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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

| |     |  |                                                 
| | --- |  | ------------------------------------------------
| | [X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
| |     |  | OF THE SECURITIES EXCHANGE ACT OF 1934          

For the quarterly period ended March 31, 2003*

OR

| |       |  |                                                  
| | ----- |  | -------------------------------------------------
| | [   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
| |       |  | OF THE SECURITIES EXCHANGE ACT OF 1934           

Commission file number: 000-24923

CONEXANT SYSTEMS, INC.

(Exact name of registrant as specified in its charter)


|                         |  |                                     
|------------------------ |  | ------------------------------------
|Delaware                 |  | 25-1799439                          
|(State of incorporation) |  | (I.R.S. Employer Identification No.)

4311 Jamboree Road
Newport Beach, California 92660-3095
(Address of principal executive offices) (Zip code)

(949) 483-4600
(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X]   No [   ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Exchange Act).
Yes [X]   No [   ]

Number of shares of registrants common stock outstanding as of April 25, 2003
was 267,814,118.



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|* |  | For presentation purposes of this Form 10-Q, references made to the March
31, 2003 period relate to the actual fiscal second quarter ended March 28,
2003.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



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CAUTIONARY STATEMENT

This Quarterly Report contains statements relating to future results of
Conexant Systems, Inc. (including certain projections and business trends) that
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and are subject to the safe harbor created by those
sections. Our actual results may differ materially from those projected as a
result of certain risks and uncertainties. These risks and uncertainties
include, but are not limited to: the cyclical nature of the semiconductor
industry and the markets addressed by our products and our customers products;
demand for and market acceptance of new and existing products; successful
development of new products; the timing of new product introductions; the
successful integration of acquisitions; the availability of manufacturing
capacity; pricing pressures and other competitive factors; changes in our
product mix; fluctuations in manufacturing yields; product obsolescence; our
ability to develop and implement new technologies and to obtain protection of
the related intellectual property; the successful implementation of our expense
reduction and restructuring initiatives; the successful separation of our
Broadband Communications and Mindspeed Technologies businesses; our ability to
attract and retain qualified personnel; and the uncertainties of litigation, as
well as other risks and uncertainties, including those set forth herein and
those detailed from time to time in our filings with the Securities and
Exchange Commission. These forward-looking statements are made only as of the
date hereof, and we undertake no obligation to update or revise the
forward-looking statements, whether as a result of new information, future
events or otherwise.

Mindspeed Technologies is a trademark of Conexant Systems, Inc. Other brands,
names and trademarks contained in this Quarterly Report are the property of
their respective owners.

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|                              |                                                                                               |                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                              |                                                                                               | Consolidated Condensed Balance Sheets               
|                              |                                                                                               | Consolidated Condensed Statements of Operations     
|                              |                                                                                               | Consolidated Condensed Statements of Cash Flows     
|                              |                                                                                               | Notes to Consolidated Condensed Financial Statements
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                              | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION   
|                              | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                              | ITEM 5. OTHER INFORMATION                                                                    
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                   
|CERTIFICATIONS               
|EXHIBIT INDEX                
|EXHIBIT 10.1                 
|EXHIBIT 99                   



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CONEXANT SYSTEMS, INC.

INDEX

|                              |                                                                                                             |  |      |    | 
|----------------------------- | ----------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                              |                                                                                                             |  | PAGE
|                              |                                                                                                             |  |     
|PART I. FINANCIAL INFORMATION |                                                                                                             |  |      |   
|Item 1.                       | Financial Statements (unaudited):                                                                           |  |      |    | 
|                              | Consolidated Condensed Balance Sheets  March 31, 2003 and September 30, 2002                               |  |      | 4  | 
|                              | Consolidated Condensed Statements of Operations  Three Months and Six
Months Ended March 31, 2003 and 2002 |  |      | 5  | 
|                              | Consolidated Condensed Statements of Cash Flows Six Months Ended March 31,
2003 and 2002                   |  |      | 6  | 
|                              | Notes to Consolidated Condensed Financial Statements                                                        |  |      | 7  | 
|Item 2.                       | Managements Discussion and Analysis of Financial Condition and Results of Operations                       |  |      | 19 | 
|Item 3.                       | Quantitative and Qualitative Disclosures About Market Risk                                                  |  |      | 40 | 
|Item 4.                       | Controls and Procedures                                                                                     |  |      | 41 | 
|PART II. OTHER INFORMATION    |                                                                                                             |  |      |   
|Item 4.                       | Submission of Matters to a Vote of Security Holders                                                         |  |      | 42 | 
|Item 5.                       | Other Information                                                                                           |  |      | 42 | 
|Item 6.                       | Exhibits and Reports on Form 8-K                                                                            |  |      | 42 | 
|                              | Signatures                                                                                                  |  |      | 44 | 
|                              | Certifications                                                                                              |  |      | 45 | 

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PART I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS




CONEXANT SYSTEMS, INC.
Consolidated Condensed Balance Sheets
(unaudited, in thousands, except per share amounts)

|                                     |                                                                                                                                                      |                                            |         |            |           |           |         |               |           |  |  | 
|------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ---------- | --------- | --------- | ------- | ------------- | --------- |  |  | 
|                                     |                                                                                                                                                      |                                            |         |            |           | March 31, |         | September 30,
|                                     |                                                                                                                                                      |                                            |         |            |           | 2003      |         | 2002         
|                                     |                                                                                                                                                      |                                            |         |            |           |           |         |              
|ASSETS                               |                                                                                                                                                      |                                            |         |            |           |           |         |              
|Current assets:                      |                                                                                                                                                      |                                            |         |            |           |           |         |              
|                                     | Cash and cash equivalents                                                                                                                            |                                            | $       | 159,153    |           |           | $       | 168,357       |          
|                                     | Short-term investments                                                                                                                               |                                            |         | 154,432    |           |           |         | 99,466        |          
|                                     | Notes receivable from Skyworks                                                                                                                       |                                            |         |           |           |           |         | 180,000       |          
|                                     | Receivables, net of allowance of $3,944 and $8,405 at
March 31, 2003 and September 30, 2002, respectively                                            |                                            |         | 73,402     |           |           |         | 73,552        |          
|                                     | Inventories                                                                                                                                          |                                            |         | 58,090     |           |           |         | 57,330        |          
|                                     | Deferred income taxes                                                                                                                                |                                            |         | 32,266     |           |           |         | 32,233        |          
|                                     | Other current assets                                                                                                                                 |                                            |         | 47,661     |           |           |         | 52,695        |          
|                                     |                                                                                                                                                      |                                            |         |            |           |           |         |              
|                                     |                                                                                                                                                      | Total current assets                       |         |            | 525,004   |           |         |               | 663,633   | 
|Property, plant and equipment, net   |                                                                                                                                                      |                                            | 75,181  |            |           |           | 93,994  |              
|Goodwill                             |                                                                                                                                                      |                                            | 47,059  |            |           |           | 615,326 |              
|Intangible assets, net               |                                                                                                                                                      |                                            | 105,875 |            |           |           | 157,876 |              
|Deferred income taxes                |                                                                                                                                                      |                                            | 224,555 |            |           |           | 224,168 |              
|Other assets                         |                                                                                                                                                      |                                            | 122,254 |            |           |           | 156,038 |              
|                                     |                                                                                                                                                      |                                            |         |            |           |           |         |               |          
|                                     |                                                                                                                                                      | Total assets                               |         | $          | 1,099,928 |           |         | $             | 1,911,035 | 
|                                     |                                                                                                                                                      |                                            |         |            |           |           |         |               |          
|LIABILITIES AND SHAREHOLDERS EQUITY |                                                                                                                                                      |                                            |         |            |           |           |         |              
|Current liabilities:                 |                                                                                                                                                      |                                            |         |            |           |           |         |              
|                                     | Accounts payable                                                                                                                                     |                                            | $       | 75,555     |           |           | $       | 101,342       |          
|                                     | Deferred revenue                                                                                                                                     |                                            |         | 6,792      |           |           |         | 10,420        |          
|                                     | Accrued compensation and benefits                                                                                                                    |                                            |         | 38,130     |           |           |         | 38,929        |          
|                                     | Other current liabilities                                                                                                                            |                                            |         | 62,842     |           |           |         | 71,738        |          
|                                     |                                                                                                                                                      |                                            |         |            |           |           |         |              
|                                     |                                                                                                                                                      | Total current liabilities                  |         |            | 183,319   |           |         |               | 222,429   | 
|Convertible subordinated notes       |                                                                                                                                                      |                                            | 601,658 |            |           |           | 681,825 |              
|Other liabilities                    |                                                                                                                                                      |                                            | 53,544  |            |           |           | 58,954  |              
|                                     |                                                                                                                                                      |                                            |         |            |           |           |         |              
|                                     |                                                                                                                                                      | Total liabilities                          |         |            | 838,521   |           |         |               | 963,208   | 
|                                     |                                                                                                                                                      |                                            |         |            |           |           |         |              
|Commitments and contingencies        |                                                                                                                                                      |                                            |        |            |           |           |        |              
|Shareholders equity:                |                                                                                                                                                      |                                            |         |            |           |           |         |              
|                                     | Preferred and junior preferred stock                                                                                                                 |                                            |         |           |           |           |         |              |          
|                                     | Common stock, $0.01 par value: 1,000,000 shares
authorized; 267,415 and 265,676 shares issued at
March 31, 2003 and September 30, 2002, respectively |                                            |         | 2,674      |           |           |         | 265,676       |          
|                                     | Additional paid-in capital                                                                                                                           |                                            |         | 3,484,998  |           |           |         | 3,219,044     |          
|                                     | Accumulated deficit                                                                                                                                  |                                            |         | (3,200,804 | )         |           |         | (2,507,407    | )        
|                                     | Accumulated other comprehensive loss                                                                                                                 |                                            |         | (25,156    | )         |           |         | (28,077       | )        
|                                     | Unearned compensation                                                                                                                                |                                            |         | (305       | )         |           |         | (1,409        | )        
|                                     |                                                                                                                                                      |                                            |         |            |           |           |         |              
|                                     |                                                                                                                                                      | Total shareholders equity                 |         |            | 261,407   |           |         |               | 947,827   | 
|                                     |                                                                                                                                                      |                                            |         |            |           |           |         |               |          
|                                     |                                                                                                                                                      | Total liabilities and shareholders equity |         | $          | 1,099,928 |           |         | $             | 1,911,035 | 
|                                     |                                                                                                                                                      |                                            |         |            |           |           |         |               |          

See accompanying notes to consolidated condensed financial statements.

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CONEXANT SYSTEMS, INC.
Consolidated Condensed Statements of Operations
(unaudited, in thousands, except per share amounts)

|                                                       |                                                        |                          |         |                    |         |                  |          |        |         |      |          |         |         |   |          |         |         | 
|------------------------------------------------------ | ------------------------------------------------------ | ------------------------ | ------- | ------------------ | ------- | ---------------- | -------- | ------ | ------- | ---- | -------- | ------- | ------- | - | -------- | ------- | ------- | 
|                                                       |                                                        |                          |         | Three months ended |         | Six months ended
|                                                       |                                                        |                          |         | March 31,          |         | March 31,       
|                                                       |                                                        |                          |         |                    |         |                 
|                                                       |                                                        |                          |         | 2003               |         | 2002             |          | 2003   |         | 2002
|                                                       |                                                        |                          |         |                    |         |                  |          |        |         |     
|Net revenues                                           |                                                        | $                        | 158,434 |                    |         | $                | 148,746  |        |         | $    | 322,890  |         |         | $ | 289,861  |        
|Cost of goods sold                                     |                                                        |                          | 83,766  |                    |         |                  | 90,219   |        |         |      | 171,365  |         |         |   | 183,493  |        
|                                                       |                                                        |                          |         |                    |         |                  |          |        |         |      |          |         |         |   |          |        
|Gross margin                                           |                                                        |                          | 74,668  |                    |         |                  | 58,527   |        |         |      | 151,525  |         |         |   | 106,368  |        
|Operating expenses:                                    |                                                        |                          |         |                    |         |                  |          |        |         |      |          |         |         |   |          |        
|                                                       | Research and development                               |                          |         | 64,931             |         |                  |          | 83,269 |         |      |          | 136,398 |         |   |          | 162,682 |        
|                                                       | Selling, general and administrative                    |                          |         | 37,103             |         |                  |          | 42,608 |         |      |          | 72,010  |         |   |          | 87,660  |        
|                                                       | Amortization of intangible assets                      |                          |         | 13,121             |         |                  |          | 85,940 |         |      |          | 28,120  |         |   |          | 171,462 |        
|                                                       | Special charges                                        |                          |         | 16,807             |         |                  |          | 21,319 |         |      |          | 27,412  |         |   |          | 22,319  |        
|                                                       |                                                        |                          |         |                    |         |                  |          |        |         |      |          |         |         |   |          |        
|                                                       |                                                        | Total operating expenses |         |                    | 131,962 |                  |          |        | 233,136 |      |          |         | 263,940 |   |          |         | 444,123 | 
|                                                       |                                                        |                          |         |                    |         |                  |          |        |         |      |          |         |         |   |          |        
|Operating loss                                         |                                                        |                          | (57,294 | )                  |         |                  | (174,609 | )      |         |      | (112,415 | )       |         |   | (337,755 | )      
|Gain on debt extinguishment                            |                                                        |                          | 34,645  |                    |         |                  |         |        |         |      | 34,645   |         |         |   |         |        
|Other expense, net                                     |                                                        |                          | (44,854 | )                  |         |                  | (6,809   | )      |         |      | (41,486  | )       |         |   | (15,978  | )      
|                                                       |                                                        |                          |         |                    |         |                  |          |        |         |      |          |         |         |   |          |        
|Loss before income taxes                               |                                                        |                          | (67,503 | )                  |         |                  | (181,418 | )      |         |      | (119,256 | )       |         |   | (353,733 | )      
|Provision (benefit) for income taxes                   |                                                        |                          | 521     |                    |         |                  | 403      |        |         |      | 957      |         |         |   | (2,146   | )      
|                                                       |                                                        |                          |         |                    |         |                  |          |        |         |      |          |         |         |   |          |        
|Loss from continuing operations                        |                                                        |                          | (68,024 | )                  |         |                  | (181,821 | )      |         |      | (120,213 | )       |         |   | (351,587 | )      
|Loss from discontinued operations,
net of income taxes |                                                        |                          |        |                    |         |                  | (18,881  | )      |         |      |         |         |         |   | (53,605  | )      
|                                                       |                                                        |                          |         |                    |         |                  |          |        |         |      |          |         |         |   |          |        
|Loss before cumulative effect
of accounting change     |                                                        |                          | (68,024 | )                  |         |                  | (200,702 | )      |         |      | (120,213 | )       |         |   | (405,192 | )      
|Cumulative effect of change in
accounting for goodwill |                                                        |                          |        |                    |         |                  |         |        |         |      | (573,184 | )       |         |   |         |        
|                                                       |                                                        |                          |         |                    |         |                  |          |        |         |      |          |         |         |   |          |        
|Net loss                                               |                                                        | $                        | (68,024 | )                  |         | $                | (200,702 | )      |         | $    | (693,397 | )       |         | $ | (405,192 | )      
|                                                       |                                                        |                          |         |                    |         |                  |          |        |         |      |          |         |         |   |          |        
|Loss per share, basic and diluted:                     |                                                        |                          |         |                    |         |                  |          |        |         |      |          |         |         |   |          |        
|                                                       | Continuing operations                                  |                          | $       | (0.26              | )       |                  | $        | (0.71  | )       |      | $        | (0.45   | )       |   | $        | (1.38   | )      
|                                                       | Discontinued operations                                |                          |         |                   |         |                  |          | (0.07  | )       |      |          |        |         |   |          | (0.21   | )      
|                                                       | Cumulative effect of change in
accounting for goodwill |                          |         |                   |         |                  |          |       |         |      |          | (2.16   | )       |   |          |        |        
|                                                       |                                                        |                          |         |                    |         |                  |          |        |         |      |          |         |         |   |          |        
|                                                       | Net loss                                               |                          | $       | (0.26              | )       |                  | $        | (0.78  | )       |      | $        | (2.61   | )       |   | $        | (1.59   | )      
|                                                       |                                                        |                          |         |                    |         |                  |          |        |         |      |          |         |         |   |          |        
|Number of shares used in per share
computation         |                                                        |                          | 266,543 |                    |         |                  | 256,135  |        |         |      | 266,129  |         |         |   | 255,249  |        
|                                                       |                                                        |                          |         |                    |         |                  |          |        |         |      |          |         |         |   |          |        

See accompanying notes to consolidated condensed financial statements.

