Wanted: Change-minded semiconductor executive to turn around slumping chipmaker. Big shoes to fill.
That’s the wish list of analysts who follow Newport Beach-based Conexant Systems Inc., a maker of chips for high-speed Internet connections, set-top TV boxes, modems and networking.
The company, with yearly sales of $900 million, is on the hunt for a leader after longtime Chief Executive Dwight Decker said last month he’ll retire in the fall.
“The key is for someone to come in and pick up the pieces where Decker has left them and take it to the next level,” said Jay Srivatsa, an analyst at Roth Capital Partners LLC in Newport Beach. “That will have to come from a chip industry guy.”
Conexant isn’t saying much about the search process.
The board has formed a search committee, headed by Jerre Stead, former chief executive of Santa Ana’s Ingram Micro Inc. and chairman of Conexant’s management development committee.
And Conexant’s hired executive search firm Spencer Stuart & Associates, which has an Irvine office.
Bruce Lachenauer, who heads the firm’s chip and computer products practice from Irvine, is leading the Conexant search.
Lachenauer declined to comment, citing a confidentiality pact with Conexant.
The company is looking at its own executives and outsiders in the search.
Some analysts would like to see Conexant bring in an industry veteran, rather than hire from within.
“I would be happiest if they brought a new CEO from the outside, not promote a division head,” said Gary Mobley, analyst at A.G. Edwards & Sons Inc. in St. Louis. “The ideal person would be someone from the chip industry that has had a senior management position for some time. They will try to go after division heads at local competing companies.”
Conexant, struggling with a slowdown and slumping on Wall Street, needs a sea change, according to Mobley.
“I want somebody from the outside to bring a different type of culture to Conexant,” he said. “They still sort of have that vertically integrated, old-school type culture that grew out of Rockwell.”
Conexant once was the chip arm of what used to be Rockwell International Corp. and spun off in 1999.
Others want to see the company find an executive with a focused strategy.
“Conexant would benefit from an executive who is willing to go smaller in order to get bigger,” said Sam Dubisnky, analyst at CIBC World Markets in New York. “The company should remain intensely focused on achieving market share gains and sustainable profitability.”
Possible candidates include division heads at dominant Orange County chipmaker Broadcom Corp. or blast-from-the-past Matt Rhodes, according to industry watchers.
Rhodes was with Conexant for nine years and was president from 2003 to 2006. He left that year after Decker came back from his first retirement bid to fix a botched combination with New Jersey’s GlobespanVirata Inc.
In July, Rhodes was hired as chief executive of Santa Clara-based Teranetics Inc., a privately held networking Ethernet chipmaker.
He declined to comment for this story.
At Broadcom, analysts point to two potential candidates: Robert Rango, senior vice president of the company’s wireless group, and Daniel Marotta, who heads the broadband group.
Conexant’s plight was exemplified last week.
The company said sales for the March quarter are set to come in at $200 million, 18% lower than the prior quarter. Wall Street had expected $223 million in sales.
Full results are due April 26.
A glut impacting the chip sector hit Conexant’s various businesses. The company saw a decline in sales of chips for set-top boxes amid delays at pay TV providers in the U.S. and Europe.
Chips used in “all-in-one” printers that fax, scan and copy were hurt by a buildup of unsold chips at key customers.
And DSL chips for high-speed Internet connections saw worse-than-expected price drops.
Roth Capital’s Srivatsa downgraded Conexant’s shares on the news.
“My view is that the other shoe has yet to fall,” Srivatsa said. “None of their markets are really working for them. In the near term, there might be some issues with the company attempting to grow its revenue.”
Another challenge for the next chief executive: Conexant’s debt.
In November, Conexant sold $275 million in junk bonds to pay off debt that would have converted to shares in February. Earlier in 2006, the company issued $250 million in 20-year convertible debt to pay off other debt coming due.
The refinancing helped, according to analysts. But Conexant still had $455 million in debt at the end of 2006. Interest expense was $13 million in the December quarter, up from $9 million a year earlier.
The company had about $600 million in cash at the end of the year and a recent market value of $720 million.
While some like the idea of fresh leadership, filling Decker’s shoes will be tough.
He led the business as part of Rockwell and oversaw Conexant’s debut as a stand-alone company.
And Decker gets good marks for righting Conexant after the GlobespanVirata debacle. He was able to put Conexant back on its feet by cutting costs, reducing debt, focusing on product development and shifting some engineering overseas.
“He did a good job at resurrecting the company’s profitability,” Mobley said.
Decker had hoped to spin off Newport Beach-based Jazz Semiconductor, which failed to launch an initial public offering after two attempts.
Early this year, Jazz, Conexant’s former chip plant, was sold to blank-check company Acquicor Technology Inc. and now trades as Jazz Technologies Inc. Conexant got $100 million for its remaining stake.
Decker, 57, plans to stay until a successor is found. He’s set to serve as chairman after that.
No word on his retirement plans. It’s likely that Decker will step up his work with local venture capitalists and the University of California, Irvine.
