NEWPORT BEACH, Calif.—(BUSINESS WIRE)—October 30, 2008— Conexant Systems, Inc. (NASDAQ:CNXT) today announced financial results for the fourth quarter of fiscal 2008 that met the updated guidance provided on Sept. 30, 2008 when the company increased its earnings outlook.

Fourth Fiscal Quarter Financial Results

Conexant presents financial results based on Generally Accepted Accounting Principles (GAAP) as well as select non-GAAP financial measures intended to reflect its core results of operations. The company believes these core financial measures provide investors with additional insight into its underlying operating results. Core financial measures exclude non-cash and other non-core items as fully described in the GAAP to non-GAAP reconciliation in the accompanying financial data.

On August 11, 2008 Conexant announced that it completed the sale of its Broadband Media Processing (BMP) product lines to NXP Semiconductors. The financial results of the BMP business unit are classified as discontinued operations in the company’s financial statements for all periods.

Excluding results from discontinued operations, revenues for the fourth quarter of fiscal 2008 were $122.6 million. Core gross margins were 54.5 percent of revenues. Core operating expenses were $47.0 million, and core operating income was $19.9 million. Core net income was $13.0 million, or $0.26 per diluted share.

On a GAAP basis, gross margins were 54.1 percent of revenues. GAAP operating expenses were $57.2 million. GAAP operating income was $9.2 million, and GAAP net loss from continuing operations was $2.2 million, or $0.04 per share. GAAP net income was $0.4 million, or $0.1 per diluted share. GAAP net income in the quarter included a loss of $3.7 million from discontinued operations related to the BMP business, which was offset by a gain on the sale of that business of $6.3 million.

The company ended the quarter with $105.9 million in cash and cash equivalents, a sequential decrease of approximately $30 million. The decrease was related to several events including the company’s retirement of $80 million of its floating rate senior notes due in November 2010, the reduction of a short-term receivables facility by $37 million, and a $16 million cash payment for the purchase of Freescale’s “SigmaTel” multifunction printer business. These items were partially offset by $95 million in cash received from the sale of the company’s BMP business to NXP.

Business Perspective

“The Conexant team delivered another outstanding quarter, meeting the increased guidance we provided at the end of September,” said Scott Mercer, Conexant’s chairman and chief executive officer. “Revenues of $122.6 million were consistent with the range we anticipated. Core gross margins of 54.5 percent of revenues were in line with our revised expectations and represented a sequential improvement of 390 basis points over the previous quarter. Core operating income of $19.9 million and core net income of $0.26 per share both met the high end of the updated guidance we provided in September.

“During our recently concluded fiscal year, we dramatically improved our financial performance by exiting or selling unprofitable businesses and significantly improving the performance of our continuing businesses, expanding core gross margins, and reducing core operating expenses,” Mercer said. “As a result, we delivered $58 million in core operating income for fiscal 2008, led by outstanding performance in our IPM product lines. We also strengthened our balance sheet by retiring nearly $175 million in debt during the year.

“Because of the financial improvements the Conexant team delivered over the past fiscal year, we are a stronger, more competitive company today, and we are in a much better position to work through the current economic challenges,” Mercer said. “Moving forward, we remain committed to driving further improvements in our business model, generating positive cash flow, and strengthening our long-term capital structure. We will also continue to focus our investments on market segments where we lead or have an opportunity to lead, and we will continue to evaluate opportunities to augment our internal product-development efforts with select acquisitions.”

Business Outlook

Conexant expects revenues for the first quarter of fiscal 2009 to be in a range between $103 million and $108 million, or 12 to 16 percent lower sequentially, as a result of the effects of the overall economic environment and the fact that the company’s fourth fiscal quarter included one extra week. Core gross margins for the first fiscal quarter are expected to be between 54.5 and 55.5 percent of revenues. The company anticipates that first fiscal quarter core operating income will be in a range between $11 million and $13 million, resulting in core net income of $0.09 to $0.12 per share.