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CONEXANT SYSTEMS, INC.
Consolidated Condensed Statements of Cash Flows
(unaudited, in thousands)

|                                                                                                                                                 |                                             |                                                |          |                  |         |      |          |         |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------- | ---------------------------------------------- | -------- | ---------------- | ------- | ---- | -------- | ------- | ------- | -
|                                                                                                                                                 |                                             |                                                |          | Six months ended
|                                                                                                                                                 |                                             |                                                |          | March 31,       
|                                                                                                                                                 |                                             |                                                |          |                 
|                                                                                                                                                 |                                             |                                                |          | 2003             |         | 2002
|                                                                                                                                                 |                                             |                                                |          |                  |         |     
|Cash flows from operating activities:                                                                                                            |                                             |                                                |          |                  |         |      |          |        
|Loss from continuing operations                                                                                                                  |                                             | $                                              | (120,213 | )                |         | $    | (351,587 | )      
|Adjustments to reconcile loss from continuing operations
to net cash used in operating activities, net of
effects of dispositions of businesses: |                                             |                                                |          |                  |         |      |          |        
|                                                                                                                                                 | Depreciation                                |                                                |          | 17,924           |         |      |          | 28,404  |        
|                                                                                                                                                 | Amortization of intangible assets           |                                                |          | 28,120           |         |      |          | 171,462 |        
|                                                                                                                                                 | Asset impairments                           |                                                |          | 23,146           |         |      |          | 17,586  |        
|                                                                                                                                                 | Write down of non-marketable investments    |                                                |          | 34,402           |         |      |          | 7,675   |        
|                                                                                                                                                 | Gain on extinguishment of debt              |                                                |          | (34,645          | )       |      |          |        |        
|                                                                                                                                                 | Provision for losses on accounts receivable |                                                |          | (3,685           | )       |      |          | 105     |        
|                                                                                                                                                 | Inventory provisions                        |                                                |          | 9,753            |         |      |          | 11,657  |        
|                                                                                                                                                 | Other non-cash items, net                   |                                                |          | (2,928           | )       |      |          | 2,768   |        
|                                                                                                                                                 | Changes in assets and liabilities:          |                                                |          |                  |         |      |          |         |        
|                                                                                                                                                 |                                             | Receivables                                    |          |                  | 3,829   |      |          |         | 20,363  |  
|                                                                                                                                                 |                                             | Inventories                                    |          |                  | (13,267 | )    |          |         | 2,965   |  
|                                                                                                                                                 |                                             | Accounts payable                               |          |                  | (25,737 | )    |          |         | 21,253  |  
|                                                                                                                                                 |                                             | Deferred revenue                               |          |                  | (3,261  | )    |          |         | (9,543  | )
|                                                                                                                                                 |                                             | Accrued expenses and other current liabilities |          |                  | (8,325  | )    |          |         | (15,479 | )
|                                                                                                                                                 |                                             | Other                                          |          |                  | 3,190   |      |          |         | (13,711 | )
|                                                                                                                                                 |                                             |                                                |          |                  |         |      |          |        
|Net cash used in operating activities                                                                                                            |                                             |                                                | (91,697  | )                |         |      | (106,082 | )      
|                                                                                                                                                 |                                             |                                                |          |                  |         |      |          |        
|Cash flows from investing activities:                                                                                                            |                                             |                                                |          |                  |         |      |          |        
|Advances to Skyworks                                                                                                                             |                                             |                                                | (35,000  | )                |         |      |         |        
|Repayment of Term Notes and advances by Skyworks                                                                                                 |                                             |                                                | 170,000  |                  |         |      |         |        
|Purchase of marketable securities                                                                                                                |                                             |                                                | (36,508  | )                |         |      | (191,292 | )      
|Sale of marketable securities                                                                                                                    |                                             |                                                | 28,270   |                  |         |      | 240,552  |        
|Capital expenditures                                                                                                                             |                                             |                                                | (10,730  | )                |         |      | (10,522  | )      
|Proceeds from sales of assets                                                                                                                    |                                             |                                                | 11,324   |                  |         |      | 41,696   |        
|Investments in and advances to businesses                                                                                                        |                                             |                                                | (1,500   | )                |         |      | (6,733   | )      
|                                                                                                                                                 |                                             |                                                |          |                  |         |      |          |        
|Net cash provided by investing activities                                                                                                        |                                             |                                                | 125,856  |                  |         |      | 73,701   |        
|                                                                                                                                                 |                                             |                                                |          |                  |         |      |          |        
|Cash flows from financing activities:                                                                                                            |                                             |                                                |          |                  |         |      |          |        
|Proceeds from exercise of stock options                                                                                                          |                                             |                                                | 1,176    |                  |         |      | 10,235   |        
|Repurchase of convertible subordinated notes                                                                                                     |                                             |                                                | (44,539  | )                |         |      |         |        
|                                                                                                                                                 |                                             |                                                |          |                  |         |      |          |        
|Net cash provided by (used in) financing activities                                                                                              |                                             |                                                | (43,363  | )                |         |      | 10,235   |        
|                                                                                                                                                 |                                             |                                                |          |                  |         |      |          |        
|Net cash used in discontinued operations                                                                                                         |                                             |                                                |         |                  |         |      | (8,324   | )      
|                                                                                                                                                 |                                             |                                                |          |                  |         |      |          |        
|Net decrease in cash and cash equivalents                                                                                                        |                                             |                                                | (9,204   | )                |         |      | (30,470  | )      
|Cash and cash equivalents at beginning of period                                                                                                 |                                             |                                                | 168,357  |                  |         |      | 182,260  |        
|                                                                                                                                                 |                                             |                                                |          |                  |         |      |          |        
|Cash and cash equivalents at end of period                                                                                                       |                                             | $                                              | 159,153  |                  |         | $    | 151,790  |        
|                                                                                                                                                 |                                             |                                                |          |                  |         |      |          |        

See accompanying notes to consolidated condensed financial statements.

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CONEXANT SYSTEMS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)

1.     Basis of Presentation and Significant Accounting Policies

Conexant Systems, Inc. (Conexant or the Company) designs, develops and sells
semiconductor system solutions for communications applications. The Companys
expertise in mixed-signal processing allows it to deliver integrated systems
and semiconductor products which facilitate communications worldwide through
wireline voice and data communications networks and emerging cable, satellite
and fixed wireless broadband communications networks. The Company operates in
two business segments: the Broadband Communications business and Mindspeed
Technologies, the Companys Internet infrastructure business.

On March 24, 2003, the Company announced its plan to proceed with the
separation of the Mindspeed Technologies business from the Broadband
Communications business by means of a distribution to Conexant shareholders of
all outstanding shares of common stock of Mindspeed Technologies, Inc.
(Mindspeed), a wholly owned subsidiary of Conexant that will become an
independent, publicly traded company. Prior to the distribution, Conexant will
transfer to Mindspeed assets and liabilities of the Mindspeed business,
including the stock of certain subsidiaries, and certain other assets and
liabilities which will be allocated to Mindspeed under the distribution
agreement to be entered into between Conexant and Mindspeed. Also prior to the
distribution, Conexant will contribute to Mindspeed cash in an amount such that
at the time of the distribution Mindspeeds cash balance will be $100 million
and Mindspeed will enter into a senior secured revolving credit facility with
Conexant, pursuant to which Mindspeed may borrow up to $50 million for working
capital and general corporate purposes. At the time of the distribution,
Mindspeed will issue to Conexant warrants to purchase shares of Mindspeed
common stock representing approximately 20 percent of Mindspeeds outstanding
common stock on a fully diluted basis. The warrants will be exercisable for a
period of ten years after the distribution at a price per share equal to the
fair market value of Mindspeeds common stock at the time of the distribution.
Upon completion of the distribution, the Company will account for the Mindspeed
Technologies business as a discontinued operation in its consolidated financial
statements. The Company expects that the distribution will qualify as a
tax-free reorganization within the meaning of section 368(a)(1)(D) of the
Internal Revenue Code. The completion of the distribution is subject to the
satisfaction of certain conditions.

On June 25, 2002, Conexant completed the distribution to Conexant shareholders
of outstanding shares of Washington Sub, Inc. (Washington), a wholly owned
subsidiary of Conexant to which Conexant contributed its wireless
communications business, other than certain assets and liabilities which
Conexant retained (together, the Spin-off Transaction). Immediately thereafter,
Washington merged with and into Alpha Industries, Inc. (Alpha), with Alpha the
surviving corporation (the Merger). As a result of the Spin-off Transaction and
the Merger, Conexant shareholders received 0.351 of a share of Alpha common
stock for each Conexant share held and continued to hold their Conexant shares.
Upon completion of the Merger, Alpha and its subsidiaries purchased Conexants
semiconductor assembly, module manufacturing and test facility located in
Mexicali, Mexico and Conexants package design team that supports the Mexicali
facility (together, the Mexicali Operations) for $150 million. Effective June
26, 2002, Alpha changed its name to Skyworks Solutions, Inc. (Skyworks).

The operating results of the discontinued wireless communications business and
Mexicali Operations (through June 25, 2002) included in the accompanying
consolidated condensed statements of operations were as follows (in thousands):

|                                  |  |              |         |            |  |   |         |  
|--------------------------------- |  | ------------ | ------- | ---------- |  | - | ------- | -
|                                  |  | Three months |         | Six months
|                                  |  | ended        |         | ended     
|                                  |  | March 31,    |         | March 31, 
|                                  |  | 2002         |         | 2002      
|                                  |  |              |         |           
|Net revenues                      |  | $            | 92,285  |            |  | $ | 180,689 |  
|                                  |  |              |         |            |  |   |         |  
|Loss before income taxes          |  | $            | (18,160 | )          |  | $ | (49,335 | )
|Provision for income taxes        |  |              | 721     |            |  |   | 4,270   |  
|                                  |  |              |         |            |  |   |         |  
|Loss from discontinued operations |  | $            | (18,881 | )          |  | $ | (53,605 | )
|                                  |  |              |         |            |  |   |         |  

In the opinion of management, the accompanying consolidated condensed financial
statements contain all adjustments, consisting of adjustments of a normal
recurring nature, as well as the special charges, write-downs
of

7



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##### Table of Contents



CONEXANT SYSTEMS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(unaudited)

non-marketable
investments, gains on extinguishment of debt and the cumulative effect of the
change in accounting for goodwill, necessary to present fairly the Companys
financial position, results of operations and cash flows. The results of
operations for interim periods are not necessarily indicative of the results
that may be expected for a full year. These statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Companys Annual Report on Form 10-K for the fiscal year ended
September 30, 2002.

Fiscal Periods For presentation purposes, references made to the periods
ended March 31, 2003 and 2002 relate to the actual fiscal 2003 second quarter
ended March 28, 2003 and the actual fiscal 2002 second quarter ended March 29,
2002, respectively.

Supplemental Cash Flow Information Cash paid for interest was $14.0 million
and $14.3 million for the six months ended March 31, 2003 and 2002,
respectively. Income taxes paid, net of refunds received, for the six months
ended March 31, 2003 and 2002 were $0.9 million and $(6.5) million,
respectively.

Change in Accounting Principle The Company adopted Statement of Financial
Accounting Standards (SFAS) No. 141, Business Combinations and SFAS No. 142,
Goodwill and Other Intangible Assets as of the beginning of fiscal 2003. SFAS
141 requires that all business combinations initiated after June 30, 2001 be
accounted for using the purchase method and provides new criteria for recording
intangible assets separately from goodwill. Upon adoption, the existing
goodwill and intangible assets were evaluated against the new criteria, which
resulted in certain intangible assets with a carrying value of $4.7 million
being subsumed into goodwill. SFAS 142 addresses financial accounting and
reporting for acquired goodwill and other intangible assets and requires that
goodwill and intangible assets that have indefinite useful lives no longer be
amortized into results of operations, but instead be tested at least annually
for impairment and written down when impaired. Upon adoption of SFAS 142, the
Company ceased amortizing goodwill against its results of operations.

During the second quarter of fiscal 2003, the Company completed the transition
impairment test of its goodwill (as of the beginning of fiscal 2003) required
by SFAS 142. The Company determined that its reporting units (as defined in
SFAS 142) are its Broadband Communications and Mindspeed Technologies segments.
For purposes of the impairment test, the fair values of each of the reporting
units were determined considering both an income approach and a market
approach. Management determined that the recorded value of goodwill in the
Mindspeed Technologies reporting unit exceeded its fair value (estimated to be
zero) by $573.2 million. The Company recorded a $573.2 million chargereflected
in the accompanying statement of operations as the cumulative effect of a
change in accounting principleto write down the value of goodwill in the
Mindspeed Technologies segment to its estimated fair value. The Companys net
loss for the three months ended December 31, 2002 has been restated to include
the effect of the change in accounting for goodwill. The effect of the change
was to increase net loss for the three months ended December 31, 2002 by $573.2
million ($2.15 per share) to $625.4 million ($2.35 per share).

The following table shows the Companys net loss and net loss per share,
adjusted for the effect of the change in accounting for goodwill (in thousands,
except per share amounts):

|                                                                                 |                                                             |   |                    |       |                  |   |          |       |      |   |          |       |   |   |          |       |  
|-------------------------------------------------------------------------------- | ----------------------------------------------------------- | - | ------------------ | ----- | ---------------- | - | -------- | ----- | ---- | - | -------- | ----- | - | - | -------- | ----- | -
|                                                                                 |                                                             |   | Three months ended |       | Six months ended
|                                                                                 |                                                             |   | March 31,          |       | March 31,       
|                                                                                 |                                                             |   |                    |       |                 
|                                                                                 |                                                             |   | 2003               |       | 2002             |   | 2003     |       | 2002
|                                                                                 |                                                             |   |                    |       |                  |   |          |       |     
|Loss before cumulative effect of accounting change                               |                                                             | $ | (68,024            | )     |                  | $ | (200,702 | )     |      | $ | (120,213 | )     |   | $ | (405,192 | )    
|Amortization of goodwill                                                         |                                                             |   |                   |       |                  |   | 73,243   |       |      |   |         |       |   |   | 145,497  |      
|Amortization of assembled workforce previously
classified as an intangible asset |                                                             |   |                   |       |                  |   | 502      |       |      |   |         |       |   |   | 1,005    |      
|                                                                                 |                                                             |   |                    |       |                  |   |          |       |      |   |          |       |   |   |          |      
|Adjusted loss before cumulative effect of accounting change                      |                                                             |   | (68,024            | )     |                  |   | (126,957 | )     |      |   | (120,213 | )     |   |   | (258,690 | )    
|Cumulative effect of change in accounting for goodwill                           |                                                             |   |                   |       |                  |   |         |       |      |   | (573,184 | )     |   |   |         |      
|                                                                                 |                                                             |   |                    |       |                  |   |          |       |      |   |          |       |   |   |          |      
|Adjusted net loss                                                                |                                                             | $ | (68,024            | )     |                  | $ | (126,957 | )     |      | $ | (693,397 | )     |   | $ | (258,690 | )    
|                                                                                 |                                                             |   |                    |       |                  |   |          |       |      |   |          |       |   |   |          |      
|Loss per share, basic and diluted:                                               |                                                             |   |                    |       |                  |   |          |       |      |   |          |       |   |   |          |      
|                                                                                 | Loss before cumulative effect of accounting change          |   | $                  | (0.26 | )                |   | $        | (0.78 | )    |   | $        | (0.45 | ) |   | $        | (1.59 | )
|                                                                                 | Adjusted loss before cumulative effect of accounting change |   | $                  | (0.26 | )                |   | $        | (0.50 | )    |   | $        | (0.45 | ) |   | $        | (1.01 | )
|                                                                                 | Adjusted net loss                                           |   | $                  | (0.26 | )                |   | $        | (0.50 | )    |   | $        | (2.61 | ) |   | $        | (1.01 | )

8



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##### Table of Contents



CONEXANT SYSTEMS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(unaudited)

Recent Accounting Standards SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, supersedes previous guidance on financial
accounting and reporting for the impairment or disposal of long-lived assets
and for segments of a business to be disposed of. The Company adopted SFAS 144
as of the beginning of fiscal 2003, with no significant impact on its financial
position or results of operations.

SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections rescinds SFAS 4, which
required gains and losses from extinguishment of debt to be aggregated and, if
material, classified as an extraordinary item, net of the related income tax
effect. The Company adopted SFAS 145 as of the beginning of fiscal 2003. The
adoption of SFAS 145 resulted in the reclassification of fiscal 2001 gains of
$11.7 million from extraordinary gain on extinguishment of debt to income from
continuing operations in the consolidated statements of operations.

In August 2002, the Financial Accounting Standards Board (FASB) issued SFAS No.
146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS
146 requires that costs associated with exit or disposal activities be
recognized when they are incurred rather than at the date of a commitment to an
exit or disposal plan. The Company must apply SFAS 146 prospectively to exit or
disposal activities initiated after December 31, 2002. If the Company initiates
exit or disposal activities after that date, SFAS 146 will affect the timing of
the recognition of the related costs. The adoption of SFAS 146 had no
significant impact on the Companys financial position or results of
operations.

In November 2002, the FASB issued FASB Interpretation (FIN) No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 requires increased
financial statement disclosures by a guarantor about its obligations under
certain guarantees it has issued. FIN 45 also requires that a guarantor
recognize a liability for the fair value of certain guarantees made after
December 31, 2002. The adoption of FIN 45 had no significant impact on the
Companys financial position or results of operations.

In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest
Entities. The Company must adopt FIN 46 in the fourth quarter of fiscal 2003
and does not expect such adoption to have a significant impact on its financial
position or results of operations.

Reclassifications Certain prior year amounts have been reclassified to
conform to the current period presentation.

2.     Supplemental Financial Statement Data

Short-term Investments

Short-term investments consist of the following (in thousands):

|                                                   |  |           |         |         |  |            |       |            |  |   |        |   |  |   |         | 
|-------------------------------------------------- |  | --------- | ------- | ------- |  | ---------- | ----- | ---------- |  | - | ------ | - |  | - | ------- | 
|                                                   |  |           |         |         |  | Gross      |       | Gross      |  |   |        |  
|                                                   |  |           |         |         |  | Unrealized |       | Unrealized |  |   |        |  
|                                                   |  | Amortized |         | Holding |  | Holding    |       | Fair      
|                                                   |  | Cost      |         | Gains   |  | Losses     |       | Value     
|                                                   |  |           |         |         |  |            |       |           
|March 31, 2003:                                    |  |           |         |         |  |            |       |            |  |   |        |   |  |   |         | 
|U.S. government agencies                           |  | $         | 42,901  |         |  | $          | 293   |            |  | $ | (51    | ) |  | $ | 43,143  | 
|Foreign government securities                      |  |           | 6,137   |         |  |            | 74    |            |  |   |       |   |  |   | 6,211   | 
|Corporate debt securities                          |  |           | 58,082  |         |  |            | 298   |            |  |   | (106   | ) |  |   | 58,274  | 
|Skyworks 15% convertible senior subordinated notes |  |           | 45,855  |         |  |            |      |            |  |   | (2,134 | ) |  |   | 43,721  | 
|Equity securities                                  |  |           | 2,320   |         |  |            | 763   |            |  |   |       |   |  |   | 3,083   | 
|                                                   |  |           |         |         |  |            |       |            |  |   |        |   |  |   |         | 
|                                                   |  | $         | 155,295 |         |  | $          | 1,428 |            |  | $ | (2,291 | ) |  | $ | 154,432 | 
|                                                   |  |           |         |         |  |            |       |            |  |   |        |   |  |   |         | 
|September 30, 2002:                                |  |           |         |         |  |            |       |            |  |   |        |   |  |   |         | 
|U.S. government agencies                           |  | $         | 24,686  |         |  | $          | 257   |            |  | $ |       |   |  | $ | 24,943  | 
|Foreign government securities                      |  |           | 8,446   |         |  |            | 102   |            |  |   |       |   |  |   | 8,548   | 
|Corporate debt securities                          |  |           | 65,493  |         |  |            | 517   |            |  |   | (35    | ) |  |   | 65,975  | 
|                                                   |  |           |         |         |  |            |       |            |  |   |        |   |  |   |         | 
|                                                   |  | $         | 98,625  |         |  | $          | 876   |            |  | $ | (35    | ) |  | $ | 99,466  | 
|                                                   |  |           |         |         |  |            |       |            |  |   |        |   |  |   |         | 

The Company accounts for the Skyworks 15% convertible senior subordinated notes
as available-for-sale securities carried at their fair value. Unrealized gains
or losses resulting from changes in the fair value of the underlying debt are
included in other comprehensive income. The right to convert the Skyworks 15%
convertible senior

9



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##### Table of Contents



CONEXANT SYSTEMS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(unaudited)

subordinated notes into shares of Skyworks common stock is,
for financial accounting purposes, an embedded derivative instrument. Changes
in the fair value of the Skyworks 15% convertible senior subordinated notes
resulting from changes in the value of the conversion right are included in
other income (expense), net each period.

Inventories

Inventories consist of the following (in thousands):

|                |  |           |        |               |  |   |        | 
|--------------- |  | --------- | ------ | ------------- |  | - | ------ | 
|                |  | March 31, |        | September 30,
|                |  | 2003      |        | 2002         
|                |  |           |        |              
|Raw materials   |  | $         |       |               |  | $ | 363    | 
|Work-in-process |  |           | 44,450 |               |  |   | 39,313 | 
|Finished goods  |  |           | 13,640 |               |  |   | 17,654 | 
|                |  |           |        |               |  |   |        | 
|                |  | $         | 58,090 |               |  | $ | 57,330 | 
|                |  |           |        |               |  |   |        | 

Goodwill

During the first six months of fiscal 2003, goodwill by operating segment was
adjusted as follows (in thousands):

|                                             |  |                |        |              |  |       |          |   |  |   |          |  
|-------------------------------------------- |  | -------------- | ------ | ------------ |  | ----- | -------- | - |  | - | -------- | -
|                                             |  | Broadband      |        | Mindspeed    |  |       |          |  
|                                             |  | Communications |        | Technologies |  | Total
|                                             |  |                |        |              |  |      
|Goodwill, September 30, 2002                 |  | $              | 46,426 |              |  | $     | 568,900  |   |  | $ | 615,326  |  
|Assembled workforce reclassified to goodwill |  |                | 397    |              |  |       | 4,284    |   |  |   | 4,681    |  
|Transition impairment loss                   |  |                |       |              |  |       | (573,184 | ) |  |   | (573,184 | )
|Other adjustments                            |  |                | 236    |              |  |       |         |   |  |   | 236      |  
|                                             |  |                |        |              |  |       |          |   |  |   |          |  
|Goodwill, March 31, 2003                     |  | $              | 47,059 |              |  | $     |         |   |  | $ | 47,059   |  
|                                             |  |                |        |              |  |       |          |   |  |   |          |  

Intangible Assets

Intangible assets consist of the following (in thousands):

|                        |  |                |         |                    |  |     |          |       |  |              |         |             |  |   |         |  |  |   |          |   |  |   |         | 
|----------------------- |  | -------------- | ------- | ------------------ |  | --- | -------- | ----- |  | ------------ | ------- | ----------- |  | - | ------- |  |  | - | -------- | - |  | - | ------- | 
|                        |  | March 31, 2003 |         | September 30, 2002
|                        |  |                |         |                   
|                        |  | Gross          |         | Accumulated        |  |     |          |       |  | Gross        |         | Accumulated |  |   |         | 
|                        |  | Asset          |         | Amortization       |  | Net |          | Asset |  | Amortization |         | Net        
|                        |  |                |         |                    |  |     |          |       |  |              |         |            
|Developed technology    |  | $              | 242,717 |                    |  | $   | (149,910 | )     |  | $            | 92,807  |             |  | $ | 288,996 |  |  | $ | (152,107 | ) |  | $ | 136,889 | 
|Customer base           |  |                | 27,681  |                    |  |     | (17,032  | )     |  |              | 10,649  |             |  |   | 27,650  |  |  |   | (14,218  | ) |  |   | 13,432  | 
|Assembled workforce     |  |                |        |                    |  |     |         |       |  |              |        |             |  |   | 10,592  |  |  |   | (5,911   | ) |  |   | 4,681   | 
|Other intangible assets |  |                | 13,309  |                    |  |     | (10,890  | )     |  |              | 2,419   |             |  |   | 13,533  |  |  |   | (10,659  | ) |  |   | 2,874   | 
|                        |  |                |         |                    |  |     |          |       |  |              |         |             |  |   |         |  |  |   |          |   |  |   |         | 
|                        |  | $              | 283,707 |                    |  | $   | (177,832 | )     |  | $            | 105,875 |             |  | $ | 340,771 |  |  | $ | (182,895 | ) |  | $ | 157,876 | 
|                        |  |                |         |                    |  |     |          |       |  |              |         |             |  |   |         |  |  |   |          |   |  |   |         | 

Intangible assets are amortized over a weighted-average period of approximately
five years. Annual amortization expense is expected to be as follows (in
thousands):

|                     |  |      |        |      |  |      |        |      |  |      |        |  |  |   |       |  |  |   |       | 
|-------------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ----- |  |  | - | ----- | 
|                     |  | 2003 |        | 2004 |  | 2005 |        | 2006 |  | 2007
|                     |  |      |        |      |  |      |        |      |  |     
|Amortization expense |  | $    | 58,104 |      |  | $    | 50,977 |      |  | $    | 19,577 |  |  | $ | 1,179 |  |  | $ | 1,179 | 

Convertible Subordinated Notes

During the first six months of fiscal 2003, the Company purchased $80.2 million
principal amount of its 4% Convertible Subordinated Notes due 2007 at
prevailing market prices, resulting in a gain of $34.6 million.

Common Stock

In February 2003, the Companys shareholders approved an amendment to the
Companys Restated Certificate of Incorporation to change the par value of its
common stock from $1.00 per share to $0.01 per share.

10



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##### Table of Contents



CONEXANT SYSTEMS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(unaudited)

Other Expense

Other expense, net consists of the following (in thousands):

|                                                                                                          |  |   |                    |   |                  |   |        |   |      |   |         |   |  |   |         |   | 
|--------------------------------------------------------------------------------------------------------- |  | - | ------------------ | - | ---------------- | - | ------ | - | ---- | - | ------- | - |  | - | ------- | - | 
|                                                                                                          |  |   | Three months ended |   | Six months ended
|                                                                                                          |  |   | March 31,          |   | March 31,       
|                                                                                                          |  |   |                    |   |                 
|                                                                                                          |  |   | 2003               |   | 2002             |   | 2003   |   | 2002
|                                                                                                          |  |   |                    |   |                  |   |        |   |     
|Investment and interest income                                                                            |  | $ | 3,921              |   |                  | $ | 2,764  |   |      | $ | 9,595   |   |  | $ | 6,182   |  
|Change in fair value of the conversion right under the
Skyworks 15% convertible senior subordinated notes |  |   | (5,785             | ) |                  |   |       |   |      |   | (1,756  | ) |  |   |        |  
|Interest expense                                                                                          |  |   | (7,586             | ) |                  |   | (7,907 | ) |      |   | (15,182 | ) |  |   | (15,814 | )
|Write-down of non-marketable investments                                                                  |  |   | (34,402            | ) |                  |   | (2,000 | ) |      |   | (34,402 | ) |  |   | (7,675  | )
|Other                                                                                                     |  |   | (1,002             | ) |                  |   | 334    |   |      |   | 259     |   |  |   | 1,329   |  
|                                                                                                          |  |   |                    |   |                  |   |        |   |      |   |         |   |  |   |         |  
|                                                                                                          |  | $ | (44,854            | ) |                  | $ | (6,809 | ) |      | $ | (41,486 | ) |  | $ | (15,978 | )
|                                                                                                          |  |   |                    |   |                  |   |        |   |      |   |         |   |  |   |         |  

During the first six months of fiscal 2003, the Company recorded charges of
$34.4 million to write down the carrying value of certain non-marketable
investments. During the first six months of fiscal 2002, the Company recorded
charges of $7.7 million to write down the carrying values of certain
non-marketable investments. The investments consist of equity interests in
early stage technology companies which the Company accounts for under the cost
method. The write-downs, reflecting declines in the fair values of these
investments which management determined were other than temporary, reduced the
carrying values of the investments to their estimated fair values. The
estimated fair values were determined by management based upon financial and
other information available at the time of the write-downs, including current
and projected business prospects for the subject companies.

Stock-Based Compensation

As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, the
Company accounts for stock-based compensation under Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Under APB 25, the Company generally recognizes no compensation
expense with respect to stock option awards. Had compensation cost for stock
option awards been determined based on the fair value of each award at its
grant date, consistent with the provisions of SFAS 123, the Companys pro forma
loss from continuing operations and pro forma loss from continuing operations
per share would have been as follows (in thousands, except per share amounts):

|                                                    |  |                    |         |                  |  |      |          |      |  |   |          |   |  |   |          |  
|--------------------------------------------------- |  | ------------------ | ------- | ---------------- |  | ---- | -------- | ---- |  | - | -------- | - |  | - | -------- | -
|                                                    |  | Three months ended |         | Six months ended
|                                                    |  | March 31,          |         | March 31,       
|                                                    |  |                    |         |                 
|                                                    |  | 2003               |         | 2002             |  | 2003 |          | 2002
|                                                    |  |                    |         |                  |  |      |          |     
|Pro forma loss from continuing operations           |  | $                  | (88,211 | )                |  | $    | (224,325 | )    |  | $ | (158,370 | ) |  | $ | (436,595 | )
|                                                    |  |                    |         |                  |  |      |          |      |  |   |          |   |  |   |          |  
|Pro forma loss from continuing operations per share |  | $                  | (0.33   | )                |  | $    | (0.88    | )    |  | $ | (0.60    | ) |  | $ | (1.71    | )
|                                                    |  |                    |         |                  |  |      |          |      |  |   |          |   |  |   |          |  

3.     Skyworks Notes

As of September 30, 2002, the Company held notes receivable from Skyworks with
an aggregate principal amount of $180.0 million, including promissory notes for
$150.0 million guaranteed by Skyworks and certain Skyworks subsidiaries and
secured by substantially all of the assets of Skyworks (the Term Notes) and
$30.0 million outstanding under the $100.0 million credit facility which the
Company had made available to Skyworks. In November 2002, the Company
restructured the financing agreements with Skyworks. Skyworks repaid $105.0
million of the principal amount and all accrued interest owed to the Company
under the Term Notes and the remaining principal amount of the Term Notes was
exchanged for $45.0 million principal amount of the Skyworks 15% convertible
senior subordinated notes with a maturity date of June 30, 2005. Skyworks also
repaid all amounts outstanding under the credit facility, the credit facility
was cancelled and the Company released all security interests in Skyworks
assets and properties.

Skyworks may redeem the 15% convertible senior subordinated notes at any time
after May 12, 2004, subject to a redemption premium of 3% of the outstanding
principal amount. The Company may, at its option, convert the outstanding
principal amount of the 15% convertible senior subordinated notes into shares
of Skyworks common stock based upon the conversion price (initially $7.87 per
share, subject to adjustment under certain circumstances). At maturity,
Skyworks must pay the outstanding principal amount by delivery of a number of
shares of its common

11



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CONEXANT SYSTEMS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(unaudited)

stock based upon the conversion price. Skyworks has
granted the Company certain registration rights relating to the 15% convertible
senior subordinated notes and the shares of Skyworks common stock underlying
the 15% convertible senior subordinated notes.

As of March 31, 2003, the 15% convertible senior subordinated notes are carried
at their fair value of $43.7 million (including the $0.3 million fair value of
the related conversion right) and are included in short-term investments in the
accompanying consolidated balance sheet because the Company has the ability and
intent to liquidate the 15% convertible senior subordinated notes or shares
underlying the notes as needed to meet its liquidity requirements.

4.     Contingent Liabilities

Certain claims have been asserted against the Company, including claims
alleging the use of the intellectual property rights of others in certain of
the Companys products. The resolution of these matters may entail the
negotiation of a license agreement, a settlement, or the resolution of such
claims through arbitration or litigation. In connection with its spin-off from
Rockwell International Corporation, now named Rockwell Automation, Inc.
(Rockwell), Conexant assumed responsibility for all contingent liabilities and
current and future litigation (including environmental and intellectual
property proceedings) against Rockwell or its subsidiaries in respect of the
semiconductor systems business of Rockwell.

