Conexant Systems, Inc
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Conexant Systems, Inc. Notice of Annual Meeting, Proxy Statement and 2009 Annual Report on Form 10-K Corporate Overview Conexant develops innovative semiconductor solutions for imaging, audio, embedded-modem, and video applications, which are all areas where the company has established leadership positions. Conexant is a fabless company headquartered in Newport Beach, Calif., and has key design centers in the U.S., China, and India, and sales offi ces worldwide. CONEXANT SYSTEMS, INC. D. SCOTT MERCER CHAIRMAN AND CHIEF EXECUTIVE OFFICER To Our Shareholders: Conexant today is a company transformed. We are now a company to Wall Street in a series of investor meetings and smaller, leaner, and more profi table enterprise focused on successfully accessed the capital markets by executing a public delivering operational excellence and innovative semiconductor offering of new shares, raising a net amount of $21.2 million. solutions for imaging, audio, embedded-modem, and video surveillance applications. In each of these areas, we’re We are now focused on retiring, refi nancing, or restructuring committed to building on the leading positions we’ve established. our convertible notes, which are “puttable” in March 2011. In the past few months, we have been responding to requests by During fi scal 2009 we made outstanding progress across multiple note holders to exchange new shares of common stock for fronts. In the face of extraordinarily challenging economic convertible notes, which improves our balance sheet without conditions, we improved our fi nancial performance, strengthened negatively affecting our enterprise value. Satisfying our our capital structure, and introduced a full slate of compelling convertible debt remains one of our highest company priorities, new products. and it’s likely that the eventual resolution will be the result of a multi-pronged approach. We will keep you informed as we make With the sale of our Broadband Access business in the fourth progress in this area. fi scal quarter, we completed our restructuring strategy. Two years ago we halted investments in new products for wireless FISCAL 2009 PRODUCT AND BUSINESS HIGHLIGHTS networking. Last year, we sold our Broadband Media Processing business to NXP Semiconductor and acquired the “SigmaTel” During fi scal 2009, we focused on introducing new products multifunction printer business from Freescale Semiconductor. designed to expand our leadership positions in semiconductor By exiting wireless networking, divesting our set-top box solutions for imaging, audio, embedded-modem, and video and DSL businesses, and executing targeted acquisitions, we surveillance applications. We also applied our core competencies dramatically improved our fi nancial performance and increased in analog and mixed-signal design and fi rmware and software focus on our chosen markets. development to capitalize on growth opportunities in adjacent markets, primarily in imaging and audio, where we have Throughout fi scal 2009, we met or exceeded our quarterly concentrated the majority of our product-development efforts guidance on every major fi nancial metric, which is a testament to and investments. the strength and commitment of our team. We also dramatically improved our fi nancial model, as evidenced by our results for In imaging, we provide highly integrated multifunction printer the fourth fi scal quarter. Revenues were $56.2 million, core system-on-chip (SoC) solutions for inkjet, laser, and photo gross margin was 60.2 percent of revenues, and core operating printers, SoCs and component solutions for fax applications, and expenses were $25 million, resulting in core operating income of high-performance system solutions for “connected” digital photo $8.8 million, or 15.6 percent of revenues. frames and interactive display appliances. We expect core gross margin to continue to be approximately The multifunction printer market is currently comprised of 60 percent, and our cost structure is now aligned with current merchant and captive components. In the merchant space, and expected revenues, which means the majority of every dollar which accounts for approximately 25 percent of the market and of increased revenue we deliver moving forward will fall to the is open to independent silicon providers, we have been steadily bottom line. gaining market share. The captive segment, which accounts for approximately 75 percent of the market, is made up of large We also strengthened our capital structure during the year. Using printer manufacturers that have traditionally designed silicon proceeds from the Broadband Access divestiture and cash on the in-house. Increasingly, these companies are outsourcing designs, balance sheet, we retired $80 million of our senior secured notes a trend that provides merchant suppliers such as Conexant due in November 2010. After the close of the fi scal year, we with signifi cant opportunities moving forward. Our teams are retired the remaining portion of the senior secured notes. committed to capturing share in this emerging segment. At the end of the fourth fi scal quarter, we reintroduced our On the imaging product front, we introduced a new SoC 2009 ANNUAL REPORT controller with leading-edge print speeds and image quality for which represent our largest market opportunities in this segment. advanced color and monochrome laser and inkjet multifunction We also began developing embedded solutions targeted at printers. We also launched a cost-optimized version of this growth opportunities in home automation and security systems, solution for lower-end applications. Customers worldwide have and various industrial applications. We continue to be the chosen these solutions for next-generation platforms. In fax, world’s leading supplier of PC modems, which now account for we continued to win new platforms with our datapump and SoC less than 10 percent of total company revenues. solutions. In video, our solutions include advanced decoders and media As part of our strategy to expand into adjacent growth sectors, bridges for video surveillance products with digital video we applied our expertise in imaging technologies to enter the recording capabilities. During the fi scal year, we secured key market for connected frames and interactive display appliances. design wins with a major manufacturer in the U.S. for a new These products feature Internet connectivity and touch-screen global commercial security system, and platforms with the top functionality, and are used in a broad range of video, audio, three video surveillance system manufacturers in China. We telephony, and digital-signage applications. We delivered a highly also began pursuing opportunities for our video solutions integrated family of solutions for these applications and won in residential home alarm systems with video verifi cation key designs with worldwide consumer electronics manufacturers. capabilities. In addition, we continue to offer legacy video To further broaden our market opportunity in this area, we solutions for applications that include PCTV. partnered with various software providers to enable value- added features such as Web browsing and streaming data on the OUR PROSPECTS FOR FISCAL 2010 connected platform. In our business, customer design wins typically ramp to volume In audio, we are focused on delivering products for the growing production nine to 20 months after initial engagements, which number of applications that combine embedded audio and voice, means we have already won the majority of the designs that will areas where we have developed unique capabilities over the comprise our business for fi scal 2010. While we’ve seen some years. We offer a suite of high-defi nition (HD) products for the welcome signs of improvement in the worldwide economic PC market, HD audio codecs, and speakers-on-a-chip solutions outlook, conditions remain uncertain, and we’ll have to see how for a wide range of audio- and voice-enabled products that the year unfolds. In large measure, our performance in fi scal include personal computers, PC peripheral sound systems, audio 2010 will be determined by global consumer behavior and how subsystems, speakers, notebook docking stations, voice-over-IP well our customers’ products sell through in end markets. speakerphones, intercoms, and door phones. Our team remains committed to focusing on the things we can Shortly after the close of the fi scal year, we introduced a next- control. We plan to continue working to improve our fi nancial generation family of speakers-on-a-chip solutions that feature performance, strengthen our capital structure, and deliver several proprietary technical innovations that signifi cantly new products to market on schedule. With a proven team, an improve audio and voice quality. These highly integrated outstanding portfolio of intellectual property, and a customer list solutions allowed us to expand our reach into growing segments that includes worldwide leaders, I am confi dent we will build on including multimedia IP phone peripherals, personal navigation our record of success, and I’m enthusiastic about our prospects devices, portable media players, and mobile Internet devices. In for the current fi scal year. PC audio, our cost-effective solutions are now incorporated in notebook, desktop, and all-in-one computers from essentially all Thanks for your continuing interest and support. of the world’s major PC manufacturers. In embedded modems, we offer hardware and software solutions based on all major industry standards. During the fi scal year, we D.