Conference Call Today

Financial analysts, members of the media, and the public are invited to participate in a conference call that will take place today at 5:00 p.m. Eastern Time (ET)/ 2:00 p.m. Pacific Time (PT). Scott Mercer, chairman and chief executive officer, Christian Scherp, president, and Karen Roscher, senior vice president and chief financial officer, will discuss fourth quarter and fiscal year 2008 financial results and the company’s outlook. To listen to the conference call via telephone, dial 866-650-4882 (in the US and Canada) or 706-679-7338 (from other international locations); participant pass code: Conexant; Conference ID number: 68166163.

To listen via the Internet, visit the Investor Relations section of Conexant's Web site at www.conexant.com/ir. Playback of the conference call will be available shortly after the call concludes and will be accessible on Conexant's Web site at www.conexant.com/ir or by calling 800-642-1687 (in the U.S. and Canada) or 706-645-9291 (from other international locations); pass code: 68166163.

About Conexant

Conexant’s comprehensive portfolio of innovative semiconductor solutions includes products for imaging, video, audio, and Internet connectivity applications. Conexant is a fabless semiconductor company that recorded revenues of more than $500 million in fiscal year 2008. The company is headquartered in Newport Beach, Calif. To learn more, please visit www.conexant.com

Safe Harbor Statement

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: This release includes forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally can be identified by phrases such as Conexant or its management “believes,” “expects,” “anticipates,” “foresees,” “forecasts,” “estimates” or other words or phrases of similar import. Similarly, statements in this release that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. All such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

These risks and uncertainties include, but are not limited to: pricing pressures and other competitive factors; our ability to timely develop and implement new technologies and to obtain protection for the related intellectual property; the cyclical nature of the semiconductor industry and the markets addressed by our products and our customers’ products; volatility in the technology sector and the semiconductor industry; our successful development of new products; the timing of our new product introductions and our product quality; demand for and market acceptance of our new and existing products; our ability to anticipate trends and develop products for which there will be market demand; the availability of manufacturing capacity; changes in our product mix; product obsolescence; the ability of our customers to manage inventory; the risk that capital needed for our business and to repay our indebtedness will not be available when needed; the risk that the value of our common stock may be adversely affected by market volatility; the substantial losses we have incurred; the uncertainties of litigation, including claims of infringement of third-party intellectual property rights or demands that we license third-party technology, and the demands it may place on the time and attention of our management and the expense it may place on our company; general economic and political conditions and conditions in the markets we address; and possible disruptions in commerce related to terrorist activity or armed conflict, as well as other risks and uncertainties, including those detailed from time to time in our Securities and Exchange Commission filings.

The forward-looking statements are made only as of the date hereof. We undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

Conexant is a registered trademark of Conexant Systems, Inc. Other brands and names contained in this release are the property of their respective owners.

Note 1 – Asset impairments for the twelve months ended October 3, 2008 and three months ended June 27, 2008 includes non-cash impairment charges related to our Broadband Access (BBA) product lines related to goodwill of $108.6 million, intangible assets of $1.9 million, property, plant and equipment of $6.5 million and technical license tool impairments of $3.4 million. Asset impairments for the three and twelve months ended September 28, 2007 also includes non-cash impairment charges related to our Embedded Wireless Networking (EWN) business related to goodwill and intangible assets of $135.0 million and $20.0 million, respectively.

Note 2 – (Loss) gain of equity method investments for the twelve months ended September 28, 2007 includes a gain on the sale of our investment in Jazz Semiconductor, Inc. of $43.5 million.

Note 3 – On April 29, 2008, the Company announced it had signed a definitive agreement to sell its Broadband Media Processing (BMP) product lines to NXP Semiconductors. As a result of this transaction, which closed in August 2008, the results of the BMP business have been reported as discontinued operations and its assets and liabilities as of September 28, 2007 have been classified as held for sale. The results of discontinued operations include tax expense of ($0.4) million, $0.9 million, $0.6 million, $1.0 million and $1.2 million for the three months ended October 3, 2008 and June 27, 2008 and September 28, 2007, and the twelve months ended October 3, 2008 and September 28, 2007, respectively.

Note 4 – On June 27, 2008, the Company affected a one-for-ten reverse stock split of its common stock. All share and per share data in these condensed consolidated financial statements have been adjusted to give effect to the reverse split.

See “GAAP to Non-GAAP Core Adjustments” below

GAAP to Non-GAAP Core Adjustments:

(a) Stock-based compensation expense is based on the fair value of all stock options and employee stock purchase plan shares in accordance with SFAS No. 123(R).

