Newport Beach-based chipmaker Conexant Systems Inc. has been on a tear after a year or so of restructuring and aggressively paying down debt.
Conexant, which makes chips that go into printers, TV set-top boxes, digital picture frames and other devices, has raised cash and cut debt by roughly half in the past year.
And while it’s early yet, Conexant can claim bragging rights as the best performing stock among local major public companies so far in 2010.
As of last week, the company’s shares are up more than 70% since the start of the year, easily beating the Philadelphia Semiconductor Index, which is off about 10%.
The only other local company that comes close to Conexant is Newport Beach-based chipmaker Mindspeed Technologies Inc., which Conexant spun off in 2003 and is up more than 50% for the year.
For the past 12 months, Conexant’s shares are up about 600%, behind only Irvine-based Diedrich Coffee Inc. at more than 9,500% and Mindspeed at about 800%.
Like Mindspeed, Conexant is small—it had a market value of $250 million last week, just ahead of Mindspeed at about $200 million.
In the past year, Conexant has reworked debt to get better terms from lenders, sold a chunk of land near its headquarters and done a handful of patent sales.
In July and again in January, Conexant did stock offerings in which it sold around $120 million worth of its shares.
The offerings were a “coming out party” for the revamped chipmaker, according to Chief Executive Scott Mercer.
“We didn’t sell much in terms of dollar value, but it was more important to reintroduce the new Conexant to Wall Street,” he said.
Bolstering Conexant’s finances has been part of a bigger restructuring by Mercer, who came on board in 2008. He had been a Conexant director since 2003.
Mercer’s jettisoned underperforming products, shed units that weren’t profitable or growing, extended a credit line and made small buys to get into markets set to grow.
Sold Units
Last year, Conexant sold its digital subscriber line and broadband chip product line to Fremont-based Ikanos Communications Inc. for $54 million.
In 2008 it sold its business making chips for set-top TV boxes for up to $145 million to NXP Semiconductors, the former chip arm of Royal Philips Electronics NV.
Conexant still makes modem chips for set-top boxes.
The moves cut some 1,000 workers from Conexant’s payroll and dramatically slashed the company’s costs. It now has about 300 workers here and 600 in all.
Mercer streamlined the company into four business units that focus on chips for imaging, audio, video and embedded modems.
What’s left of a now leaner Conexant “is a much more profitable business,” said Blayne Curtis, a chip analyst at Jefferies & Co. in Boston. “Now they are on to tackling the balance sheet.”
Conexant’s reworked balance sheet and sizzling stock has attracted the attention of a new crop of investors, according to Mercer.
Typically a sleepy stock tracked only by a couple of analysts, Conexant saw its trading double to about 11 million shares for a time last month after it reported results for the December quarter.
On the heels of strong earnings, Conexant gave a better-than-expected outlook for the current quarter, forecasting a profit of about $9 million on sales of $60 million to $61 million.
“A lot of other institutions have started liking the Conexant story and have started buying in,” Mercer said. “We are much more active now in terms of participating in financial conferences and with communicating to Wall Street.”
Outperform
Oppenheimer & Co. analyst Daniel Morris said he expects Conexant to outperform its peers this year.
“In our view, Conexant is an out-of-favor name that deserves another look given its revamped, more profitable business model, solid intellectual property, new management team and evident balance sheet improvement,” he said in a note to clients.
Morris has a $5 price target on the stock. Conexant was trading around $4 per share late last week.
Conexant is set to continue working on its remaining debt.
The company has about $215 million in long-term debt as of Jan. 1.
“We will be working diligently to refinance that over the next several quarters,” Mercer said.
Conexant ended the December quarter with around $60 million in cash and equivalents after spending some $60 million to get rid of debt that was set to come due in November.