The outcome of litigation cannot be predicted with certainty and some lawsuits,
claims or proceedings may be disposed of unfavorably to the Company. Many
intellectual property disputes have a risk of injunctive relief and there can
be no assurance that a license will be granted. Injunctive relief could have a
material adverse effect on the financial condition or results of operations of
the Company. Based on its evaluation of matters which are pending or asserted
and taking into account the Companys reserves for such matters, management
believes the disposition of such matters will not have a material adverse
effect on the financial condition or results of operations of the Company.

5.     Comprehensive Loss

Comprehensive loss is as follows (in thousands):

|                                   |                                                             |                                   |         |                    |         |                  |          |        |          |      |          |       |          |   |          |        |          |  
|---------------------------------- | ----------------------------------------------------------- | --------------------------------- | ------- | ------------------ | ------- | ---------------- | -------- | ------ | -------- | ---- | -------- | ----- | -------- | - | -------- | ------ | -------- | -
|                                   |                                                             |                                   |         | Three months ended |         | Six months ended
|                                   |                                                             |                                   |         | March 31,          |         | March 31,       
|                                   |                                                             |                                   |         |                    |         |                 
|                                   |                                                             |                                   |         | 2003               |         | 2002             |          | 2003   |          | 2002
|                                   |                                                             |                                   |         |                    |         |                  |          |        |          |     
|Net loss                           |                                                             | $                                 | (68,024 | )                  |         | $                | (200,702 | )      |          | $    | (693,397 | )     |          | $ | (405,192 | )     
|Other comprehensive income (loss): |                                                             |                                   |         |                    |         |                  |          |        |          |      |          |       |          |   |          |       
|                                   | Foreign currency translation adjustments                    |                                   |         | (1,412             | )       |                  |          | (6,001 | )        |      |          | 723   |          |   |          | (8,450 | )       
|                                   | Change in unrealized gains on available-for-sale securities |                                   |         | (1,445             | )       |                  |          | (1,731 | )        |      |          | 603   |          |   |          | (2,866 | )       
|                                   | Change in unrealized gains on forward exchange contracts    |                                   |         |                   |         |                  |          | 153    |          |      |          |      |          |   |          | 43     |         
|                                   | Minimum pension liability adjustments                       |                                   |         | 33                 |         |                  |          |       |          |      |          | 1,595 |          |   |          |       |         
|                                   | Effect of income taxes                                      |                                   |         |                   |         |                  |          | 754    |          |      |          |      |          |   |          | 1,251  |         
|                                   |                                                             |                                   |         |                    |         |                  |          |        |          |      |          |       |          |   |          |       
|                                   |                                                             | Other comprehensive income (loss) |         |                    | (2,824  | )                |          |        | (6,825   | )    |          |       | 2,921    |   |          |        | (10,022  | )
|                                   |                                                             |                                   |         |                    |         |                  |          |        |          |      |          |       |          |   |          |       
|                                   |                                                             | Comprehensive loss                |         | $                  | (70,848 | )                |          | $      | (207,527 | )    |          | $     | (690,476 | ) |          | $      | (415,214 | )
|                                   |                                                             |                                   |         |                    |         |                  |          |        |          |      |          |       |          |   |          |       

The components of accumulated other comprehensive loss are as follows (in
thousands):

|                                                              |                                      |   |           |         |               |   |         |         |  
|------------------------------------------------------------- | ------------------------------------ | - | --------- | ------- | ------------- | - | ------- | ------- | -
|                                                              |                                      |   | March 31, |         | September 30,
|                                                              |                                      |   | 2003      |         | 2002         
|                                                              |                                      |   |           |         |              
|Foreign currency translation adjustments                      |                                      | $ | (22,224   | )       |               | $ | (22,947 | )      
|Unrealized gains on available-for-sale securities, net of tax |                                      |   | 1,122     |         |               |   | 519     |        
|Minimum pension liability adjustments                         |                                      |   | (4,054    | )       |               |   | (5,649  | )      
|                                                              |                                      |   |           |         |               |   |         |        
|                                                              | Accumulated other comprehensive loss |   | $         | (25,156 | )             |   | $       | (28,077 | )
|                                                              |                                      |   |           |         |               |   |         |        

12



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##### Table of Contents



CONEXANT SYSTEMS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(unaudited)

6.     Special Charges

Special charges consist of the following (in thousands):

|                      |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        | 
|--------------------- |  | ------------------ | ------ | ---------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | 
|                      |  | Three months ended |        | Six months ended
|                      |  | March 31,          |        | March 31,       
|                      |  |                    |        |                 
|                      |  | 2003               |        | 2002             |  | 2003 |        | 2002
|                      |  |                    |        |                  |  |      |        |     
|Asset impairments     |  | $                  | 20,760 |                  |  | $    | 17,586 |      |  | $ | 23,146 |   |  | $ | 17,586 | 
|Restructuring         |  |                    | 3,971  |                  |  |      | 3,588  |      |  |   | 9,516  |   |  |   | 4,588  | 
|Separation costs      |  |                    | 1,115  |                  |  |      | 145    |      |  |   | 1,115  |   |  |   | 145    | 
|Other special charges |  |                    | (9,039 | )                |  |      |       |      |  |   | (6,365 | ) |  |   |       | 
|                      |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        | 
|                      |  | $                  | 16,807 |                  |  | $    | 21,319 |      |  | $ | 27,412 |   |  | $ | 22,319 | 
|                      |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        | 

Asset Impairments

During the second quarter of fiscal 2003, the Company recorded an impairment
charge of $19.1 million in the Mindspeed Technologies segment to write down the
carrying value of identified intangible assets (principally developed
technology) related to the HotRail, Inc. subsidiary. In January 2003, the
Company decided to close the HotRail design center and to curtail investment in
selected associated products. Management evaluated the recoverability of the
assets of the HotRail business to determine whether their value was impaired,
based upon the future cash flows expected to be generated by the affected
products over the remainder of their life cycles (estimated to be approximately
five years). The estimated sales volumes, pricing, gross margin and operating
expenses were consistent with historical trends and other available
information. Since the estimated undiscounted cash flows were less than the
carrying value (approximately $27.4 million) of the related assets, management
determined that the value of such assets was impaired. The Company recorded an
impairment charge of $19.1 million, which was determined by comparing the
estimated fair value of the assets to their carrying value. The fair value of
the assets was determined by computing the present value of the expected future
cash flows using a discount rate of 18%, which management believes is
commensurate with the underlying risks associated with the projected cash
flows. Management believes the assumptions used in the discounted cash flow
model represent a reasonable estimate of the fair value of the assets. The
write-down established a new cost basis for the impaired assets.

Also during the first six months of fiscal 2003, the Company recorded
impairment charges of $4.0 million, principally in the Broadband Communications
segment, related to leasehold improvements associated with properties no longer
occupied by the Company and other assets that management determined to abandon
or scrap.

During the first six months of fiscal 2002, the Company recorded an impairment
charge of $13.0 million in the Broadband Communications segment to write down
the carrying value (approximately $22 million) of the goodwill related to its
digital imaging business. The impairment charge resulted from the Companys
decision to exit the digital imaging business. Management evaluated the
recoverability of the digital imaging business assets to determine if their
value was impaired. The amount of the impairment charge was determined by
comparing the assets estimated fair values, less costs to sell, to their
carrying values. The estimated fair values were determined by management based
upon all available information on the proceeds expected to result from the
disposition of the assets. Management believes the assumptions used in
estimating the fair values were reasonable and the estimated fair values
approximated the amounts that would be realized upon the ultimate disposition
of the related assets. The write-down established a new cost basis for the
impaired assets. The Company completed the planned divestiture of its digital
imaging business in July 2002.

Also during the first six months of fiscal 2002, the Company recorded asset
impairment charges of $4.6 million in the Mindspeed Technologies segment
primarily related to a prepaid license for technology that management
determined would not be used in the future.

Restructuring Charges

Commencing in fiscal 2001 and continuing into fiscal 2003, the Company
implemented a number of cost reduction initiatives to improve its operating
cost structure. The cost reduction initiatives included workforce reductions,
temporary shutdowns of the Companys manufacturing facilities, significant
reductions in capital spending, the closure or consolidation of certain
facilities and salary reductions for the senior management team until the
13Table of Contents

CONEXANT SYSTEMS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(unaudited)

Company returns to profitability. The costs and expenses associated with the
restructuring activities are included in special charges in the accompanying
consolidated statements of operations.

2001 Global Restructuring Plan During the second quarter of fiscal 2001, the
Company announced certain expense reduction initiatives and a broad reduction
in workforce affecting all areas of the Company and reducing the Companys
headcount by approximately 900 employees. These actions were the result of a
comprehensive reassessment of the Companys operations and business activities
in order to focus investment and resources in areas that best support the
Companys strategic growth drivers. As part of the reassessment, the Company
determined that it would explore alternatives to dispose of its digital imaging
business and would also exit its board-level sub-assembly module business. The
Company completed these restructuring actions in fiscal 2002.

In connection with this broad reduction in workforce, the Company terminated
approximately 840 employees (including approximately 130 employees in fiscal
2002). The charges for the workforce reduction aggregated $9.4 million
(including $2.6 million in fiscal 2002) and were based upon estimates of the
cost of severance benefits for the affected employees. These actions reduced
the Companys workforce in both the Broadband Communications and Mindspeed
Technologies segments, including approximately 530 employees in the Companys
manufacturing operations. In addition, the Company recorded restructuring
charges of $5.8 million (including $0.2 million in fiscal 2002) for costs
associated with the consolidation of certain facilities and lease cancellation
and related costs. In fiscal 2002, the Company reversed $1.6 million of excess
lease costs accrued in fiscal 2001 as a result of a favorable resolution upon
the termination of the related lease.

Activity and liability balances related to the 2001 global restructuring
actions through March 31, 2003 are as follows (in thousands):

|                                          |  |            |        |           |  |       |        |   |  |   |        |  
|----------------------------------------- |  | ---------- | ------ | --------- |  | ----- | ------ | - |  | - | ------ | -
|                                          |  | Workforce  |        | Facility  |  |       |        |  
|                                          |  | reductions |        | and other |  | Total
|                                          |  |            |        |           |  |      
|Charged to costs and expenses             |  | $          | 6,776  |           |  | $     | 5,584  |   |  | $ | 12,360 |  
|Cash payments                             |  |            | (4,155 | )         |  |       | (223   | ) |  |   | (4,378 | )
|                                          |  |            |        |           |  |       |        |   |  |   |        |  
|Restructuring balance, September 30, 2001 |  |            | 2,621  |           |  |       | 5,361  |   |  |   | 7,982  |  
|Charged to costs and expenses             |  |            | 2,616  |           |  |       | 172    |   |  |   | 2,788  |  
|Expense reversal                          |  |            |       |           |  |       | (1,646 | ) |  |   | (1,646 | )
|Cash payments                             |  |            | (3,432 | )         |  |       | (2,307 | ) |  |   | (5,739 | )
|                                          |  |            |        |           |  |       |        |   |  |   |        |  
|Restructuring balance, September 30, 2002 |  |            | 1,805  |           |  |       | 1,580  |   |  |   | 3,385  |  
|Expense reversal                          |  |            | (61    | )         |  |       |       |   |  |   | (61    | )
|Cash payments                             |  |            | (567   | )         |  |       | (958   | ) |  |   | (1,525 | )
|                                          |  |            |        |           |  |       |        |   |  |   |        |  
|Restructuring balance, March 31, 2003     |  | $          | 1,177  |           |  | $     | 622    |   |  | $ | 1,799  |  
|                                          |  |            |        |           |  |       |        |   |  |   |        |  

Strategic Manufacturing Restructuring Plan During the third quarter of fiscal
2001, the Company realigned its manufacturing and procurement strategy to
accelerate its transition to a fabless CMOS business model. As part of the
manufacturing realignment, the Company reduced its workforce by an additional
410 employees and recorded charges aggregating $7.8 million. These charges were
based upon estimates of the cost of severance benefits for the affected
employees. These actions were completed in the fourth quarter of fiscal 2001
and reduced the Companys workforce in both the Broadband Communications and
Mindspeed Technologies segments, including approximately 220 employees in the
Companys manufacturing operations. During the first six months of fiscal 2003,
the Company reversed $0.1 million of previously accrued costs upon the
resolution of liabilities for severance benefits payable under the plan.

14



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##### Table of Contents



CONEXANT SYSTEMS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(unaudited)

Activity and liability balances related to the strategic manufacturing
restructuring actions through March 31, 2003 are as follows (in thousands):

|                                          |  |            |        |  
|----------------------------------------- |  | ---------- | ------ | -
|                                          |  | Workforce 
|                                          |  | reductions
|                                          |  |           
|Charged to costs and expenses             |  | $          | 7,756  |  
|Cash payments                             |  |            | (5,006 | )
|                                          |  |            |        |  
|Restructuring balance, September 30, 2001 |  |            | 2,750  |  
|Cash payments                             |  |            | (2,604 | )
|                                          |  |            |        |  
|Restructuring balance, September 30, 2002 |  |            | 146    |  
|Expense reversal                          |  |            | (146   | )
|                                          |  |            |        |  
|Restructuring balance, March 31, 2003     |  | $          |       |  
|                                          |  |            |        |  

2002 Corporate and Manufacturing Restructuring Plan During fiscal 2002, the
Company initiated a further reduction of its workforce throughout its
operations primarily as a result of the divestiture of its Newport Beach wafer
fabrication operations and the Spin-off Transaction. In connection with the
fiscal 2002 corporate and manufacturing restructuring actions, the Company
terminated approximately 230 employees and recorded charges aggregating $4.5
million. These charges were based upon estimates of the cost of severance
benefits for the affected employees. The Company completed these actions in
fiscal 2002, reducing its workforce by approximately 120 employees in the
Broadband Communications segment and approximately 110 employees in the
Mindspeed Technologies segment. In addition, the Company recorded restructuring
charges of $12.7 million for costs associated with the consolidation of certain
facilities and commitments under license obligations that management determined
would not be used in the future.

During the first quarter of fiscal 2003, the Company initiated a further
workforce reduction affecting 58 employees in the Broadband Communications
segment and recorded additional charges of $1.9 million based upon estimates of
the cost of severance benefits for the affected employees.

Activity and liability balances related to the 2002 corporate and manufacturing
restructuring actions through March 31, 2003 are as follows (in thousands):

|                                          |  |            |        |           |  |       |        |   |  |   |        |  
|----------------------------------------- |  | ---------- | ------ | --------- |  | ----- | ------ | - |  | - | ------ | -
|                                          |  | Workforce  |        | Facility  |  |       |        |  
|                                          |  | reductions |        | and other |  | Total
|                                          |  |            |        |           |  |      
|Charged to costs and expenses             |  | $          | 4,534  |           |  | $     | 12,690 |   |  | $ | 17,224 |  
|Cash payments                             |  |            | (3,179 | )         |  |       | (468   | ) |  |   | (3,647 | )
|Non-cash charges                          |  |            | (609   | )         |  |       |       |   |  |   | (609   | )
|                                          |  |            |        |           |  |       |        |   |  |   |        |  
|Restructuring balance, September 30, 2002 |  |            | 746    |           |  |       | 12,222 |   |  |   | 12,968 |  
|Charged to costs and expenses             |  |            | 1,904  |           |  |       | (54    | ) |  |   | 1,850  |  
|Cash payments                             |  |            | (2,340 | )         |  |       | (1,219 | ) |  |   | (3,559 | )
|                                          |  |            |        |           |  |       |        |   |  |   |        |  
|Restructuring balance, March 31, 2003     |  | $          | 310    |           |  | $     | 10,949 |   |  | $ | 11,259 |  
|                                          |  |            |        |           |  |       |        |   |  |   |        |  

Mindspeed Strategic Restructuring Plan During fiscal 2002, the Companys
Mindspeed Technologies segment announced a number of expense reduction and
restructuring initiatives intended to reduce Mindspeeds operating cost
structure and focus its research and development spending on products for the
Internet infrastructure market segments it believes offer the most attractive
near-term growth prospects. These actions included the elimination of research
and development spending in high-end optical networking applications, the
closure of Novanet, the divestiture of NetPlane Systems, Inc. (NetPlane) and a
reduction of support services spending and reduced Mindspeeds workforce by
over 400 employees. During fiscal 2002, the Company terminated approximately
280 employees and recorded charges aggregating $7.1 million. These charges were
based upon estimates of the cost of severance benefits for the affected
employees. These actions reduced the Companys workforce throughout the
Mindspeed Technologies segment. In addition, the Company recorded restructuring
charges of $16.1 million for costs associated with the consolidation of certain
facilities and lease cancellation and related costs.

