Newport Beach-based Conexant Systems Inc. is charging hard into India.
In the past year, the chipmaker has ballooned its India operations by 500 people to 700 in all. Meanwhile, overall employment at Conexant has held steady at around 2,400 people.
Conexant didn’t even have a design center in India two years ago.
The company is placing bets on cities such as Bangalore and Hyderabad,and their inexpensive engineers,to help cut costs and return to profitability.
And Conexant is at a key point in its turnaround. Chief Executive Dwight Decker has set a goal of being profitable this quarter, after losing money for the past year.
The consensus of analysts is Conexant could break even for the December quarter. Some see a slight loss, others a slight profit. Sales could come in at $218 million for the quarter, up 55% from a year earlier.
The company’s shares, while still in the bargain bin, are up nearly 80% from their May lows on signs of a turnaround. Last week, Conexant had a market value of $840 million.
There’s more at play in India than just lower costs, according to Conexant. The country provides top-notch engineers who follow up on more advanced design work done in the U.S., according to company officials.
Conexant isn’t alone. One of its biggest rivals,Irvine’s Broadcom Corp.,also is expanding in India.
But Conexant’s move has been more out of necessity. Broadcom, which has seen growing profits, seems to be expanding in India more to tap the country’s expertise than to cut costs.
“The strength and scale Broadcom has achieved allows it greater flexibility when making decisions with investments,” said Brian Alger, an analyst with Pacific Growth Equities LLC in San Francisco. “Conexant doesn’t have that flexibility. They do need to be a bit more creative.”
Conexant, whose chips drive set-top boxes, digital subscriber line modems and wireless networking devices, has made progress of late with rebounding sales and a focus on products with fatter profits.
For the September quarter, analysts expect sales of $208 million, about even with a year earlier. They also expect a small loss. Results are due next week.
Conexant’s India expansion has gotten marks from analysts.
“India makes sense for a lot of what Conexant wants to do,” Alger said. “There are talented groups of individuals in different regions of the world. You want to take advantage of that.”
The company points to India’s strong schools, which continue to pump out engineers that thrive in some of the world’s top companies, spokeswoman Gwen Carlson said. Many speak English, which makes working with U.S. counterparts easier.
Of course, Indian engineers come cheaper. A U.S. engineer can cost three to four times as much annually, Carlson said.
Conexant’s move into India has taken place during the past couple of years.
In mid-2003, the company opened a design center in Hyderabad in southern India.
In 2004, Conexant acquired Red Bank, N.J.-based GlobespanVirata Inc., taking on its engineering campus in Noida, near New Delhi. By late 2004, Conexant had about 200 people in India.
That’s when Decker came out of semiretirement to try and right the company. Nine months before he had turned things over to Globespan’s Armando Geday.
Within weeks of returning, Decker stepped up the emphasis on India as a way to cut costs.
Early this year, Conexant bought Fremont-based Paxonet Communications Inc., which had more than 100 engineers working in design centers in India.
The Paxonet buy brought Conexant’s India headcount to 300 people, a figure that’s since grown to 700.
Conexant’s employment elsewhere has held steady, Carlson said, as the combination with Globespan cut redundant jobs, mostly in support and administration.
Conexant’s cutting-edge work remains in New Jersey, Palm Bay, Fla., San Diego and Newport Beach, she said.
“We see the U.S. really has the hub for innovation,” Carlson said.
After initial engineering is done on a chip here, engineers in India build on the idea, according to Carlson.
The lines blur at times. Good ideas can come out of follow-up development work done in India as engineers there figure out ways to tackle problems, analyst Alger said.
That’s true with companies such as Conexant, where the goal is “converging” different functions onto one chip, he said.
“I suspect that a lot of their bleeding edge stuff is co-developed,” he said.
Rushing too much engineering overseas too fast can have long-term consequences, said Ken Kramer, a professor at the Paul Merage School of Business at the University of California, Irvine.
“You might give away the store,” he said.
Broadcom is putting more into India as well. But so far the chipmaker has acquired engineers there as a byproduct of buying companies with technology it wants.
The company recently said it was buying Fremont-based Athena Semiconductors Inc. for $22 million. The deal gives Broadcom better wireless technology,and also stands to add about 40 people to its 100-person workforce in India.
Broadcom, which had one other acquisition in India in 1999, plans to ramp up there to tap local expertise. The country offers engineers and a growing market, said Bill Ruehle, the company’s chief financial officer.
Broadcom looks around the world, picking companies for acquisitions that strengthen its engineering, according to Ruehle. About 80% of the company’s engineering staff remains in the U.S., he said.
“We’ll take them where we can find the skills,” Ruehle said.
There are other positives for India. The country is much closer to Asian countries that produce most of the world’s consumer electronics, Alger said.
Conexant could benefit from having a large operation in India near potential customers, he said.
But with the company’s headquarters here and so many big customers in the U.S., it makes little sense to ship off all of Conexant’s engineering to India, according to Alger.
“As long as you have the company’s headquarters here and a lot of direction coming out of Southern California, there is going to be a need to keep some of the engineering close to management,” he said.
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