An update has come out on Conexant Systems, Inc. (CNXT), in which senior semiconductor analyst Abdul Saleh is stating his Hold rating on the company. We excerpted the following details:
'CNXT reported revenues of $183.9 million in Q4 of fiscal 2007, down 25.2% year-over-year but up 2.4% sequentially. A non-recurring royalty of approximately $4 million led to the sequential improvement in revenues. Pro-forma gross margin was 44.7%, up 120bp sequentially, above the high-end of the 43%-44% guidance. Pro-forma operating margin was (4.3%), up 180bp from (6.1%) in the previous quarter. GAAP EPS came in at ($0.48) while pro-forma EPS was ($0.04), in-line with our estimate.
'Conexant's imaging and PC media segments were the strongest for the company in the quarter, increasing at a double-digit per cent sequentially. The company streamlined its workforce on a worldwide basis by approximately 20% and expects to reduce operating expenses by approximately $10 million per quarter in the coming quarters. Going forward, Conexant expects to return to profitability by Q1:FY08.
'Revenues are expected to be between $194 million and $196 million. Revenue in Q4:FY07 declined 25.2% year-over-year but increased 2.4% sequentially and management expects profitability by Q1:FY08. EPS is anticipated to be in the range of $0.00 to $0.01. We continue to rate the stock a Hold and maintain our six-month target price of $1.50. The main catalyst going forward is a potential major restructuring, with the goal of achieving 10% operating margins.
'The major risk to the company's growth is the fact that the company's mature dial-up modem products, which represents roughly 35% of its revenues, could begin to decline as transition to Ethernet-port only connections for PCs take place. Conexant's other businesses may not grow rapidly enough to offset such potential declines in the modem business. As a result, we are maintaining our target price at $1.50, which is roughly 1.0x times our FY2008 revenue estimate. This valuation implies a discount to the median and mean P/S multiple of its peers and adequately reflects current liquidity and industry risks.'
Read the full analyst report on CNXT.
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