Conexant's (NASDAQ:CNXT) shares popped this week on news that its multimedia and network processors have been chosen by Motorola (NYSE:MOT) for use in its next-generation set-top box. Motivated to take a closer look, my initial reaction to the investor interest was one of amazement. I remembered Conexant as a series of huge losses coupled with a mountain of debt -- not exactly the stuff of investors' dreams. After doing a bit of digging, though, it looks to me like the company is doing better than I expected. It may even be worth a look -- but only for risk-tolerant investors.

Conexant is a fabless semiconductor company, outsourcing its manufacturing to firms like Taiwan Semiconductor Manufacturing (NYSE:TSM), United Microelectronics (NYSE:UMC), and Jazz Semiconductor. Conexant provides chips used in digital home networking, media processing, and broadband communications equipment. Many of its chips are used in electronic devices (like Motorola's set-top boxes) that connect to services piped into people's homes, such as cable and satellite TV, broadband Internet service, and voice services. Conexant chips stand at the center of many current tech trends, including voice-over-Internet protocol (VoIP), high-definition video, broadband Internet access, and wireless networking.

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 (NASDAQ:SLAB), Texas Instruments (NYSE:TXN), STMicroelectronics (NYSE:STM), and many others. With all the competition, it is typical for chips' average selling prices to decline quickly, meaning both that Conexant has to rely on its manufacturing partners to reduce costs, and that it has to continually introduce new and better chips.

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.

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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.