Last Friday, Foolish godfather Tom Gardner wondered aloud what the heck Conexant Systems (Nasdaq: CNXT) does. How is this company different from any other semiconductor designer with a swooning long-term stock chart?
And that got me thinking. I would like to think that I know Conexant better than most, having covered the company from many angles in the past. This is a specialist in audio, video, and communications signal processing that faces off against like-minded chip slingers such as Marvell Technology Group (Nasdaq: MRVL), Silicon Laboratories, and Zoran (Nasdaq: ZRAN) when looking for customer signings. It's also a fab-less business, meaning that manufacturing is outsourced to third-party foundries. So far, so good.
The bad
If you asked me at gunpoint why anybody would pick a Conexant chip over Marvell or Zoran, I'd probably be praying for my life really quick. Come up with an investment thesis? Same thing. Give me a browser and some time to do research, and I still come up empty-handed on both questions.
Tom is right: Conexant can't explain what makes it special. Follow along as I try to figure it out, OK?
Let's start at the company's "about us" web page: "Conexant Systems is a leading provider of solutions for imaging, audio, embedded modem, and video surveillance applications – areas where the company has established leadership positions."
OK, but that tag line would work for Marvell or STMicroelectronics (NYSE: STM) too -- except that those other guys wouldn't brag about modem chips. Hold that thought.
How about the corporate governance credo off Conexant's investor relations site? Uh-oh, nothing but boilerplate blather that doesn't mean anything; no mission or vision, no clearly defined goals.
Investor presentations sounds like a promising resource. Oh, but it's empty. There are no press releases in the archives. SEC filings fare even worse -- you get a web server error there. Is anybody running this ghost ship? Would you help me count the tumbleweeds to the soothing sounds of crickets and loons?
The worse
OK, so I have to get Conexant's 10-K statement off some other site. The business description there doesn't make me feel any better:
Our objective is to become a leading supplier of semiconductor solutions and Application Specific Standard Products (ASSPs) to leading global original equipment manufacturer (OEM) and original design manufacturer (ODM) customers in consumer, communications and PC markets.
[...]
Our expertise ... allows us to deliver semiconductor devices and integrated systems for consumer electronics products.
Yeeesh. Texas Instruments (NYSE: TXN) and Microchip Technology (Nasdaq: MCHP) are nodding along, and so is about half of Silicon Valley at this point. As it turns out, when you look through Conexant's product offerings, fax modems are a big, big part of the business. I thought I had seen some rudderless ships around the Bay Area, but this one is running on autopilot that was last reprogrammed in 2001 or thereabouts.
Multi-function printer chips are mentioned in passing, but it all seems quaintly outdated when you look at Hewlett-Packard (NYSE: HPQ) planning to build fully functional smartphones (also known as handheld computers) into their printers. CEO Scott Mercer is an accountant by training and experience, and not an engineer or a salesman. I could go on, but my own major intestine might have throttled my brain in order to save humanity at this point.
Let's not go there.
The ugly
At the end of the day, I'm not surprised to see Conexant's fortunes waning over the years. Without a vision, there's no direction. Without that, there's no hope for the future. Conexant hasn't reported an annual profit in the company's entire history and sales have dropped off dramatically in recent years. Since 2007, the company has fired, sold, or otherwise lost 86% of its research engineers. If the wasteland of an investor relations site wasn't evidence enough, there's the final sign that Conexant has given up.
Thanks for making me revisit an old friend, Tom. The lights were on -- just barely -- but there was nobody home. I'm going to lay down with a cold compress on my aching head and think about happier businesses, OK?
Anders is down for the count, but you might feel different about the sordid Conexant saga. Show everyone what you think with a quick CAPS rating on the stock.
