What's another year?
For communications chip designer Conexant (NASDAQ:CNXT), a year can feel like decades, centuries ... eons. The company just closed the books on its 2007 fiscal year, and I'm almost afraid to look at the numbers for fear of catching something deadly. Nearly every line of these statements is moving in the wrong direction.
Sales dropped 16.7% year over year. The net loss tripled; every margin that matters worsened; and just to kick sand in the face of investors, the one thing that did grow on the income statement was the share count. Ach du lieber!
But then my roving eye wandered down to the balance sheet, and what little cash flow information we were handed; that's where the good news started. There's less cash and short-term investments in the coffers now, but it was used to pay down debt. There was also a lot less red in the owner earnings column, which is the closest thing to a free cash flow reading we have today.
Those are just numbers, though. More importantly, there's fresh management taking the business in a new, more focused direction. New CEO Dan Artusi handed out pink slips to 20% of the Conexant workforce over the past five weeks, reduced new development on all stand-alone wireless products, and refocused on what the company knows best: DSL and cable modem networking, with a side of media decoding for set-top boxes.
So Conexant is leaving the Wi-Fi market to rivals who can turn a profit on it, like Atheros (NASDAQ:ATHR), Broadcom (NASDAQ:BRCM), and Marvell (NASDAQ:MRVL). Reducing such distractions from the plan of operation looks smart when you consider the giants Conexant still faces in the broadband access arena, like Motorola (NYSE:MOT), Cisco Systems (NASDAQ:CSCO), and Alcatel-Lucent (NYSE:ALU).
Conexant fell hard when the Internet bubble popped, and it's been living in Penny-Stock County for years -- curiously enough, without getting delisted for falling below the Nasdaq's $5-a-share initial listing requirement. Crawling back over that threshold without resorting to reverse splits would make this stock a three-bagger from today's levels.
It can be done if management's given enough time. What's another year -- or two?
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