(b) Transitional salaries and benefits represent amounts earned by employees who have been notified of their termination as part of our restructuring activities, from the date of their notification.

(c) Amortization of intangible assets resulting from business combinations.

(d) Asset impairments for the three and twelve months ended October 3, 2008 includes non-cash impairment charges related to our Broadband Access (BBA) product lines related to goodwill of $108.6 million, intangible assets of $1.9 million, property, plant and equipment of $6.5 million and technical license tool impairments of $3.4 million. Asset impairments for the twelve months ended September 28, 2007 also includes non-cash impairment charges related to our Embedded Wireless Networking business of $135.0 million and $20.0 million.

(e) Special charges for the three and twelve months ended October 3, 2008, primarily consists of restructuring charges. In addition, a $6.3 million expense incurred on the termination of a defined benefit plan was recorded during the twelve months ended October 3, 2008. Special charges for the three and twelve months ended September 28, 2007 also consist of restructuring charges as well as legal settlements totaling $20.0 million.

(f) Other gains and losses which are not part of our core, on-going operations. For the three and twelve months ended October 3, 2008, includes the impact of environmental remediation charges and a charge from inventory acquired through the purchase of the “SigmaTel” multifunction printer imaging product lines in the fourth quarter of fiscal 2008.

(g) Unrealized gains and losses associated with changes in the fair value of our warrant to purchase 6 million shares of Mindspeed Technologies, Inc. common stock, which is accounted for as a derivative instrument.

(h) Gains on sales of equity securities or on the liquidation of companies in which we held equity securities.

(i) Gain (loss) of equity method investments for the twelve months ended September 28, 2007 includes a gain on the sale of our investment in Jazz Semiconductor, Inc. of $43.5 million.

(j) Represents other income and expenses which are not part of our core, on-going operations. For the three and twelve months ended September 28, 2007, this amount includes investment credits for asset disposals.

(k) Our first quarter fiscal 2008 financial results included $14.7 million of non-recurring revenue that resulted from the buyout of a future royalty stream.

(l) On June 27, 2008, we affected a one-for-ten reverse stock split of our common stock. All share and per share data in these financial statements have been adjusted to give effect to the reverse split.

(m) Other gains and losses which are not part of our on-going operations. For the three and twelve months ended October 3, 2008, the adjustment relates to a purchase accounting expense of in-process research and development acquired through the purchase of the “SigmaTel” multifunction printer imaging product lines.

(n) Other interest expense which is not part of our on-going operations. For the twelve months ended October 3, 2008, the adjustment relates to the accelerated amortization of debt issuance costs related to the repurchase of $53.6 million of floating rate senior notes.

(o) Other gains and losses which are not part of our on-going operations. For the twelve months ended October 3, 2008, the adjustments relate to the gain on the sale of a building in Noida, India and the provision for income taxes incurred on the gain.

(p) Other gains and losses which are not part of our on-going operations. For the three and twelve months ended October 3, 2008, the adjustment relates to the loss incurred on a non-cancelable lease obligation.

Non-GAAP Financial Measures:

We have presented non-GAAP cost of goods sold, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP other income, non-GAAP provision for income taxes, non-GAAP net income (loss) and non-GAAP basic and diluted net income (loss) per share, on a basis consistent with our historical presentation to assist investors in understanding our core results of operations on an on-going basis. These non-GAAP financial measures also enhance comparisons of our core results of operations with historical periods. We are providing these non-GAAP financial measures to investors to enable them to perform additional financial analysis and because it is consistent with the financial models and estimates published by analysts who follow our company. Management believes that these are important measures in the evaluation of our results of operations. Investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. The non-GAAP financial measures presented by us may be different than non-GAAP financial measures presented by other companies.

GAAP Guidance:

We do not present GAAP guidance due to our inability to project (i) future market prices of the common stock of a third party underlying a derivative financial instrument, (ii) realized gains or losses from the sale of equity securities in third parties, and (iii) the financial results of investments accounted for using the equity method of accounting.

Contact:

Editorial Contact
Conexant Systems, Inc.
Gwen Carlson, 949-483-7363
or
Investor Relations Contact:
Shelton Group
Ryan Bright, 972-239-5119, ext. 159