Conexant Victimized by Wi-Fi Price War

Conexant's ( CNXT)third-quarter revenue will fall about $40 millionshort of estimates because of a price war breaking outamong Wi-Fi chip suppliers.

Red Bank, N.J.-based Conexant expects to earn anadjusted 2 cents a share on revenue of $265 million to$270 million in the three months to July 2. Analystssurveyed by Thomson First Call were forecastingearnings of 5 cents a share on revenue of $313million. The stock, which fetched as much as $6.50 asrecently as April, was getting crushed Tuesday, recently down $1.76, or 43%, to $2.32.

Pint-sized peer Atheros ( ATHR) was also hit especially hard by thenews, dropping 95 cents or 8.8% to $9.86.

But the big, diversified Wi-Fi players withstoodthe warning better: Broadcom ( BRCM) was off $2.16 or 5% to$40.99 and Texas Instruments ( TXN) was down 62 cents or 2.7%to $22.40.

Conexant cited poor results in its wirelessnetworking division for the shortfall, saying aninflux of cheap chipsets from Taiwanese exportersallowed resellers of competing products to lowerprices dramatically. The Asian onslaught was profoundenough essentially to wipe out the price differencebetween the old 11-megabit-per-second 802.11b Wi-Fistandard and the new 54-megabit-per-second 802.11gstandard, according to Conexant.

The news underscores how Taiwanese players likeRealtek and Mediatek have caught up to U.S. playersand are able to deliver the more advanced 802.11gtechnology, puttingheavy price pressure on the chipsets, said Legg Mason's Cody Acree. Taiwanese rivalsalso have an edge because many modems are actuallybuilt on their home turf. "Maybe there are somehistoric relationships and incentives to use localsourcing as well," said Acree.

"Wireless LAN as a standalone business willcontinue to be challenging, but we plan on protectingand expanding our position as we see an outstandinggrowth opportunity moving forward with wirelessconnectivity becoming ubiquitous in various devicesand appliances," Conexant said in a statement. "We remain committedto participating and continuing to lead in thisimportant market segment."

Conexant, which boasts top-tier customers like Dell ( DELL) and IBM ( IBM), sells chips that go into digitaltelevisions, set top boxes and PCs, along withsilicon for WLAN and DSL. In the most recent quarterended in March, WLAN accounted for only 20% of sales,with broadband chips accounting for the biggest chunkof revenue, at 35%.

Conexant still relies more heavily on Wi-Fi thanits giant rivals, however. For example, Broadcom drawsonly about 20% of its business from wireless chips,and of that sum, probably less than 20% is fromwireless LAN silicon, estimated Acree. TexasInstruments likewise draws only a small portion ofrevenue from WLAN.

The difficulty for WLAN vendors, Acree pointed out, is that the industry shifted relatively rapidlyfrom the flavor known as 802.11b to 802.11g, but nowmust wait several more years before the next wirelessLAN technology becomes available. Known as WiMax, itwill be able to transmit data over distances measuredin miles rather than feet.

More from Technology

Elon Musk's Latest Twitter Tirade Is the Dumbest Thing on Wall Street

Elon Musk's Latest Twitter Tirade Is the Dumbest Thing on Wall Street

Flashback Friday: Amazon, Chip Stocks, Memorial Day

Flashback Friday: Amazon, Chip Stocks, Memorial Day

Some Companies Are Already Feeling the Effect of GDPR

Some Companies Are Already Feeling the Effect of GDPR

Experts Break Down GDPR Risks for Investors

Experts Break Down GDPR Risks for Investors

Netflix Ready to Surpass Disney as America's Most Valuable Media Company

Netflix Ready to Surpass Disney as America's Most Valuable Media Company