During the quarter, Conexant used approximately $62 million to retire senior secured notes due in November 2010. Conexant also exchanged equity for $17.6 million of convertible notes and established a new accounts receivable credit facility worth $15 million. Conexant earlier announced that it will sell up to $100 million of common stock, preferred stock and debt securities.

The company intends to use the net proceeds from the sale of securities -- under the shelf registration statement -- for general corporate purposes, which includes the repaying, redeeming or repurchasing of the existing debt, and also for working capital requirements, capital expenditures and acquisitions.

Going forward, Conexant expects revenues within $60 million – $61 million in the first quarter of fiscal 2010. With stable gross margins. Management plans to capture market share with existing designs and delivering new products for imaging, audio, embedded modem and video surveillance applications. In addition, the company also plans to develop its core capabilities in analog markets along with software development to capitalize on new opportunities in adjacent markets.

Gross margin is estimated at 61%. Operating expenses are forecasted at $25 million. Operating income is forecasted between $11.6 million and $12.5 million. Net income per share is projected within 13 cents – 14 cents.

Headquartered in Newport Beach, California, Conexant Systems designs and develops semiconductor solutions that enable consumers to access the digital world.

The company intends to use the net proceeds from the sale of securities under the shelf registration statement for general corporate purposes, which includes the repaying, redeeming or repurchasing existing debt, and also for working capital requirements, capital expenditures and acquisitions.

In December, Conexant completed the redemption of $61.4 million of outstanding aggregate principal amount of its floating rate senior secured notes due in November 2010. The total aggregate redemption amount paid was $62.3 million, including accrued interest. The company funded the redemption with cash on hand. Earlier, the company retired an aggregate amount of $80 million of its senior secured notes due in November 2010.

Conexant also entered into a new credit facility of $15 million through November 30, 2010, with Silicon Valley Bank. The company had earlier raised $21.2 million by offering 8,050,000 shares to the public.

Management undertook significant restructuring activities to transform the business into a smaller but profitable enterprise. In August 2009, the company divested its Broadband Access Product lines. The company also terminated new investments in wireless networking and divested its Broadband Media Processing business. Management will now target acquisitions to strengthen its product portfolio.

Headquartered in Newport Beach, California, Conexant Systems designs and develops semiconductor solutions that enable consumers to access the digital world.

Volume today is also on the rise at more than 2 million shares, compared to the daily average of nearly 939,000.

In its fiscal fourth quarter, the semiconductor company announced EPS that easily surpassed the Zacks Consensus Estimate. Earnings estimates advanced in response but have stood still since.

Conexant Systems is a fabless semiconductor company with a comprehensive portfolio of innovative semiconductor solutions, including products for imaging, audio, embedded-modem and video applications.

CNXT is part of the electronic components - semiconductors industry, which is well-represented on the Zacks #1 Rank List. There are 7 other names from that space on today's list, including Actel Corporation (ACTL), Analog Devices, Inc. (ADI), Broadcom Corporation (BRCM), Cirrus Logic, Inc. (CRUS), Integrated Device Technology, Inc. (IDTI), Integrated Silicon Solution, Inc. (ISSI) and LSI Corporation (LSI).

Earnings Estimates for Conexant

Two covering analysts for this fiscal year, ending September 2010, have contributed to a Zacks Consensus Estimate of 33 cents per share. That guidance has been unchanged for the past month, but remains approximately 27% better than 2 months ago.

Meanwhile, the Zacks Consensus Estimate for next fiscal year, ending September 2011, is currently at 47 cents per share. (There's only 1 covering analyst for this period.) That is unchanged in 30 days but suggests profit growth of more than 40% from the current fiscal year.

Beat by 300% in Fiscal Fourth Quarter

Conexant Systems reported earnings per share of 6 cents, excluding items, for its fiscal fourth quarter in late October, which sharply surpassed the Zacks Consensus Estimate for a loss of 3 cents.

While core net revenues declined to $56.2 million from $81.1 million year over year, the result still surpassed the company's guidance and the performance of the sequential quarter. (It's imaging and audio businesses grew 18% sequentially and accounted for 58% of total revenues.)

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The notes will be redeemed at a cash redemption price equal to 101% of the principal amount of the notes, plus accrued and unpaid interest to the redemption date.

Management plans to use the cash balance on the balance sheet to fund the redemption of debt and strengthen its capital structure. The company had earlier raised $21.2 million by offering 8,050,000 shares to the public.

As a result of this retirement of debt, Conexant will reduce its annual interest burden by more than $5 million. As of July 3, 2009, Conexant had a total debt of $422.1 million and cash and equivalents of $123.4 million.

While Conexant continues to face challenges with eroding sales in WLAN, a flattening ADSL market and declining revenue in its modem business, new management is making drastic changes to overhaul the company’s strategic positioning and return to profitability.

Management undertook significant restructuring activities to transform the business into a smaller but profitable enterprise. In August 2009, the company divested its Broadaband Access Product lines. The company also terminated new investments in wireless networking and divested its Broadband Media Processing business. Management will now target acquisitions to strengthen its product portfolio.

Conexant will now apply its capabilities in analog and mixed-signal design and firmware and software development to capitalize on new opportunities in adjacent markets.

Last month, the company reported revenues of $56.2 million in the fourth quarter of fiscal 2009, up 10% sequentially but down 31% year over year. Profitability improved due to cost cutting activities undertaken by the management.

The company also provided an upbeat outlook for the coming quarter. Revenues are expected to increase 7% sequentially.

Headquartered in Newport Beach, California, Conexant Systems designs and develops semiconductor solutions that enable consumers to access the digital world. It operates in an intensely competitive market with many rivals in and outside the United States, including Analog Devices (ADI), Broadcom Corp. (BRCM) and Texas Instruments (TXN).

