The main focus at Conexant Systems, Inc. (CNXT) currently is restructuring, which involves reducing its footprint and ensure profitability (late-FY2008) followed by expanding its market share in existing core markets. The company recently announced the results and pro-ration of its cash tender offer to purchase up to $53.6 million aggregate principal amount of its floating rate senior secured notes due 2010.
Going forward, Q2 revenues are expected to come between $165 million and $170 million, while pro-forma net loss per share is projected in the range of $0.02 to $0.03. The clear positive highlight in Conexant's Q1 report was cost reduction. While we had already modeled substantial savings in the quarter ahead of the earnings release, the company performed even better, surpassing management's own expectations as well.
Gross margin for the quarter was 50.5% due to the royalty payment benefit, but would have been up sequentially at 46.5% even excluding the payment. This was better than expected due to cost savings. Similarly, operating expenses (SG&A) came in at $83.5 million - nearly $5 million less than expected. The main sources of these savings were two - the layoffs announced last September on the one hand, and the folding up of the ailing WLAN IC-s business into the BMP segment where WLAN capability is being actively integrated into new DSL products.
As a result, we continue to rate the stock a Hold and maintain our target price of $1.50, which is roughly 1x time 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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