Conexant shareholders.
But when the market for public offerings dried up, Conexant backpedaled to a one-step plan of just distributing shares to Conexant stockholders,a move that would have turned Mindspeed into a public company but raised no money for Conexant.
“A weakened equity-capital market and limited visibility in the technology sector have severely diminished the attractiveness of an initial public offering in Mindspeed,” Conexant Chief Executive Dwight Decker said earlier this year. “A one-step spin-off approach provides a timely, efficient and non-dilutive transaction for Conexant shareowners.”
But the company hadn’t banked on a yearlong slide in Mindspeed’s sales, which had grown nearly 100% per quarter up until last year’s spinoff announcement. For the quarter ended Sept. 30, Mindspeed’s sales were down 87% from a year ago to $22 million. Conexant’s overall sales dropped 64% to $201 million.
“We need to see a clear path to recovery and growth before we’ll spin off the company,” Conexant spokesman Scott Allen said.
Mindspeed, once Conexant’s star, now is a drag on the company. Conexant’s older business of selling chips for computer modems, which had been losing millions per quarter, has begun an upturn. Sales in Conexant’s personal networking business,Conexant’s old-line business,grew 24% from the June quarter, while Mindspeed sales fell 39% sequentially.
Mindspeed isn’t unique. Communications chipmakers have grappled with plummeting sales as networking gear makers have all but halted spending on new products. That precipitated two rounds of layoffs totaling 1,500 people at Conexant. Broadcom Corp., Conexant’s Irvine-based rival, also has been hit hard and has laid off about 200 workers.
Conexant also has undergone two restructuring rounds, which included temporarily stopping production at several plants, selling assets and shifting more production to contract chipmakers in Asia.
“As a result, we expect to deliver a further 15% sequential improvement in the level of our pro forma operating loss,” Decker said in a prepared statement last month.
While Conexant has about $338.9 million in cash as of Sept. 30, Mindspeed’s difficulties could strain the company’s resources. In the past year, Conexant has burned through about $600 million.
“We will need to address the cash requirements of Mind-speed and Conexant sometime in the future,” Allen said.
Mindspeed relies on a steady diet of cash for new product development, which Conexant hopes will pay off down the line.
A recent Robertson Stephens report said Mindspeed “had generated significant design win momentum, capturing over 500 design wins. We believe that once the communications market recovers, this portion of the company’s business could experience renewed growth.”
But Conexant still sees hard times ahead.
“In our Mindspeed business, we continue to face weak Internet infrastructure market fundamentals and, as a result, we anticipate a revenue decline in the current quarter,” the company said in a statement. n
