Conexant Resumes Spin-Off PlansConexant Resumes Spin-Off Plans

Communications chipmaker Conexant Systems Inc. says it will proceed with plans to spin off its high-speed Internet infrastructure unit, Mindspeed Technologies, into a publicly traded company sometime next year when business and market conditions pick up. Conexant also has elected AT&T chief technology officer Hossein Eslambolchi to a newly established seat on its board of directors to advise the company on the planned spin-off.

Eslambolchi, who's also president of AT&T Laboratories, will help Mindspeed transition into a publicly traded company and will join Mindspeed's board of directors once the company goes public. Instead of going the initial-public-offering route, Mindspeed will undertake a so-called "one-step separation process" in which Conexant shareholders will receive a share of Mindspeed for every Conexant share they own. "We are looking forward to having our own stock to help us do deals in the future," Mindspeed CEO Raouf Halim says. He says he doesn't anticipate needing to pursue venture-capital backing.

While Mindspeed's and Conexant's core personal networking businesses have been operating separately, Conexant has wanted to spin off Mindspeed since last year. Those plans were postponed when economic conditions slumped in the networking and telecommunications equipment industries late last year. But Halim says there are signs that the slump is near an end. "We are close to the bottom of the down cycle for the networking market," he says. He expects that 2002 will bring a gradual recovery in spending among Mindspeed customers, which include Cisco Systems, Lucent Technologies, and Nortel Networks. "As the recovery takes hold next year, we believe the timing will get right for us to begin the process of separating into a public company," Halim says.

Will Strauss, an analyst with consulting firm Forward Concepts, says it's no surprise that Conexant is continuing to pursue its spin-off plans for Mindspeed. Because its customers haven't been spending as much, "Mindspeed has been a real drag on Conexant for the last year," Strauss says. "Things are looking up next year for the market Mindspeed serves, but the general consensus is that it will be a very slow recovery." But Strauss says that adding Eslambolchi to its board makes sense because he's likely to understand the needs of Mindspeed's telecom customers.