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Conexant tops heightened 3Q expectations

Conexant Systems, Inc. (Nasdaq: CNXT), a leading supplier of semiconductor products for communications electronics, soared Thursday after earnings surpassed even its own expectations.

Shares soared 12 percent, up 6 5/8 to 64 5/8 following the release of earnings that creamed estimates by 5 cents a share, and analysts' announcements they were upping the bar for the company again. Conexant had already boasted it would rise above estimates for the third quarter.

Conexant net income for the quarter, announced Wednesday night, increased 220 percent to $24.4 million, or 24 cents a share, well above First Call's estimate of 19 cents a share. They were also an improvement compared with net income of $7.6 million, or 8 cents a share in the prior quarter, and the loss of $33.4 million, or 34 cents a share, in the third quarter of 1998.

Revenue of $380.3 million for the third fiscal quarter ended June 30, 1999, up up 37 percent over the $277.8 million in the third quarter of 1998, and 20 percent over the $316.9 million in revenues for the second quarter of 1999.

BancBoston Robertson Stephens reiterated a "buy" rating on Conexant.

"Going forward, we expect the company to grow revenues in excess of 12 percent sequentially for the September quarter, even as gross margins continue to expand into the 44 to 45 percent range,'' said BancBoston Robertson Stephens analyst Arun Veerappan. "In addition, the company's strength continues to come from the network access and wireless areas.''

Credit Suisse First Boston analyst Charlie Glavin also said Thursday he raised his price target and earnings outlook for Conexant Systems. In a report he raised the price target to $80 and raised the fiscal year 1999 earnings estimate to 55 cents a share. The earnings forecast for fiscal year 2000 was raised to $1.20 a share.

Ashok Kumar, an analyst with U.S. Bancorp Piper Jaffray also raised estimates for the company. Estimates for earnings in fiscal 1999 were raised from 42 to 57 cents a share, and year 2000 profit is now expected at $1.24 a share. The price target for the stock was upped to $75

Conexant said Network Access revenues were up 76 percent sequentially to $82.6 million, solutions, and wireless Communications revenues were up 23 percent sequentially to $70.0 million. The company is organized into five business units: the PC division, and Personal Imaging, Network Access, Digital Infotainment, and Wireless Communications, the latter four collectively known as the "expansion business platform." It was better-than-expected results from the wireless and network access divisions that led to the unexpected increase this quarter.

"We are especially gratified by the performance of our four expansion businesses: the Network Access, Digital Infotainment, Personal Imaging and Wireless Communications divisions, which in total grew 35 percent sequentially and 67 percent year-over-year. In addition, for the third quarter in a row, our Personal Computing Division delivered solid results and outperformed the market for analog modems," said chairman and chief executive officer Dwight W. Decker in a company release.