Third 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 certain non-cash and other non-core items as fully described in the GAAP to non-GAAP reconciliation in the accompanying financial data.

On April 22, 2009 Conexant announced the planned sale of its Broadband Access product lines to Ikanos Communications, Inc. (NASDAQ: IKAN) for $54 million. The company expects to close the transaction in the current quarter, and the financial results of the Broadband Access business unit have been classified as discontinued operations in Conexant's third fiscal quarter financial statements. Because the company's guidance for the third fiscal quarter included expected financial results for Broadband Access, third fiscal quarter non-GAAP financial measures including and excluding the Broadband Access business have been provided in the accompanying financial tables.

Including results from discontinued operations related to the Broadband Access business, Conexant's revenues for the third quarter of fiscal 2009 were $84.6 million, slightly above the top end of the guidance range provided in April. Core gross margins of 54.5 percent of revenues were 150 basis points better than the high end of the guidance range, and core operating expenses of $38.8 million were below the range anticipated. Core operating income was $7.3 million, compared to the expectation of core operating income in a range between $3 million and $5 million. Core net income was $1.9 million, or $0.04 per share, compared to the core net loss of $0.03 to $0.06 per share the company anticipated.

Excluding results from discontinued operations related to the Broadband Access business, Conexant's core net revenues for the third quarter of fiscal 2009 were $50.8 million. Core gross margins were 59.8 percent of revenues. Core operating expenses were $26.8 million, and core operating income was $3.6 million. Core net loss was $1 million, or $0.02 per diluted share.

On a GAAP basis, net revenues for the third quarter of fiscal 2009 were $50.8 million. GAAP gross margins were 59.6 percent of revenues. GAAP operating expenses were $29.0 million. GAAP operating income was $1.3 million, and GAAP loss from continuing operations was $0.8 million, or $0.02 per share. GAAP net income, including discontinued operations, was $2.7 million, or $0.05 per diluted share.

The company ended the quarter with $123.4 million in cash and cash equivalents, a sequential increase of $13.1 million due to improvements in working-capital management, the receipt of an escrow payment, the release of restricted cash, and the sale of equity investments.

Financial-performance and Business Perspective

"For the third fiscal quarter, the combined Conexant team delivered performance that exceeded our expectations on all financial metrics, including revenues, core gross margin, and core operating expenses," said Scott Mercer, Conexant's chairman and chief executive officer. "For the company that will continue after we complete the sale of our Broadband Access business, third fiscal quarter revenues of $50.8 million increased 16 percent from second quarter revenues of $43.9 million. Third quarter core gross margin of 59.8 percent was 260 basis points higher than core gross margin of 57.2 percent in the previous quarter due primarily to product mix, and core operating expenses of $26.8 million compared to $28.4 million in the previous quarter. Core operating income was $3.6 million, and the core net loss from continuing operations was $1 million, or $0.02 per share.

"With our Broadband Access business categorized as discontinued operations, our core operating expenses are higher than they will be for our continuing company, particularly in our shared-services groups," Mercer said. "We plan to initiate actions this quarter to reduce core operating expenses by several million dollars per quarter for our continuing company, and we expect to realize the full benefit of these actions exiting this calendar year.

"Once the Broadband Access transaction closes, the continuing Conexant will be exclusively focused on providing solutions for imaging, audio, video, and various embedded-modem-based applications, and we have established leadership positions in each of these segments," Mercer said. "I'd like to note that our imaging and audio product lines, where we have focused our product-development and acquisitions efforts, delivered third quarter sequential growth of 30 percent and accounted for more than 50 percent of total revenues for the continuing Conexant. On a year-over-year basis, growth for these two key businesses was 12 percent."

Fourth Fiscal Quarter Business Outlook

Excluding results from discontinued operations related to the company's Broadband Access business, Conexant expects revenues for the fourth quarter of fiscal 2009 to be approximately $54 million. The company anticipates that its imaging and audio product lines will grow about 20 percent sequentially and account for more than 60 percent of total revenues in the fourth quarter. Core gross margins for the fourth quarter are expected to be about 60 percent of revenues. The company expects core operating expenses to be approximately $27 million, assuming the Broadband Access transaction closes on schedule. As a result, the company anticipates that fourth fiscal quarter core operating income will be approximately $6 million, with core net income of $0.01 to $0.02 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 and Sailesh Chittipeddi, co-presidents, and Jean Hu, senior vice president and chief financial officer, will discuss third quarter fiscal 2009 financial results and the company's outlook. To listen to the conference call via telephone, dial 866-650-4882 (in the U.S. and Canada) or 706-679-7338 (from other international locations); participant pass code: Conexant; Conference ID number: 20900613.

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); Conference ID number: 20900613.

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 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 are also 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: our ability to sell the securities registered in our shelf registration statement on terms and conditions satisfactory to us; the possible adverse impact on the market price of our shares of common stock due to the actual or potential dilutive effect of the securities registered in the shelf registration statement; the ability of Ikanos Communications, Inc. to receive any necessary shareholder approval in connection with its acquisition of our Broadband Access product lines; our ability to successfully execute asset acquisitions, dispositions, mergers, and restructurings; our ability to identify and execute acquisitions, divestitures, mergers or restructurings, as deemed appropriate by management; the availability of manufacturing capacity; changes in our product mix; 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, which is subject to significant downturns that may negatively impact our business, financial condition, cash flow, and results of operations; the cyclical nature of the markets addressed by our products and our customers' products; volatility in the technology sector and the semiconductor industry; the risk that capital needed for our business and to repay our indebtedness will not be available when needed; 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; product obsolescence; the ability of our customers to manage inventory; the financial risks of default by tenants and subtenants in the space we own or lease; the risk that the value of our common stock may be adversely affected by market volatility or failure to meet all applicable listing requirements of the NASDAQ Global Market; 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.

 Exception caught in main. 

  (1) GAAP to Non-GAAP Core adjustments to operating expense are as follows:                 GAAP operating expenses                        $  29,013                                   Stock-based compensation (a)                      (440    )                                Amortization of intangible assets (b)             (690    )                                Special charges (d)                               (1,076  )                                Non-GAAP Core operating expenses               $  26,807                                                                                                                              (2) GAAP to Non-GAAP Core adjustments to loss from continuing operations are as follows:   GAAP loss from continuing operations           $  (831    )                                Gross margin adjustments (a,e)                    77                                       Operating expense adjustments (a-d)               2,206                                    Losses on equity method investments (i)           485                                      Other income adjustments (f-h)                    (2,968  )                                Non-GAAP Core loss from continuing operations  $  (1,031  )                                                                                                                            -------------------------------------------------------------------------------  

See "GAAP to Non-GAAP Core Adjustments" below

 Exception caught in main. 

Note 1 - Net revenues for the nine fiscal months ended June 27, 2008 includes $14.7 million for the buyout of a future royalty stream.

Note 2 - Special charges consist primarily of restructuring charges. Special charges in the nine fiscal months ended July 3, 2009 also include a $3.7 million charge related to a legal settlement. Special charges in the fiscal quarter and nine fiscal months ended June 27, 2008 include a $6.3 million charge related to the termination of our voluntary early retirement plan.

                                                                                                                                                             CONEXANT SYSTEMS, INC.