During the first quarter of fiscal 2003, the Company implemented an additional
workforce reduction affecting approximately 80 employees in the Mindspeed
Technologies segment and closed its design center in Bristol, United
15Table of Contents

CONEXANT SYSTEMS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(unaudited)

Kingdom.
The Company recorded additional charges of $3.2 million for the workforce
reductions, based upon estimates of the cost of severance benefits for the
affected employees, and $2.6 million for commitments under facilities leases
and license obligations that management determined would not be used in the
future. During the first six months of fiscal 2003, the Company substantially completed these workforce
reductions and the Company completed the divestiture of NetPlane in January
2003. Activity and liability balances related to the Mindspeed strategic
restructuring actions through March 31, 2003 are as follows (in thousands):

|                                          |  |            |        |           |  |       |        |   |  |   |        |  
|----------------------------------------- |  | ---------- | ------ | --------- |  | ----- | ------ | - |  | - | ------ | -
|                                          |  | Workforce  |        | Facility  |  |       |        |  
|                                          |  | reductions |        | and other |  | Total
|                                          |  |            |        |           |  |      
|Charged to costs and expenses             |  | $          | 7,061  |           |  | $     | 16,109 |   |  | $ | 23,170 |  
|Cash payments                             |  |            | (2,419 | )         |  |       | (1,211 | ) |  |   | (3,630 | )
|Non-cash charges                          |  |            | (552   | )         |  |       | (354   | ) |  |   | (906   | )
|                                          |  |            |        |           |  |       |        |   |  |   |        |  
|Restructuring balance, September 30, 2002 |  |            | 4,090  |           |  |       | 14,544 |   |  |   | 18,634 |  
|Charged to costs and expenses             |  |            | 3,199  |           |  |       | 2,567  |   |  |   | 5,766  |  
|Cash payments                             |  |            | (5,619 | )         |  |       | (4,217 | ) |  |   | (9,836 | )
|                                          |  |            |        |           |  |       |        |   |  |   |        |  
|Restructuring balance, March 31, 2003     |  | $          | 1,670  |           |  | $     | 12,894 |   |  | $ | 14,564 |  
|                                          |  |            |        |           |  |       |        |   |  |   |        |  

Mindspeed 2003 Restructuring Plan In connection with the Companys
announcement of its plan to proceed with the separation of the Mindspeed
Technologies and Broadband Communications businesses, the Company announced a
number of expense reduction and restructuring initiatives intended to improve
the Mindspeed Technologies segments operating cost structure. The actions
include the closure of the HotRail design center in San Jose, California and a
further workforce reduction of approximately 150 employees. Restructuring
charges for the six months ended March 31, 2003 include $0.5 million of
severance benefits paid to the affected employees. Additional costs for
severance benefits totaling approximately $3.7 million, principally expected to
be paid during fiscal 2003, will be included in restructuring charges when
incurred. In addition, the Company recorded restructuring charges of $1.5
million for costs associated with the consolidation of certain facilities and
lease cancellation and related costs.

Activity and liability balances related to the Mindspeed 2003 restructuring
plan through March 31, 2003 are as follows (in thousands):

|                                      |  |           |       |  
|------------------------------------- |  | --------- | ----- | -
|                                      |  | Facility 
|                                      |  | and other
|                                      |  |          
|Charged to costs and expenses         |  | $         | 1,548 |  
|Cash payments                         |  |           | (22   | )
|                                      |  |           |       |  
|Restructuring balance, March 31, 2003 |  | $         | 1,526 |  
|                                      |  |           |       |  

Through March 31, 2003, the Company has paid an aggregate of $39.9 million in
connection with its fiscal 2001, 2002 and 2003 restructuring plans and has a
remaining accrued restructuring balance aggregating $29.1 million. The Company
expects to pay a majority of the amounts accrued for the workforce reductions
during fiscal 2003 and expects to pay the obligations for the non-cancelable
lease and other commitments over their respective terms, which principally
expire through fiscal 2005. Cash payments to complete the restructuring actions
will be funded from available cash reserves and funds from product sales, and
are not expected to significantly impact the Companys liquidity.

Separation Costs

Separation costs for the first six months of fiscal 2003 consist of costs
related to the planned separation of the Mindspeed Technologies business from
the Broadband Communications business.

Other Special Charges

Other special charges for the first six months of fiscal 2003 principally
consist of a $9.0 million gain on the sale of the assets of NetPlane, partially
offset by a $2.7 million loss on the sale of certain semiconductor test
equipment.

16



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##### Table of Contents



CONEXANT SYSTEMS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(unaudited)

7.     Sales of Assets

In January 2003, the Company sold net assets of the NetPlane business for net
proceeds of $9.2 million and recognized a gain of $9.0 million. In December
2002, the Company sold certain semiconductor test equipment for net proceeds of
$1.0 million and recognized a loss of $2.7 million.

In December 2001, the Company sold two buildings for net proceeds of $19.3
million. A $2.4 million gain arising from the sale of one building was
recognized upon completion of the transaction. The Company will continue to
occupy the second building under a 15-year lease. Consequently, the $7.9
million gain arising from the sale of the leased-back building has been
deferred and will be recognized ratably over the lease term.

8.     Segment Information

The Company operates and tracks its results in two segmentsBroadband
Communications and Mindspeed Technologies. The Broadband Communications segment
designs, develops and sells semiconductor system solutions that connect
personal communications access products, such as set-top boxes, residential
gateways, personal computers (PCs) and game consoles to voice, video and data
services over broadband connections, including asynchronous digital subscriber
line, cable and direct broadcast satellite. The Broadband Communications
segment also includes the Companys foundation analog dial-up access portfolio,
including PC data and fax modems, and its broadcast video encoder and decoder
product family. Mindspeed Technologies designs, develops and sells
semiconductor networking solutions for communications applications in
enterprise, access, metropolitan and wide-area networks.

The accounting policies of the segments are the same as those described in Note
1. The Company evaluates segment performance based on segment operating income
(loss) excluding amortization of intangible assets, special charges, in-process
research and development and stock compensation costs. Special charges excluded
from segment operating expenses and segment operating income (loss) consist of
asset impairments, restructuring charges, separation costs, gains and losses on
the disposal of certain assets and certain costs associated with the sale of
NetPlane. This definition of segment operating income (loss) may be different
than definitions used by other companies.

The tables below present information about reportable segments (in thousands):

|                                    |                            |                                 |         |                    |         |                  |         |        |         |      |         |         |         |   |         |         |          |  
|----------------------------------- | -------------------------- | ------------------------------- | ------- | ------------------ | ------- | ---------------- | ------- | ------ | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | -------- | -
|                                    |                            |                                 |         | Three months ended |         | Six months ended
|                                    |                            |                                 |         | March 31,          |         | March 31,       
|                                    |                            |                                 |         |                    |         |                 
|                                    |                            |                                 |         | 2003               |         | 2002             |         | 2003   |         | 2002
|                                    |                            |                                 |         |                    |         |                  |         |        |         |     
|Broadband Communications:           |                            |                                 |         |                    |         |                  |         |        |         |      |         |         |         |   |         |        
|Revenues                            |                            | $                               | 140,123 |                    |         | $                | 129,728 |        |         | $    | 284,324 |         |         | $ | 256,665 |        
|Cost of goods sold                  |                            |                                 | 78,107  |                    |         |                  | 82,473  |        |         |      | 159,569 |         |         |   | 168,837 |        
|                                    |                            |                                 |         |                    |         |                  |         |        |         |      |         |         |         |   |         |        
|                                    | Gross margin               |                                 |         | 62,016             |         |                  |         | 47,255 |         |      |         | 124,755 |         |   |         | 87,828  |         
|Research and development            |                            |                                 | 38,810  |                    |         |                  | 37,825  |        |         |      | 78,579  |         |         |   | 73,976  |        
|Selling, general and administrative |                            |                                 | 22,850  |                    |         |                  | 25,586  |        |         |      | 45,284  |         |         |   | 48,963  |        
|                                    |                            |                                 |         |                    |         |                  |         |        |         |      |         |         |         |   |         |        
|                                    | Segment operating expenses |                                 |         | 61,660             |         |                  |         | 63,411 |         |      |         | 123,863 |         |   |         | 122,939 |         
|                                    |                            |                                 |         |                    |         |                  |         |        |         |      |         |         |         |   |         |        
|                                    |                            | Segment operating income (loss) |         | $                  | 356     |                  |         | $      | (16,156 | )    |         | $       | 892     |   |         | $       | (35,111  | )
|                                    |                            |                                 |         |                    |         |                  |         |        |         |      |         |         |         |   |         |        
|Mindspeed Technologies:             |                            |                                 |         |                    |         |                  |         |        |         |      |         |         |         |   |         |        
|Revenues                            |                            | $                               | 18,311  |                    |         | $                | 19,018  |        |         | $    | 38,566  |         |         | $ | 33,196  |        
|Cost of goods sold                  |                            |                                 | 5,659   |                    |         |                  | 7,746   |        |         |      | 11,796  |         |         |   | 14,656  |        
|                                    |                            |                                 |         |                    |         |                  |         |        |         |      |         |         |         |   |         |        
|                                    | Gross margin               |                                 |         | 12,652             |         |                  |         | 11,272 |         |      |         | 26,770  |         |   |         | 18,540  |         
|Research and development            |                            |                                 | 26,457  |                    |         |                  | 45,002  |        |         |      | 57,608  |         |         |   | 86,749  |        
|Selling, general and administrative |                            |                                 | 12,853  |                    |         |                  | 16,874  |        |         |      | 24,938  |         |         |   | 38,023  |        
|                                    |                            |                                 |         |                    |         |                  |         |        |         |      |         |         |         |   |         |        
|                                    | Segment operating expenses |                                 |         | 39,310             |         |                  |         | 61,876 |         |      |         | 82,546  |         |   |         | 124,772 |         
|                                    |                            |                                 |         |                    |         |                  |         |        |         |      |         |         |         |   |         |        
|                                    |                            | Segment operating loss          |         | $                  | (26,658 | )                |         | $      | (50,604 | )    |         | $       | (55,776 | ) |         | $       | (106,232 | )
|                                    |                            |                                 |         |                    |         |                  |         |        |         |      |         |         |         |   |         |        

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CONEXANT SYSTEMS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(unaudited)

A reconciliation of segment operating loss to operating loss is as follows (in
thousands):

|                                  |                |   |                    |         |                  |   |         |          |      |   |         |          |   |   |          |          |  
|--------------------------------- | -------------- | - | ------------------ | ------- | ---------------- | - | ------- | -------- | ---- | - | ------- | -------- | - | - | -------- | -------- | -
|                                  |                |   | Three months ended |         | Six months ended
|                                  |                |   | March 31,          |         | March 31,       
|                                  |                |   |                    |         |                 
|                                  |                |   | 2003               |         | 2002             |   | 2003    |          | 2002
|                                  |                |   |                    |         |                  |   |         |          |     
|Total segment operating loss      |                | $ | (26,302            | )       |                  | $ | (66,760 | )        |      | $ | (54,884 | )        |   | $ | (141,343 | )       
|Amortization of intangible assets |                |   | 13,121             |         |                  |   | 85,940  |          |      |   | 28,120  |          |   |   | 171,462  |         
|Special charges                   |                |   | 17,958             |         |                  |   | 21,319  |          |      |   | 28,563  |          |   |   | 22,319   |         
|Stock compensation                |                |   | (87                | )       |                  |   | 590     |          |      |   | 848     |          |   |   | 2,631    |         
|                                  |                |   |                    |         |                  |   |         |          |      |   |         |          |   |   |          |         
|                                  | Operating loss |   | $                  | (57,294 | )                |   | $       | (174,609 | )    |   | $       | (112,415 | ) |   | $        | (337,755 | )
|                                  |                |   |                    |         |                  |   |         |          |      |   |         |          |   |   |          |         

Revenues by geographic area, based upon country of destination, are as follows
(in thousands):

|                               |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|------------------------------ |  | ------------------ | ------- | ---------------- |  | ---- | ------- | ---- |  | - | ------- |  |  | - | ------- | 
|                               |  | Three months ended |         | Six months ended
|                               |  | March 31,          |         | March 31,       
|                               |  |                    |         |                 
|                               |  | 2003               |         | 2002             |  | 2003 |         | 2002
|                               |  |                    |         |                  |  |      |         |     
|Americas                       |  | $                  | 24,964  |                  |  | $    | 32,169  |      |  | $ | 56,502  |  |  | $ | 57,545  | 
|Asia-Pacific                   |  |                    | 119,413 |                  |  |      | 89,291  |      |  |   | 237,600 |  |  |   | 188,653 | 
|Europe, Middle East and Africa |  |                    | 14,057  |                  |  |      | 27,286  |      |  |   | 28,788  |  |  |   | 43,663  | 
|                               |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|                               |  | $                  | 158,434 |                  |  | $    | 148,746 |      |  | $ | 322,890 |  |  | $ | 289,861 | 
|                               |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 

The Company believes a substantial portion of the products sold to OEMs and
third-party manufacturing service providers in the Asia-Pacific region are
ultimately shipped to end-markets in the Americas and Europe. For the six
months ended March 31, 2003, one customer (a foreign distributor) accounted for
11% of net revenues. No other customer accounted for 10% or more of the
Companys net revenues for the six months ended March 31, 2003 or 2002.

9.     Guarantees

The Company has made guarantees and indemnities, under which it may be required
to make payments to a guaranteed or indemnified party, in relation to certain
transactions. In connection with the Companys spin-off from Rockwell, the
Company assumed responsibility for all contingent liabilities and then-current
and future litigation (including environmental and intellectual property
proceedings) against Rockwell or its subsidiaries in respect of the operations
of the semiconductor systems business of Rockwell. The Company may also be
responsible for certain federal income tax liabilities that relate to its
spin-off from Rockwell under the Tax Allocation Agreement, dated as of December
31, 1998, between the Company and Rockwell, which provides that the Company
will be responsible for certain taxes imposed on Rockwell, Conexant or Rockwell
shareholders. In connection with the Companys contribution of certain of its
manufacturing operations to Jazz Semiconductor, Inc. (Jazz), the Company
agreed to indemnify Jazz for certain environmental matters and other customary
divestiture-related matters. In connection with the sales of its products, the
Company provides intellectual property indemnities to its customers. In
connection with certain facility leases, the Company has indemnified its
lessors for certain claims arising from the facility or the lease. The Company
indemnifies its directors and officers to the maximum extent permitted under
the laws of the State of Delaware. The duration of the guarantees and
indemnities varies, and in many cases is indefinite. The guarantees and
indemnities to customers in connection with product sales generally are subject
to limits based upon the amount of the related product sales. The majority of
other guarantees and indemnities do not provide for any limitation of the
maximum potential future payments the Company could be obligated to make. The
Company has not recorded any liability for these guarantees and indemnities in
the accompanying consolidated balance sheets. Product warranty costs are not
significant.

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This information should be read in conjunction with our unaudited consolidated
condensed financial statements and the notes thereto included in this Quarterly
Report, and our audited consolidated financial statements and notes thereto and
Managements Discussion and Analysis of Financial Condition and Results of
Operations contained in our Annual Report on Form 10-K for the fiscal year
ended September 30, 2002.

Overview

We design, develop and sell semiconductor system solutions for communications
applications. Our expertise in mixed-signal processing allows us to deliver
integrated systems and semiconductor products which facilitate communications
worldwide through wireline voice and data communications networks and emerging
cable, satellite and fixed wireless broadband communications networks. We
operate in two business segments: our Broadband Communications business and
Mindspeed Technologies, our Internet infrastructure business.

Except where otherwise noted, this discussion of our financial condition and
results of operations represents our continuing operations, excluding our
discontinued wireless communications business and Mexicali Operations.

Our Broadband Communications business designs, develops and sells semiconductor
system solutions that connect personal communications access products, such as
set-top boxes, residential gateways, personal computers (PCs) and game
consoles, to voice, video and data services over broadband connections,
including asynchronous digital subscriber line (ADSL), cable and direct
broadcast satellite systems. The Broadband Communications business also
includes our foundation analog dial-up access portfolio and our video
processing product family. Our dial-up access products include a broad
portfolio of high speed modem chipsets and software for desktop and notebook PC
applications as well as embedded equipment applications including fax machines,
multifunctional peripherals, set-top boxes, gaming consoles and Internet
terminals. Our video processing solutions include a variety of broadcast video
decoder and encoder devices that enable the capture, display, storage and
playback of video and audio in PCs, set-top boxes, personal video recorders and
DVD applications.

