MONTEREY, Calif. -- In the tale of communications chip companies, it's clear these are the worst of times. At least that's what Raouf Halim, chief executive officer of
, told investors Wednesday at the
Salomon Smith Barney
semiconductor conference here.
The fall-out from the decline in telecommunications capital equipment spending continued Tuesday with
weak quarterly results, further pressuring the companies that make chips for these large networkers. Conexant was no exception, falling $1.22, or 11%, to $9.98 in recent trading Wednesday while other communications chip companies like
gave up 6.5% and 8.3%, respectively.
And when it comes to answers, Conexant doesn't have many. Halim expects Mindspeed's revenue to fall 35% to 45% in the second quarter from the first quarter, with most of the decline coming from the network access part of the business. Mindspeed, whose largest customers include companies like Cisco,
, made up about one-third of Conexant's revenue in the most recent quarter.
And it's not clear when this trend will end.
"How long will the worst of times last? That's a very good question," Halim said. "The inventory part of the worst of times should be behind us in anywhere from three months to eight months, if you want to take five to six months as the mean, that might be a good guess. ... The other part of it is underlying demand, which is very hard to project, and when capex is going to reaccelerate."
Conexant is struggling in part because of the excess inventory that has built up in the hands of Cisco and others. Cisco wrote down inventory by $2.2 billion in the most recent quarter. Mindspeed also was forced to take a write-down.
Conexant Chief Financial Officer Balakrishnan Iyer said the company had to write down $1.3 million worth of inventory for parts that it estimates it will have on hand for more than six months given current levels of demand. But as with Cisco, investors are wondering if that inventory will actually be used. Iyer says although his product managers might like to hope so, that probably won't be the case. "They always hope it will get used, and it rarely gets used," Iyer said.
Conexant may not be able to see specifically how things go from the worst of times to the best of times given the near-term outlook for communications, but Halim reminded investors that the networking business has continued to grow and still offers the 50% year over year growth in more normal market situations. But clearly, from what customers like Cisco, and suppliers like Conexant are seeing, these aren't normal times.