And of course, in 2000,
the dot-com bubble burst, a blow to the networking equipment vendors--such as Nortel and Lucent--to whom Conexant was planning to sell its
What followed then was a decline of Conexant’s revenues
from $2.1 billion in 2000 to $521 million in 2002. While the usual
management response to such a decline is to cut workforce to the bones,
Conexant chose instead a business creation strategy. The company spun
off business lines while retaining partial interests in the divested
companies. Three new independent companies Conexant created were Jazz,
Skyworks and Mindspeed.
The strategy worked. It gave an
opportunity to all three companies--Jazz, Skyworks and Mindspeed--to
focus on their particular market segments, while Conexant was able to
focus on the “digital home” market. The company's revenues increased each
year from 2002 through 2004, but reversed again following fiscal 2006.
company attributed its reduced revenue to an overall drop in average
selling price for products and a drop in demand for Conexant products.
Looking back, Chittipeddi, who didn’t join Conexant until June 2006,
observed that Conexant’s competitors had better architecture and better
products than chips then designed by Conexant.
When the revenue
slid from 2006 to 2011, Conexant’s mounting challenge became the
maturing of its debt. In order to address its debt load, the company
sold off assets, including technology and business lines it had
developed and acquired--such as Conexant’s remainder of its interest
in Jazz and its broadband business.
Then, in April, 2011, Conexant was acquired by investment firms Golden Gate Capital and August Holdings Inc.
after being taken private, continued to see revenues slide, despite its
efforts to eliminate operation costs and streamline businesses.
the overall weakness of the semiconductor market, the company’s
relentless debt dogged Conexant. It needed to break free from the burden--originally born out of the company’s acquisition spree and later
divestitures--once and for all.
Besides losing key customers
like Kodak, Conexant was burdened by “oversized and untenable” real
estate costs, according to the company. Chittipeddi noted that Conexant
is saddled with dead leases--facilities the company no longer uses and
the company has been unable to rent. Of lots totaling 300,000 square
feet, “we only use 25,000 square feet,” he said.
When asked how
the company’s customers are responding to the company’s restructuring
announcement, Chittipeddi said, “Their reactions have been relatively
Further, a $50 million investment by the lender, will
give Conexant “breathing room” to build a sound strategy and strong
balance sheets at a reasonable pace, said the CEO. The company expects to receive court approval for its restructuring plan in less than 85 days.