Mindspeed Technologies designs, develops and sells semiconductor networking
solutions for communications applications in enterprise, access, metropolitan
and wide-area networks. Mindspeed Technologies products, ranging from physical
layer transceivers and framers to higher layer network processors, are
classified into three focused product families: multiservice access products,
T/E carrier products and asynchronous transfer mode (ATM)/multiprotocol label
switching (MPLS) network processing solutions. These product families are
complemented by a portfolio of optical transmission devices and switching
solutions which support mainstream synchronous optical networking
(SONET)/synchronous digital hierarchy (SDH) and packet-over-SONET applications.
Our products are sold to original equipment manufacturers (OEMs) for use in a
variety of network infrastructure equipment, including voice and media
gateways, high-speed routers, switches, access multiplexers, cross-connect
systems, add-drop multiplexers and digital loop carrier equipment, that support
the aggregation, transmission and switching of high-speed voice and data
traffic within different segments of the communications network.

We market and sell our semiconductor products and system solutions directly to
leading OEMs of communication electronics products, and indirectly through
electronic components distributors. We also sell our products to third-party
electronic manufacturing service providers, who manufacture products
incorporating our semiconductor products for OEMs. Sales to distributors
accounted for approximately 45% of net revenues in the first six months of
fiscal 2003. One customer (a foreign distributor) accounted for 11% of our net
revenues in the first six months of fiscal 2003; no other customer accounted
for 10% or more of our net revenues for the period. Our top 20 customers
accounted for 69% of net revenues for the first six months of fiscal 2003.
Revenues derived from customers located in the Americas, Europe and the
Asia-Pacific region were 17%, 9% and 74%, respectively, of our net revenues for
the first six months of fiscal 2003. We believe a substantial portion of the
products we sell to OEMs and third-party
manufacturing service providers in the Asia-Pacific region are ultimately
shipped to end-markets in the Americas and Europe.

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Separation of Broadband Communications and Mindspeed Technologies Businesses

On March 24, 2003, we announced our plan to proceed with the separation of the
Mindspeed Technologies business from the Broadband Communications business by
means of the distribution to Conexant shareholders of all outstanding shares of
common stock of Mindspeed Technologies, Inc. (Mindspeed), a wholly owned
subsidiary that will become an independent, publicly traded company. Prior to
the distribution, Conexant will transfer to Mindspeed assets and liabilities of
the Mindspeed business, including the stock of certain subsidiaries, and
certain other assets and liabilities which will be allocated to Mindspeed under
the distribution agreement to be entered into between Conexant and Mindspeed.
Also prior to the distribution, Conexant will contribute to Mindspeed cash in
an amount such that at the time of the distribution Mindspeeds cash balance
will be $100 million and Mindspeed will enter into a senior secured revolving
credit facility with Conexant, pursuant to which Mindspeed may borrow up to $50
million for working capital and general corporate purposes. At the time of the
distribution, Mindspeed will issue to Conexant warrants to purchase shares of
Mindspeed common stock representing approximately 20 percent of Mindspeeds
outstanding common stock on a fully diluted basis. The warrants will be
exercisable for a period of ten years after the distribution at a price per
share equal to the fair market value of Mindspeeds common stock at the time of
the distribution. Upon completion of the distribution, we will account for the
Mindspeed Technologies business as a discontinued operation in our consolidated
financial statements. We expect that the distribution will qualify as a
tax-free reorganization within the meaning of section 368(a)(1)(D) of the
Internal Revenue Code. The completion of the distribution is subject to the
satisfaction of certain conditions. We cannot assure you that we will
successfully complete the separation.

Spin-off and Merger of Wireless Communications Business

On June 25, 2002, we completed the distribution to Conexant shareholders (the
Spin-off Transaction) of outstanding shares of our wholly owned subsidiary
Washington Sub, Inc. (Washington), to which we contributed our wireless
communications business, other than certain assets and liabilities which we
retained. Immediately thereafter, Washington merged with and into Alpha
Industries, Inc. (Alpha), with Alpha the surviving corporation (the Merger). As
a result of the Spin-off Transaction and the Merger, Conexant shareholders
received 0.351 of a share of Alpha common stock for each Conexant share held
and continued to hold their Conexant shares. Upon completion of the Merger,
Alpha and its subsidiaries purchased our semiconductor assembly, module
manufacturing and test facility located in Mexicali, Mexico and our package
design team that supports the Mexicali facility. Effective June 26, 2002, Alpha
changed its name to Skyworks Solutions, Inc. (Skyworks).

Results of Operations

Net Revenues

We recognize revenues from product sales upon shipment and transfer of title,
in accordance with the shipping terms specified in the arrangement with the
customer. Revenue recognition is deferred in all instances where the earnings
process is incomplete. We sell a portion of our products to electronic
component distributors under agreements allowing for a right to return unsold
products. We defer the recognition of revenue on all sales to these
distributors until the products are sold by the distributors to a third party.
We record a reserve for sales returns and allowances for other customers based
on historical experience or specific identification of an event necessitating a
reserve. Development revenue is recognized when services are performed and was
not significant for any of the periods presented.

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The following table summarizes our net revenues by business segment:

|                                 |  |                    |       |             |  |             |       |           |  |            |       |   |  |  |     |    |  |  |    |   
|-------------------------------- |  | ------------------ | ----- | ----------- |  | ----------- | ----- | --------- |  | ---------- | ----- | - |  |  | --- | -- |  |  | -- | --
|                                 |  | Three months ended |       |             |  |             |       |           |  |           
|                                 |  |                    |       | Change from |  | Change from
|                                 |  | March 31,          |       | Dec. 31,    |  | March 31,   |       | Dec. 2002 |  | March 2002
|(in millions)                    |  | 2003               |       | 2002        |  | 2002        |       | Quarter   |  | Quarter   
|                                 |  |                    |       |             |  |             |       |           |  |           
|Net revenues:                    |  |                    |       |             |  |             |       |           |  |            |       |   |  |  |     |    |  |  |    |   
|Broadband Communications         |  | $                  | 140.1 |             |  | $           | 144.2 |           |  | $          | 129.7 |   |  |  | (3  | )% |  |  | 8  | % 
|Mindspeed Technologies           |  |                    | 18.3  |             |  |             | 20.3  |           |  |            | 19.0  |   |  |  | (10 | )% |  |  | (4 | )%
|                                 |  |                    |       |             |  |             |       |           |  |            |       |   |  |  |     |    |  |  |    |   
|                                 |  | $                  | 158.4 |             |  | $           | 164.5 |           |  | $          | 148.7 |   |  |  | (4  | )% |  |  | 7  | % 
|                                 |  |                    |       |             |  |             |       |           |  |            |       |   |  |  |     |    |  |  |    |   
|As a percentage of net revenues: |  |                    |       |             |  |             |       |           |  |            |       |   |  |  |     |    |  |  |    |   
|Broadband Communications         |  |                    | 88    | %           |  |             | 88    | %         |  |            | 87    | % |  |  |     |    |  |  |    |   
|Mindspeed Technologies           |  |                    | 12    | %           |  |             | 12    | %         |  |            | 13    | % |  |  |     |    |  |  |    |   
|                                 |  |                    |       |             |  |             |       |           |  |            |       |   |  |  |     |    |  |  |    |   
|                                 |  |                    | 100   | %           |  |             | 100   | %         |  |            | 100   | % |  |  |     |    |  |  |    |   
|                                 |  |                    |       |             |  |             |       |           |  |            |       |   |  |  |     |    |  |  |    |   

|                                 |  |                            |       |      |  |        |       |   |  |  |    |  
|-------------------------------- |  | -------------------------- | ----- | ---- |  | ------ | ----- | - |  |  | -- | -
|                                 |  | Six months ended March 31, |       |      |  |       
|                                 |  |                            |       |      |  |       
|                                 |  | 2003                       |       | 2002 |  | Change
|                                 |  |                            |       |      |  |       
|Net revenues:                    |  |                            |       |      |  |        |       |   |  |  |    |  
|Broadband Communications         |  | $                          | 284.3 |      |  | $      | 256.7 |   |  |  | 11 | %
|Mindspeed Technologies           |  |                            | 38.6  |      |  |        | 33.2  |   |  |  | 16 | %
|                                 |  |                            |       |      |  |        |       |   |  |  |    |  
|                                 |  | $                          | 322.9 |      |  | $      | 289.9 |   |  |  | 11 | %
|                                 |  |                            |       |      |  |        |       |   |  |  |    |  
|As a percentage of net revenues: |  |                            |       |      |  |        |       |   |  |  |    |  
|Broadband Communications         |  |                            | 88    | %    |  |        | 89    | % |  |  |    |  
|Mindspeed Technologies           |  |                            | 12    | %    |  |        | 11    | % |  |  |    |  
|                                 |  |                            |       |      |  |        |       |   |  |  |    |  
|                                 |  |                            | 100   | %    |  |        | 100   | % |  |  |    |  
|                                 |  |                            |       |      |  |        |       |   |  |  |    |  

Broadband Communications

Our Broadband Communications product revenues for the first six months of
fiscal 2003 increased 11% over the comparable period of fiscal 2002. The
increase principally reflects increased shipments of our home network
processing solutions, our satellite set-top box components and our client-side
ADSL modem product line. In particular, our home network processors benefited
from increased production of home routers and wireless access points among
leading OEMs of consumer network products. In addition, we experienced steady
demand for our dial-up modem portfolio, with volume increases more than
offsetting a decline in average selling prices for those products. These
increases were partially offset by lower sales of our media processing
products, including our broadcast video encoder/decoder solutions and the
impact of the divestiture of our digital imaging business in the second quarter
of fiscal 2002.

Broadband Communications revenues for the second quarter of fiscal 2003
decreased 3% compared to the immediately preceding quarter, reflecting
seasonality in demand for our consumer broadcast video solutions and satellite
set-top box components and lower sales volume in our home network processing
solutions, partially offset by increased shipments of our client-side ADSL
modem product line and dial-up modems for PC and gaming console applications.

Mindspeed Technologies

Mindspeed Technologies net revenues continue to be impacted by the sharply
lower demand for network infrastructure equipment which has affected us, our
customers and our competitors since the second quarter of fiscal 2001. This
downturn in demand led to sharply lower sales volume, as compared to fiscal
2000 levels, across the majority of our product families. The effect was most
pronounced in the first quarter of fiscal 2002, when Mindspeed Technologies
quarterly revenues decreased to $14.2 milliontheir lowest level in several
yearsas many of our customers dramatically reduced purchases as they sought to
consume their higher than normal levels of component inventories.

Since that time, our Mindspeed Technologies segment has experienced some
renewed demand in its addressed markets. Mindspeed Technologies revenues of
$38.6 million for the first six months of fiscal 2003 reflect modestly higher
sales volumes in our T/E carrier products and our switching solutions and, to a
lesser extent, our ATM/MPLS network processors, as compared to the first six
months of fiscal 2002. Revenue increases from these products were partially
offset by the impact of the sale of NetPlane in January 2003.

Mindspeed Technologies fiscal 2003 second quarter revenues decreased
approximately $2.0 million compared to the immediately preceding quarter,
including a decrease of approximately $1.0 million resulting from the sale of

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NetPlane in January 2003. The decrease also reflects lower sales of our
multiservice access products due to continued high inventory levels at key OEM
customers and lower sales of our symmetric DSL transceivers. These decreases
were partially offset by higher sales volumes in our T/E carrier products and
our switching solutions.

We believe that demand for the products sold by our Mindspeed Technologies
business, which are incorporated into telecommunications and data
communications infrastructure equipment, is recovering more slowly than demand
for products offered by our Broadband Communications business, which are
ultimately sold to individual consumers in products such as PCs, cable and
satellite set-top boxes and other home networking products.

Gross Margin

|                        |  |                    |      |             |  |             |      |           |  |            |      |   |  |  |    |    |  |  |    |  
|----------------------- |  | ------------------ | ---- | ----------- |  | ----------- | ---- | --------- |  | ---------- | ---- | - |  |  | -- | -- |  |  | -- | -
|                        |  | Three months ended |      |             |  |             |      |           |  |           
|                        |  |                    |      | Change from |  | Change from
|                        |  | March 31,          |      | Dec. 31,    |  | March 31,   |      | Dec. 2002 |  | March 2002
|(in millions)           |  | 2003               |      | 2002        |  | 2002        |      | Quarter   |  | Quarter   
|                        |  |                    |      |             |  |             |      |           |  |           
|Gross margin            |  | $                  | 74.7 |             |  | $           | 76.9 |           |  | $          | 58.5 |   |  |  | (3 | )% |  |  | 28 | %
|Percent of net revenues |  |                    | 47   | %           |  |             | 47   | %         |  |            | 39   | % |  |  |    |    |  |  |    |  

|                        |  |                            |       |      |  |        |       |   |  |  |    |  
|----------------------- |  | -------------------------- | ----- | ---- |  | ------ | ----- | - |  |  | -- | -
|                        |  | Six months ended March 31, |       |      |  |       
|                        |  |                            |       |      |  |       
|                        |  | 2003                       |       | 2002 |  | Change
|                        |  |                            |       |      |  |       
|Gross margin            |  | $                          | 151.5 |      |  | $      | 106.4 |   |  |  | 42 | %
|Percent of net revenues |  |                            | 47    | %    |  |        | 37    | % |  |  |    |  

Gross margin represents revenues less cost of goods sold. As a fabless
semiconductor company, we use third parties for wafer fabrication and assembly
and test services. Our cost of goods sold consists predominantly of purchased
finished wafers, assembly and test services, royalty and other intellectual
property costs, and labor and overhead associated with product procurement.
Prior to the divestiture of our former manufacturing operations in the second
quarter of fiscal 2002, purchased materials, labor and overhead (including
depreciation) associated with product manufacturing and sustaining engineering
expenses made up a majority of our cost of goods sold. Our gross margins for
the first six months of fiscal 2003 compared with the similar period of fiscal
2002 reflect the elimination of the burden of our underutilized former
manufacturing operations and the favorable impact of our cost reduction
actions. Gross margins for the first six months of fiscal 2003 also benefited
from improved product mix and the redeployment of our product and test
engineering teamspreviously assigned to our former manufacturing operationsto
product development efforts, with the associated costs classified as research
and development expenses.

Our gross margin for the first six months of fiscal 2003 and 2002 also
benefited from the sale of inventories with an original cost of $13.5 million
and $23.8 million, respectively, that we had written down to a zero cost basis
during fiscal year 2001. These sales resulted from renewed demand for certain
products that was not anticipated at the time of the write-downs. The
previously written-down inventories were generally sold at prices which
exceeded their original cost. Had we not previously written down the cost basis
of these goods, our cost of goods sold would include the original cost of such
goods, and our gross margin for the first six months of fiscal 2003 would have
been $138.0 million (43% of our net revenues) compared to $82.6 million (28% of
our net revenues) for the first six months of fiscal 2002.

Our gross margins for the second quarter of fiscal 2003 remained at 47% of net
revenues, the same level as the immediately preceding quarter. Gross margin for
the second quarter of fiscal 2003 reflects improved product mix, offset by the
impact of fewer sales of inventories previously written down to a zero cost
basis (in fiscal 2001). The favorable impact of these sales on our gross
margin, based upon the original cost of the goods we were able to sell, was
$4.8 million in the second quarter of fiscal 2003 compared to $8.7 million in
the fiscal 2003 first quarter.

We assess the recoverability of our inventories at least quarterly through a
review of inventory levels in relation to foreseeable demand (generally over
six months). Foreseeable demand is based upon all available information,
including sales backlog and forecasts, product marketing plans and product life
cycles. When the inventory on hand exceeds the foreseeable demand, we write
down the value of those inventories which, at the time of our review, we expect
to be unable to sell. The amount of the inventory write-down is the excess of
historical cost over estimated

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realizable value. Once established, these write-downs are considered permanent
adjustments to the cost basis of the excess inventory.

Our products are used by communications electronics OEMs that have designed our
products into communications equipment. For many of our products, we gain these
design wins through a lengthy sales cycle, which often includes providing
technical support to the OEM customer. Moreover, once a customer has designed a
particular suppliers components into a product, substituting another
suppliers components often requires substantial design changes which involve
significant cost, time, effort and risk. In the event of the loss of business
from existing OEM customers, we may be unable to secure new customers for our
existing products without first achieving new design wins. When the quantities
of inventory on hand exceed foreseeable demand from existing OEM customers into
whose products our products have been designed, we generally will be unable to
sell our excess inventories to others, and the estimated realizable value of
such inventories to us is generally zero.

