Conexant Systems Inc.’s new deal with Amazon.com signals a comeback for the Irvine-based chipmaker, which emerged from bankruptcy organization more than three years ago under the ownership of hedge fund billionaire George Soros.
The company is partnering with the world’s largest online retailer to release a development kit that will enable manufacturers to quickly and easily build products that can be voice-activated through Amazon’s digital assistant, Alexa.
Conexant’s chip set allows devices to respond to voice commands, and then sends a clear audio signal to Amazon’s Alexa cloud service.
Amazon and Conexant are targeting influential consumer and commercial electronics makers, such as Belkin, Vizio, LeEco, HP, Harman and Lenovo to name a few, as well as emerging companies like smart thermostat maker echobee.
The deal comes amid brisk holiday sales for Seattle-based Amazon’s voice-controlled speaker, Echo, which carries the Alexa software that enables users to control an ever-increasing list of products, from lightbulbs and heating and cooling systems to car engines, set-top boxes and TVs.
‘Real Hit’
The smart speaker, which costs $180, has sold more than 5.1 million units, according to Chicago-based Consumer Intelligence Research Partners LLC, since it first went on sale in late 2014 to Amazon Prime subscription members before a general public roll out early last year.
“It was a sleeper hit a year ago. Now it’s a real hit,” said Conexant President Saleel Awsare. “Voice is the next big thing.”
Investment bank Mizuho Securities forecasts that the device, coupled with Alexa software services, could exceed $11 billion in revenue by 2020, when annual unit shipments are pegged to skyrocket to 41.3 million units. The majority of that windfall is expected to derive from Amazon commerce transactions, as early adopters show an inclination for voice shopping.
Indeed, 26% of Echo owners in a recent survey conducted by RBC Capital Markets said they made purchases “very” or “somewhat” often through voice activation.
Conexant is in a prime position to capitalize on this growth trend, which has finally put the developing smart-home market in play after years of hype and tepid adoption. Its new chipset, steeped in nearly two decades of legacy audio technology and research, enables speech recognition and voice control from far distances while overcoming acoustic challenges related to echo cancellation, background noise, microphone position, and speaker placement.
“This could easily be in 18 months to 24 months a $100 million business,” Awsare said. “This is pretty much a turnkey.”
Amazon, which has made great strides the last few years in diversifying its business operations beyond e-tailing, has already started to funnel potential customers Conexant’s way. Amazon still generates most of its $107 billion in annual sales through online retail, but the company’s Twitch and Amazon Web Services units are market leaders in their respective segments of live-streaming and cloud computing services.
Amazon Gaming Studios, which has a hub in Irvine, and its production studio, which has developed an Emmy Award-winning television series and other critically acclaimed content, adds to Conexant’s opportunities in the segment, which has yet to draw big competitors with market-ready technology. But that early lead will likely be contested next year.
Conexant, which was spun off in 1999 from what was Rockwell International, was a tech darling before the dot.com bubble, reaching all-time highs in 2000 with sales of $2.1 billion and market value topping $24.3 billion.
Shares and revenue plummeted by the end of 2002, prompting the company to divest assets.
San Francisco-based Golden Gate Private Equity Inc. took Conexant private in 2011 in a $282 million buyout as crippling debt and bloated real estate holdings strangled cash flow and slowed growth.
The chipmaker filed for Chapter 11 two years later and emerged from bankruptcy protection in June 2013, when Soros’ QP SFM Capital Holdings Ltd. took over ownership.
Restructuring
The company shed some business lines in a restructuring, including video surveillance products, and is back to profitability. Annual revenue is climbing back to $200 million—where it was before the bankruptcy—fueled by a 40% annual growth rate in its voice and audio business line.
It employs about 300 worldwide, with about half based at its two nearby offices at Main Street and MacArthur Boulevard. The new chip line carries expected margins of 55% to 60%, a solid percentage in a key metric for technology companies.
“It’s a fresh company,” Awsare said. “We’re phenomenally well positioned.”