With the sale of its broadband access business, the company completed a major part of its restructuring and now plans to concentrate solely on providing solutions for imaging, audio, video and various embedded-modem applications.

Management said that the company will use all proceeds to strengthen its balance sheet by retiring debt. Conexant had already announced plans to retire $80 million aggregate principal amount of floating rate senior secured notes due in November 2010. It will commence a tender offer for $73 million notes and intends to buy an additional $7 million of the notes. As a result of this retirement of debt, Conexant will reduce its annual interest burden by more than $5 million. Management also plans to reduce its workforce by 100 employees to lower operating expenses by approximately $3 million per quarter.

Headquartered in Newport Beach, California, Conexant Systems designs and develops semiconductor solutions that enable consumers to access the digital world. It operates in an intensely competitive market with many rivals in and outside the United States, including Analog Devices (ADI) Broadcom Corp. (BRCM) and Texas Instruments (TXN).

While Conexant continues to face challenges with eroding sales in WLAN, a flattening ADSL market and declining revenue in its modem business, the new management is making drastic changes to overhaul the company’s strategic positioning and return to profitability.

Management continues to evolve the new Conexant and believe they are getting to the final stages. However, we would like to get more comfortable with the direction of the company and further confidence in the sustainability of recent results.

Gross margin came in at 50.8% compared to 46.7% in the previous quarter and 53.5% in the year-ago quarter. Operating expenses declined 30.1% sequentially and 13.0% year over year.

On a GAAP basis, net loss from continuing operations came in at $2.8 million or 4 cents per share. On a non-GAAP basis, net income came in at $0.9 million or 1 cent per share. 

Earlier in the quarter, Applied Micro Circuits completed the sale of its 3ware storage adapter solutions business to LSI Corp. (LSI) for approximately $20.8 million. The company had expected that the acquisition of 3ware storage adapter solution business (in 2004) would strengthen the company’s position in SATA based RAID controllers. However, management stated that the customer base, the product requirements and the business dynamics have not converged with its semiconductor solutions. Hence, it decided to sell this business. The company will now focus on its data center, enterprise and telecom businesses.

Going forward, management expects revenues to grow by 5% – 9% on a sequential basis. This implies revenue guidance between $47.3 million and $49.2 million. Gross margin is expected to be flat. The company had an improved backlog position when entering the September quarter. Management expects that there will be steady improvement in profitability as revenues ramp back to last year’s levels.

Over the past 12 to 18 months, Applied Micro Circuits has undergone a number of management and product transitions. In order to lower operating expenses, the company has reduced its workforce by 17%. The overall restructuring should position the company to enter a period of sustainable revenue growth as newer products move in for production at key original equipment manufacturers and supply chain challenges get ironed out with signs of economic recovery.

Headquartered in San Diego, California, Applied Micro Circuits is a leading provider of high-bandwidth integrated circuits (ICs) for optical telecom networks.

Conexant designs and develops semiconductor solutions that enable consumers to access the digital world. The company intends to use the net proceeds from the sale of securities for repaying, redeeming, or repurchasing existing debt. Conexant can also use these proceeds for working capital, capital expenditures and acquisitions.

The balance sheet of the company is highly leveraged. Conexant ended the second quarter with a total debt of $421.1 million against cash balance of $110.3 million. The company operates in an intensely competitive market with big players like Analog Devices (ADI), Broadcom (BRCM) and Texas Instruments (TXN). Conexant is quite small compared to its rivals.

While Conexant’s business continues to face challenges in its eroding business segments (WLAN, a flattening ADSL market and declining revenues in its modem business), we expect the new management to make drastic changes to overhaul the company’s strategic positioning and hasten the return to profitability. The company sold off its Broadband business in April 2009 and plans to use the cash for repaying debt.

FY2008 appeared to be a period of consolidation and recovery for Conexant, which may extend all the way into fiscal 2009. Meanwhile, OEM inventory levels have normalized and there is evidence of inventory replenishments, which combined with a seasonal build-up ahead of the second-half, has led to a re-acceleration in revenue trends for semiconductor companies in Q3/Q4.

However, we would look for more comfort in the direction of the company and confidence in the sustainability of recent results. We maintain a Hold on the stock ahead of the third quarter results, expected on July 30, 2009.

Applied Micro Circuits Corp. (AMCC) recently sold off its 3ware storage adapter solution business to LSI Corp. (LSI) for approximately $20 million in cash. The company primarily focuses on designing chips for controlling voice and data transmission in high-speed local area networks (LANs) and wide area networks (WANs).

Applied Micro expected that the acquisition of the business (in 2004) would strengthen its position in SATA-based RAID controllers. The company maintained its supremacy in SATA and with the introduction of SAS-based RAID controllers in 2007, it began to gain significant share in SAS, as well.

However, management decided to sell this business stating that the customer base, product requirements, and business dynamics did not converge with its semiconductor solutions. The company will now focus on its data center, enterprise and telecom businesses.

Over the past 12-18 months, Applied Micro has undergone a number of management and product transitions as it struggled to sail through the steep downturn. In order to lower operating expenses, the company also announced that it would reduce workforce by 17% and aim to operate from just one communications processor fab instead of two.

Applied Micro had a huge inventory reserve in December when the severe economic downturn pushed most telecom companies to go in for significant inventory correction. Since most telecom products are complex devices with very long lead items, the company will need more time to work through the inventory and improve turns.

The overall restructuring should position the company for a period of sustainable revenue growth as newer items move in for production at key OEMs and industry supply chain challenges seem to be almost over now.

While Applied Micro's older, more established products appear to have stalled, we think the company has maintained its leverage with its customers and that our expectations could prove conservative if the communications market remains sound and new products gain further traction.

We maintain our Hold on the stock.