We recorded an aggregate of $188.8 million of inventory write-downs in fiscal
2001. From the time of these write-downs and through March 31, 2003, we
scrapped a portion of these inventories having an original cost of $69.7
million and sold a portion of these inventories with an original cost of $70.5
million. The sales resulted from increased demand beginning in the fourth
quarter of fiscal 2001 which was not anticipated at the time of the
write-downs. As of March 31, 2003, in our Mindspeed Technologies segment we
continued to hold inventories with an original cost of $48.6 million which were
previously written down to a zero cost basis; all such inventories in our
Broadband Communications segment have been scrapped or sold. We currently
intend to hold these remaining inventories and will sell these inventories if
we experience renewed demand for these products. While there can be no
assurance that we will be able to do so, if we are able to sell a portion of
the inventories which are carried at zero cost basis, our gross margins will be
favorably affected by an amount equal to the original cost of the zero-cost
basis inventory sold. To the extent that we do not experience renewed demand
for the remaining inventories, they will be scrapped as they become obsolete.

We base our assessment of the recoverability of our inventories, and the
amounts of any write-downs, on currently available information and assumptions
about future demand and market conditions. Demand for our products may
fluctuate significantly over time, and actual demand and market conditions may
be more or less favorable than those projected by management. In the event that
actual demand is lower than originally projected, additional inventory
write-downs may be required.

Under our long-term supply arrangement with Jazz Semiconductor, Inc. (Jazz), we
are obligated to purchase certain minimum annual volumes of wafers through
March 2005. Additionally, under a long-term supply agreement with Skyworks, we
are obligated to purchase certain minimum amounts of assembly and test services
during fiscal 2003. In the event our actual purchases under these arrangements
are less than the required minimum volumes, we will be required to make
additional payments, which would adversely affect our gross margin. We
currently anticipate meeting each of the annual minimum purchase obligations
under the long-term supply agreements with Jazz and Skyworks.

Research and Development

|                         |  |                              |      |                            |  |      |     |      |  |        |      |      |  |   |       |   |  |  |     |    |  |   |       |  
|------------------------ |  | ---------------------------- | ---- | -------------------------- |  | ---- | --- | ---- |  | ------ | ---- | ---- |  | - | ----- | - |  |  | --- | -- |  | - | ----- | -
|                         |  | Three months ended March 31, |      | Six months ended March 31,
|                         |  |                              |      |                           
|(in millions)            |  | 2003                         |      | Change                     |  | 2002 |     | 2003 |  | Change |      | 2002
|                         |  |                              |      |                            |  |      |     |      |  |        |      |     
|Research and development |  | $                            | 64.9 |                            |  |      | (22 | )%   |  | $      | 83.3 |      |  | $ | 136.4 |   |  |  | (16 | )% |  | $ | 162.7 |  
|Percent of net revenues  |  |                              | 41   | %                          |  |      |     |      |  |        | 56   | %    |  |   | 42    | % |  |  |     |    |  |   | 56    | %

Our research and development (R&D) expenses consist principally of direct
personnel costs, photomask and other costs for pre-production evaluation and
testing of new devices and design and test tool costs. Our R&D expenses also
include the costs for advanced semiconductor process development, design
automation and advanced package development for the benefit of each of our
businesses. The decrease in R&D expenses for the first six months of fiscal
2003 compared to the similar period of fiscal 2002 primarily reflects lower
headcount and personnel-related costs, principally in our Mindspeed
Technologies segment, resulting from our fiscal 2002 expense reduction and
restructuring actions and from the contribution of the majority of our advanced
process development efforts to Jazz in connection with the formation of Jazz in
the second quarter of fiscal 2002. These decreases were partially offset

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by higher costs of acquired technology and the inclusion in research and
development expenses for the fiscal 2003 period of costs associated with our
product and test engineering teams.

Selling, General and Administrative

|                                    |  |                              |      |                            |  |      |     |      |  |        |      |      |  |   |      |   |  |  |     |    |  |   |      |  
|----------------------------------- |  | ---------------------------- | ---- | -------------------------- |  | ---- | --- | ---- |  | ------ | ---- | ---- |  | - | ---- | - |  |  | --- | -- |  | - | ---- | -
|                                    |  | Three months ended March 31, |      | Six months ended March 31,
|                                    |  |                              |      |                           
|(in millions)                       |  | 2003                         |      | Change                     |  | 2002 |     | 2003 |  | Change |      | 2002
|                                    |  |                              |      |                            |  |      |     |      |  |        |      |     
|Selling, general and administrative |  | $                            | 37.1 |                            |  |      | (13 | )%   |  | $      | 42.6 |      |  | $ | 72.0 |   |  |  | (18 | )% |  | $ | 87.7 |  
|Percent of net revenues             |  |                              | 23   | %                          |  |      |     |      |  |        | 29   | %    |  |   | 22   | % |  |  |     |    |  |   | 30   | %

Our selling, general and administrative (SG&A) expenses include personnel
costs, sales representative commissions, advertising and other marketing costs.
Our SG&A expenses also include costs of corporate functions including legal,
accounting, treasury, human resources, real estate, information systems,
customer service, sales, marketing, field application engineering and other
services. The decrease in SG&A expenses for the first six months of fiscal 2003
compared to the similar period of fiscal 2002 primarily reflects lower
headcount and personnel-related costs, principally in our Mindspeed
Technologies segment, resulting from our fiscal 2002 expense reduction and
restructuring actions.

Amortization of Intangible Assets

|                                  |  |                              |      |                            |  |      |     |      |  |        |      |      |  |   |      |   |  |  |     |    |  |   |       |  
|--------------------------------- |  | ---------------------------- | ---- | -------------------------- |  | ---- | --- | ---- |  | ------ | ---- | ---- |  | - | ---- | - |  |  | --- | -- |  | - | ----- | -
|                                  |  | Three months ended March 31, |      | Six months ended March 31,
|                                  |  |                              |      |                           
|(in millions)                     |  | 2003                         |      | Change                     |  | 2002 |     | 2003 |  | Change |      | 2002
|                                  |  |                              |      |                            |  |      |     |      |  |        |      |     
|Amortization of intangible assets |  | $                            | 13.1 |                            |  |      | (85 | )%   |  | $      | 85.9 |      |  | $ | 28.1 |   |  |  | (84 | )% |  | $ | 171.5 |  
|Percent of net revenues           |  |                              | 8    | %                          |  |      |     |      |  |        | 58   | %    |  |   | 9    | % |  |  |     |    |  |   | 59    | %

The lower amortization expenses in the first six months of fiscal 2003
primarily resulted from the adoption of SFAS 141 and SFAS 142 as of the
beginning of fiscal 2003. SFAS 141 requires that all business combinations be
accounted for using the purchase method and provides new criteria for recording
intangible assets separately from goodwill. Upon adoption, we evaluated our
existing goodwill and intangible assets against the new criteria, which
resulted in certain intangible assets with a carrying value of $4.7 million
being subsumed into goodwill. SFAS 142 addresses financial accounting and
reporting for acquired goodwill and other intangible assets and requires that
we no longer amortize goodwill into our results of operations. Instead,
goodwill must be tested at least annually for impairment and written down when
impaired. We expect that amortization of intangible assets will be
approximately $58 million for fiscal 2003.

During the second quarter of fiscal 2003, we completed the transition
impairment test of our goodwill (as of the beginning of fiscal 2003) required
by SFAS 142. Our reporting units (as defined in SFAS 142) are our Broadband
Communications and Mindspeed Technologies segments. For purposes of the
impairment test, we determined the fair values of each of the reporting units
considering both an income approach and a market approach. We determined that
the recorded value of goodwill in the Mindspeed Technologies reporting unit
exceeded its fair value (estimated to be zero) by $573.2 million. We recorded a
$573.2 million chargereflected in the accompanying statement of operations as
the cumulative effect of a change in accounting principleto write down the
value of goodwill in the Mindspeed Technologies segment to its estimated fair
value. See Note 1 of Notes to Consolidated Condensed Financial
Statements. In addition, future periodic impairment tests may result in significant
write-downs of the value of goodwill.

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Special Charges

Special charges consist of the following:

|                      |  |                              |      |                            |  |      |  |      |      |        |  |      |      |   |  |    |  |   |      |  |  |  |  | 
|--------------------- |  | ---------------------------- | ---- | -------------------------- |  | ---- |  | ---- | ---- | ------ |  | ---- | ---- | - |  | -- |  | - | ---- |  |  |  |  | 
|                      |  | Three months ended March 31, |      | Six months ended March 31,
|                      |  |                              |      |                           
|(in millions)         |  | 2003                         |      | Change                     |  | 2002 |  | 2003 |      | Change |  | 2002
|                      |  |                              |      |                            |  |      |  |      |      |        |  |     
|Asset impairments     |  | $                            | 20.7 |                            |  | nm   |  | $    | 17.6 |        |  | $    | 23.2 |   |  | nm |  | $ | 17.6 | 
|Restructuring charges |  |                              | 4.0  |                            |  | nm   |  |      | 3.6  |        |  |      | 9.5  |   |  | nm |  |   | 4.6  | 
|Separation costs      |  |                              | 1.1  |                            |  | nm   |  |      | 0.1  |        |  |      | 1.1  |   |  | nm |  |   | 0.1  | 
|Other special charges |  |                              | (9.0 | )                          |  | nm   |  |      |     |        |  |      | (6.4 | ) |  | nm |  |   |     | 
|                      |  |                              |      |                            |  |      |  |      |      |        |  |      |      |   |  |    |  |   |      |  |  |  |  | 
|                      |  | $                            | 16.8 |                            |  | nm   |  | $    | 21.3 |        |  | $    | 27.4 |   |  | nm |  | $ | 22.3 | 
|                      |  |                              |      |                            |  |      |  |      |      |        |  |      |      |   |  |    |  |   |      |  |  |  |  | 

Asset Impairments

For a discussion of our asset impairment charges, see Note 6 of Notes to
Consolidated Condensed Financial Statements.

Restructuring Charges

Commencing in fiscal 2001, and continuing into fiscal 2003, we implemented a
number of cost reduction initiatives to improve our operating cost structure.
For a discussion of our cost reduction initiatives and activity under our
restructuring plans, see Note 6 of Notes to Consolidated Condensed Financial
Statements.

On March 24, 2003 we announced a further restructuring plan in our Mindspeed
Technologies segment. The cost reduction actions under the plan include the
closure of the HotRail design center in San Jose, California and certain other
Mindspeed facilities and a further workforce reduction of approximately 150
employees. We expect to complete these actions by the end of the calendar year
and anticipate that these actions will reduce Mindspeeds operating cost by
approximately $30 million on an annualized basis from the fiscal 2003 first
quarters level.

Through March 31, 2003, we have paid an aggregate of $39.9 million in
connection with our fiscal 2001, 2002 and 2003 restructuring plans and we have
a remaining accrued restructuring balance aggregating $29.1 million. We expect
to pay a majority of the amounts accrued for the workforce reductions during
fiscal 2003 and we expect to pay the obligations for the non-cancelable lease
and other commitments over their respective terms, which principally expire
through fiscal 2005. In addition, costs for severance benefits under the
recently announced Mindspeed 2003 restructuring plan totaling approximately
$3.7 million, which we expect to pay principally during fiscal 2003, will be
included in restructuring charges when incurred. Cash payments to complete the
restructuring actions will be funded from available cash reserves and funds
from product sales, and are not expected to significantly impact our liquidity.

Separation Costs

Separation costs for the first six months of fiscal 2003 consist of costs
related to the planned separation of the Mindspeed Technologies businesses from
the Broadband Communications business.

Other Special Charges

Other special charges for the first six months of fiscal 2003 principally
consist of a $9.0 million gain on the sale of the assets of NetPlane, partially
offset by a $2.7 million loss on the sale of certain semiconductor test
equipment.

Gain on Debt Extinguishment

During the first six months of fiscal 2003, we purchased $80.2 million
principal amount of our 4% Convertible Subordinated Notes due 2007 at
prevailing market prices, resulting in a gain of $34.6 million.

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Other Expense, Net

|                            |  |                              |       |                            |  |      |     |      |  |        |      |      |  |   |       |    |  |  |     |   |  |   |       |   
|--------------------------- |  | ---------------------------- | ----- | -------------------------- |  | ---- | --- | ---- |  | ------ | ---- | ---- |  | - | ----- | -- |  |  | --- | - |  | - | ----- | --
|                            |  | Three months ended March 31, |       | Six months ended March 31,
|                            |  |                              |       |                           
|(in millions)               |  | 2003                         |       | Change                     |  | 2002 |     | 2003 |  | Change |      | 2002
|                            |  |                              |       |                            |  |      |     |      |  |        |      |     
|Other income (expense), net |  | $                            | (44.9 | )                          |  |      | 559 | %    |  | $      | (6.8 | )    |  | $ | (41.5 | )  |  |  | 160 | % |  | $ | (16.0 | ) 
|Percent of net revenues     |  |                              | (28   | )%                         |  |      |     |      |  |        | (5   | )%   |  |   | (13   | )% |  |  |     |   |  |   | (6    | )%

Other expense, net for the first six months of fiscal 2003 is comprised
primarily of $34.4 million of write-downs of certain non-marketable
investments. Other expense, net also includes interest expense on our
convertible subordinated notes and a $1.8 million decrease in the fair value of
the conversion right under the Skyworks 15% convertible senior subordinated
notes. Such amounts were partially offset by interest income on invested cash
balances and the Skyworks 15% convertible senior subordinated notes. We adjust
the carrying value of the 15% convertible senior subordinated notes to
estimated fair value each period, with changes in the fair value of the
conversion right included in other income (expense).

Other expense, net for the first six months of fiscal 2002 is comprised
primarily of a $7.7 million write-down of certain non-marketable investments
and interest expense on our convertible subordinated notes, partially offset by
interest income on invested cash balances and gains on sales of assets.

The investment write-downs reflect declines in the fair values of these
investments which we determined were other than temporary and reduced the
carrying values of the investments to their estimated fair values. The
investments consist of equity interests in early stage technology companies
which we account for under the cost method. We determined the estimated fair
values based upon financial and other information available at the time of the
write-downs, including current and projected business prospects for the subject
companies.

As a result of the restructuring of the financing agreements with Skyworks, we
expect that our interest income will continue to be significantly lower than
the fiscal 2003 first quarters level. Additionally, changes in the fair value
of the conversion right under the Skyworks 15% convertible senior subordinated
notes may significantly affect our results of operations (either favorably or
unfavorably) based upon fluctuations in the market price of Skyworks common
stock.

Provision (Benefit) for Income Taxes

As a result of our recent operating losses and our expectation of future
operating results, we determined that it is more likely than not that the
additional income tax benefits (principally net operating losses we can carry
forward to future years) which arose during fiscal 2002 and the first six
months of fiscal 2003 will not be realized. Accordingly, we have not recognized
any income tax benefits relating to our operating losses for those periods and
we do not expect to recognize any income tax benefits relating to future
operating losses until we believe that such tax benefits are more likely than
not to be realized. We expect foreign income taxes to be insignificant.
Consequently, we expect our effective income tax rate will be approximately 0%
for fiscal 2003. Our provision for income taxes for the first six months of
fiscal 2003 and 2002 consisted of income taxes incurred by certain of our
foreign subsidiaries, offset by refunds received.

As of September 30, 2002, we had a valuation allowance of $524 million for the
deferred tax assets which we do not expect to realize through the reduction of
future income tax payments. We believe the remaining portion of our deferred
tax assets will be realized based on our current expectations of future
earnings and tax planning strategies available to us. We evaluate the
realizability of our deferred tax assets quarterly and in the event that we
determine that we will not be able to realize all or part of our deferred tax
assets in the future, an adjustment to the deferred tax assets would be charged
against income in the period such determination is made.

Segment Operating Performance

Our segment operating income (loss) excludes amortization of intangible assets,
special charges, in-process research and development and stock compensation
costs. Special charges excluded from segment operating income (loss) consist of
asset impairments, restructuring charges, separation costs, gains and losses on
the disposal of certain assets and certain costs associated with the disposal
of NetPlane. Our definition of segment operating income (loss) may be different
than definitions used by other companies.

