Conexant is a fabless semiconductor company, outsourcing its manufacturing to firms like Taiwan Semiconductor Manufacturing
The company's business is divided into four segments. The largest, with 35% of net revenues, is Broadband Media Processing. This group includes the set-top box business, and it's growing robustly, doubling revenue over the past six quarters. The two other groups that account for most of the remainder of Conexant's revenue (30% each) are Broadband Access and Universal Access. The Broadband Access products include DSL (digital subscriber line) chips, and the Universal Access products include VoIP chips and modem chipsets for PCs and other electronic gadgets.
Conexant does play in markets that are growing strongly -- home networking and high-definition video uptake by consumers still have a long way to go -- but unfortunately, lots of other companies also live there. These markets are extremely competitive, with companies like Marvell, Motley Fool Stock Advisor recommendation Silicon Labs
Despite the competition, Conexant's financials are showing considerable improvement this year, after having a rough time most of this decade. Since 2001, this company has registered a huge net loss of about $3.8 billion on sales of $4.2 billion, but there may be light at the end of the tunnel. Results for the fiscal fourth quarter ended Sept. 30 actually showed positive operating income of $4.4 million. Furthermore, revenues for the full fiscal year grew by a healthy 34% to $971 million.
On the negative side, Conexant still has that big pile of debt. The balance sheet shows nearly $800 million in debt, with just $340 million in cash and marketable securities. This will improve a bit early next year, when the company receives about $100 million from its 42% ownership in Jazz Semiconductor, which is merging with Acquicor, but Conexant will remain leveraged.
The debt load makes for significant risk -- a downturn in the semiconductor market may cause troubles for Conexant, and we may be in the midst of a slowdown now. The CEO has called the current environment "uncertain." Nevertheless, it looks to me like this business is turning around, although Conexant may be best for those who can tolerate risk.
For further Foolishness:
- Making Sense of Silicon Labs' Mixed Signals
- Conexant's Two-Star Quarter: Fool by Numbers
- Applauding Applied Materials' Year: Fool by Numbers
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Fool contributor Dan Bloom owns shares in Taiwan Semiconductor Manufacturing Co. He is currently ranked 724 out of 13,105 in The Motley Fool's new CAPS stock rating service -- not half bad, but since he has ranked mostly technology stocks, his rating will probably decline significantly during the next tech-stock meltdown. The Fool has an ironclad disclosure policy.