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The following table presents our segment operating income (loss) and
consolidated operating loss:

|                                    |                            |                                 |       |                    |       |                  |       |           |       |           |       |           |        |   |       |       |        |   |        |       |        |  
|----------------------------------- | -------------------------- | ------------------------------- | ----- | ------------------ | ----- | ---------------- | ----- | --------- | ----- | --------- | ----- | --------- | ------ | - | ----- | ----- | ------ | - | ------ | ----- | ------ | -
|                                    |                            |                                 |       | Three months ended |       | Six months ended
|                                    |                            |                                 |       |                    |       |                 
|                                    |                            |                                 |       | March 31,          |       | Dec. 31,         |       | March 31, |       | March 31, |       | March 31,
|                                    |                            |                                 |       | 2003               |       | 2002             |       | 2002      |       | 2003      |       | 2002     
|                                    |                            |                                 |       |                    |       |                  |       |           |       |           |       |          
|Broadband Communications:           |                            |                                 |       |                    |       |                  |       |           |       |           |       |           |        |   |       |       |        |   |        |      
|Revenues                            |                            | $                               | 140.1 |                    |       | $                | 144.2 |           |       | $         | 129.7 |           |        | $ | 284.3 |       |        | $ | 256.7  |      
|Cost of goods sold                  |                            |                                 | 78.1  |                    |       |                  | 81.5  |           |       |           | 82.5  |           |        |   | 159.5 |       |        |   | 168.9  |      
|                                    |                            |                                 |       |                    |       |                  |       |           |       |           |       |           |        |   |       |       |        |   |        |      
|                                    | Gross margin               |                                 |       | 62.0               |       |                  |       | 62.7      |       |           |       | 47.2      |        |   |       | 124.8 |        |   |        | 87.8  |       
|                                    | Gross margin %             |                                 |       | 44                 | %     |                  |       | 44        | %     |           |       | 36        | %      |   |       | 44    | %      |   |        | 34    | %     
|Research and development            |                            |                                 | 38.8  |                    |       |                  | 39.8  |           |       |           | 37.8  |           |        |   | 78.6  |       |        |   | 74.0   |      
|Selling, general and administrative |                            |                                 | 22.8  |                    |       |                  | 22.4  |           |       |           | 25.6  |           |        |   | 45.3  |       |        |   | 48.9   |      
|                                    |                            |                                 |       |                    |       |                  |       |           |       |           |       |           |        |   |       |       |        |   |        |      
|                                    | Segment operating expenses |                                 |       | 61.6               |       |                  |       | 62.2      |       |           |       | 63.4      |        |   |       | 123.9 |        |   |        | 122.9 |       
|                                    |                            |                                 |       |                    |       |                  |       |           |       |           |       |           |        |   |       |       |        |   |        |      
|                                    |                            | Segment operating income (loss) |       | $                  | 0.4   |                  |       | $         | 0.5   |           |       | $         | (16.2  | ) |       | $     | 0.9    |   |        | $     | (35.1  | )
|                                    |                            |                                 |       |                    |       |                  |       |           |       |           |       |           |        |   |       |       |        |   |        |      
|Mindspeed Technologies:             |                            |                                 |       |                    |       |                  |       |           |       |           |       |           |        |   |       |       |        |   |        |      
|Revenues                            |                            | $                               | 18.3  |                    |       | $                | 20.2  |           |       | $         | 19.0  |           |        | $ | 38.5  |       |        | $ | 33.2   |      
|Cost of goods sold                  |                            |                                 | 5.7   |                    |       |                  | 6.1   |           |       |           | 7.7   |           |        |   | 11.8  |       |        |   | 14.6   |      
|                                    |                            |                                 |       |                    |       |                  |       |           |       |           |       |           |        |   |       |       |        |   |        |      
|                                    | Gross margin               |                                 |       | 12.6               |       |                  |       | 14.1      |       |           |       | 11.3      |        |   |       | 26.7  |        |   |        | 18.6  |       
|                                    | Gross margin %             |                                 |       | 69                 | %     |                  |       | 70        | %     |           |       | 59        | %      |   |       | 69    | %      |   |        | 56    | %     
|Research and development            |                            |                                 | 26.4  |                    |       |                  | 31.1  |           |       |           | 45.0  |           |        |   | 57.6  |       |        |   | 86.8   |      
|Selling, general and administrative |                            |                                 | 12.9  |                    |       |                  | 12.1  |           |       |           | 16.9  |           |        |   | 24.9  |       |        |   | 38.0   |      
|                                    |                            |                                 |       |                    |       |                  |       |           |       |           |       |           |        |   |       |       |        |   |        |      
|                                    | Segment operating expenses |                                 |       | 39.3               |       |                  |       | 43.2      |       |           |       | 61.9      |        |   |       | 82.5  |        |   |        | 124.8 |       
|                                    |                            |                                 |       |                    |       |                  |       |           |       |           |       |           |        |   |       |       |        |   |        |      
|                                    |                            | Segment operating loss          |       | $                  | (26.7 | )                |       | $         | (29.1 | )         |       | $         | (50.6  | ) |       | $     | (55.8  | ) |        | $     | (106.2 | )
|                                    |                            |                                 |       |                    |       |                  |       |           |       |           |       |           |        |   |       |       |        |   |        |      
|Total segment operating loss        |                            | $                               | (26.3 | )                  |       | $                | (28.6 | )         |       | $         | (66.8 | )         |        | $ | (54.9 | )     |        | $ | (141.3 | )    
|Amortization of intangible assets   |                            |                                 | 13.1  |                    |       |                  | 15.0  |           |       |           | 85.9  |           |        |   | 28.1  |       |        |   | 171.5  |      
|Special charges                     |                            |                                 | 18.0  |                    |       |                  | 10.6  |           |       |           | 21.3  |           |        |   | 28.6  |       |        |   | 22.3   |      
|Stock compensation                  |                            |                                 | (0.1  | )                  |       |                  | 0.9   |           |       |           | 0.6   |           |        |   | 0.8   |       |        |   | 2.7    |      
|                                    |                            |                                 |       |                    |       |                  |       |           |       |           |       |           |        |   |       |       |        |   |        |      
|                                    |                            | Operating loss                  |       | $                  | (57.3 | )                |       | $         | (55.1 | )         |       | $         | (174.6 | ) |       | $     | (112.4 | ) |        | $     | (337.8 | )
|                                    |                            |                                 |       |                    |       |                  |       |           |       |           |       |           |        |   |       |       |        |   |        |      

Broadband Communications

For the first six months of fiscal 2003, our Broadband Communications segment
returned to operating profitability with segment operating income of $0.9
million compared to a segment operating loss of $35.1 million for the similar
fiscal 2002 period. The improved operating performance reflects the 11%
increase in Broadband Communications net revenues over the fiscal 2002 period.
Our segment operating income for the first six months of fiscal 2003 also
benefited from the elimination of the negative impact on our cost of goods sold
of our underutilized former manufacturing operations (which we contributed to
Jazz in the second quarter of fiscal 2002). In addition, the Broadband
Communications segments operating performance for the first six months of
fiscal 2003 and 2002 benefited from the sale of inventories with an original
cost of $10.9 million and $22.1 million, respectively, that we had written down
to a zero cost basis during fiscal year 2001. These sales resulted from renewed
demand for certain products that was not anticipated at the time we recorded
the inventory write-down in fiscal 2001.

Broadband Communications segment operating profit for the fiscal 2003 second
quarter was comparable to the immediately preceding quarter, with lower
operating expenses offsetting the 3% decrease in quarterly revenues.

Mindspeed Technologies

The improvement in Mindspeed Technologies segment operating loss for the first
six months of fiscal 2003 compared to the similar fiscal 2002 period
principally reflects the positive impact of our cost reduction initiatives. The
lower segment operating loss also reflects the gross margin impact of a $5.4
million (16%) increase in net revenues we experienced for the first six months
of fiscal 2003 compared to the similar fiscal 2002 period.

Mindspeed Technologies quarterly revenues remain substantially lower than
fiscal 2000 levels and we believe that demand for Mindspeed Technologies
products, which are incorporated into telecommunications and data
communications infrastructure equipment, is recovering more slowly than demand
for products offered by our Broadband Communications business. During fiscal
2002, we began to experience some renewed demand in the end markets for certain
of our Mindspeed Technologies products, including our T/E physical layer
products, crosspoint switches and ATM/MPLS network processors. Moreover, we
have announced additional expense reduction and restructuring initiatives to
further improve our operating cost structure, and we expect to realize their
full effects

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beginning in the fiscal 2004 second quarter. We anticipate that these actions,
when complete, will reduce Mindspeeds operating costs by approximately $30
million on an annualized basis from the fiscal 2003 first quarters level.

Liquidity and Capital Resources

Our cash and cash equivalents decreased by $9.2 million during the first six
months of fiscal 2003. Cash used in operating activities was $91.7 million for
the first six months of fiscal 2003, compared to cash used in operating
activities of $106.1 million for the comparable period in fiscal 2002.
Operating cash flows for the fiscal 2003 period reflect our loss from
continuing operations of $120.2 million, offset by non-cash charges
(depreciation and amortization and other) of $72.1 million, and a net increase
in the non-cash components of working capital of $43.6 million. The working
capital increases principally consist of a $13.3 million increase in
inventories and a $25.7 million decrease in accounts payable. Before the effect
of the working capital changes, cash used in operating activities was $48.1
million for the first six months of fiscal 2003, compared to $111.9 million for
the comparable period of fiscal 2002.

Cash provided by investing activities of $125.9 million for the first six
months of fiscal 2003 includes the $170.0 debt repayment from Skyworks, offset
by $35.0 million advanced earlier to Skyworks under the credit facility.
Investing cash flows also included proceeds from the sale of assets of $11.3
million, offset by capital expenditures of $10.7 million, net purchases of
marketable securities of $8.2 million and investments of $1.5 million. Cash
provided by investing activities in the first six months of fiscal 2002
principally consisted of $49.3 million of net sales of marketable securities
and $41.7 million in proceeds from the sale of assets, partially offset by
capital expenditures of $10.5 million and payments for acquisitions and
investments of $6.7 million.

Cash used in financing activities of $43.4 million for the first six months of
fiscal 2003 consisted of payments of $44.5 to repurchase $80.2 million
principal amount of our 4% convertible subordinated notes due 2007, partially
offset by proceeds from the exercise of stock options. Cash provided by
financing activities of $10.2 million for the first six months of fiscal 2002
consisted of proceeds from the exercise of stock options.

As of September 30, 2002, we held notes receivable from Skyworks with an
aggregate principal amount of $180.0 million, including the $150.0 million Term
Notes and $30.0 million outstanding under the revolving credit facility. In
November 2002, we restructured the financing agreements with Skyworks. Skyworks
repaid $105.0 million of the principal amount and all of the accrued interest
owed to us under the Term Notes and the remaining principal balance of the Term
Notes was exchanged for $45.0 million principal amount of the Skyworks 15%
convertible senior subordinated notes with a maturity date of June 30, 2005.
Skyworks also paid us all amounts outstanding under the credit facility, the
credit facility was cancelled and we released all security interests in
Skyworks assets and properties. Skyworks may redeem the 15% convertible senior
subordinated notes at any time after May 12, 2004, subject to a redemption
premium of 3% of the outstanding principal amount. We may, at our option,
convert the outstanding principal amount of the 15% convertible senior
subordinated notes into shares of Skyworks common stock based upon the
conversion price (initially $7.87 per share, subject to adjustment under
certain circumstances). At maturity, Skyworks must pay the outstanding
principal amount by delivering to us a number of shares of its common stock
based upon the conversion price. Skyworks has granted us certain registration
rights relating to the 15% convertible senior subordinated notes and the shares
of Skyworks common stock underlying the 15% convertible senior subordinated
notes. As of March 31, 2003 the estimated fair value of the 15% convertible
senior subordinated notes was approximately $43.7 million. We may sell all or
part of the 15% convertible senior subordinated notes or shares underlying the
notes as needed to meet our liquidity requirements.

As of March 31, 2003, our principal sources of liquidity are our existing cash
reserves and short-term investments (including the Skyworks 15% convertible
senior subordinated notes) and cash generated from product sales. Combined cash
and cash equivalents, short-term investments and Skyworks 15% convertible
senior subordinated notes at March 31, 2003 totaled $313.6 million compared to
$447.8 million at September 30, 2002. Our working capital at March 31, 2003 was
$341.7 compared to $441.2 million at September 30, 2002. The overall working
capital change principally reflects cash used in operations and cash payments
to repurchase debt.

During the past nine fiscal quarters, we reduced our capital expenditures and
implemented a number of expense reduction initiatives to improve our operating
cost structure. However, we expect that reduced end-customer demand

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(as compared to fiscal 2000 levels), changes in our revenue mix and other
factors will continue to adversely affect our operating results in fiscal 2003
and we anticipate that we will continue to experience negative cash flows from
operations through the time of the separation of our Mindspeed Technologies
business from the Broadband Communications business. Subsequent to March 31,
2003, we paid approximately $12.1 million to repurchase $19.8 million principal
amount of our 4% convertible subordinated notes.

In connection with the separation of the Mindspeed Technologies business from
the Broadband Communications business, we will contribute to Mindspeed cash in
an amount such that at the time of the distribution Mindspeeds cash balance
will be $100 million. In addition, Mindspeed will enter into a senior secured
revolving credit facility with us, pursuant to which Mindspeed may borrow up to
$50 million from us for working capital and general corporate purposes.
Mindspeed may borrow under the credit facility only to restore its cash balance
to $25 million. The credit facility will be available for a term ending on
December 31, 2006. We also expect to incur and pay costs of $10 million to $15
million during fiscal 2003 in connection with the separation.

We believe that our existing sources of liquidity, along with cash expected to
be generated from product sales, will be sufficient to fund our operations,
research and development efforts, anticipated capital expenditures and other
capital requirements, including the cash contribution to Mindspeed and our
commitment under the credit facility with Mindspeed, for at least the next
twelve months. We will need to continue a focused program of capital
expenditures to meet our research and development and corporate requirements.
We may also consider acquisition opportunities to extend our technology
portfolio and design expertise and to expand our product offerings. In order to
fund capital expenditures, increase our working capital or complete any
acquisitions, we may seek to obtain additional debt financing or issue
additional shares of our common stock. However, we cannot assure you that such
financing will be available to us on favorable terms, or at all.

Recent Accounting Standards

See Note 1 of Notes to Consolidated Condensed Financial Statements.

Critical Accounting Policies

The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Among the significant estimates affecting our
consolidated financial statements are those relating to allowances for doubtful
accounts, inventories, long-lived assets, income taxes, restructuring costs and
litigation. We regularly evaluate our estimates and assumptions based upon
historical experience and various other factors that we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. To the extent actual results differ
from those estimates, our future results of operations may be affected.

Impairment of long-lived assets Long-lived assets, including fixed assets
 and intangible assets (other than goodwill), are
continually monitored and are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of any such asset
may not be recoverable. The determination of recoverability is based on an
estimate of undiscounted cash flows expected to result from the use of an asset
and its eventual disposition. The estimate of cash flows is based upon, among
other things, certain assumptions about expected future operating performance,
growth rates and other factors. Our estimates of undiscounted cash flows may
differ from actual cash flows due to, among other things, technological
changes, economic conditions, changes to our business model or changes in our
operating performance. If the sum of the undiscounted cash flows (excluding
interest) is less than the carrying value, we recognize an impairment loss,
measured as the amount by which the carrying value exceeds the fair value of
the asset.

Goodwill is tested for impairment annually, or when a possible impairment is
indicated, using the fair value based test prescribed by SFAS 142. The
estimates and assumptions described above (along with other factors such as
discount rates) will affect the outcome of our impairment tests and the amounts
of any resulting impairment losses.

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Deferred income taxes We evaluate the realizability of our deferred tax
assets and assess the need for a valuation allowance quarterly. We record a
valuation allowance to reduce our deferred tax assets to the net amount that is
more likely than not to be realized. Our assessment of the need for a valuation
allowance is based upon our expectations of future taxable income in our
ongoing operations, and the prudent and feasible tax planning strategies
available to us. Our expectations of future taxable income are influenced by a
number of factors, including the planned separation of our Mindspeed
Technologies business from the Broadband Communications business. We cannot
predict our future taxable income with certainty and our expectations may
change in the future. In the event that we determine that we will not be able
to realize all or part of our deferred tax assets in the future, an adjustment
to the deferred tax assets would be charged against income in the period such
determination is made. Likewise, in the event we were to determine that we will
be able to realize our deferred tax assets in the future in excess of the net
recorded amount, an adjustment to the deferred tax assets would increase income
in the period such determination is made.

Inventories We write down our inventory for estimated obsolescence or
unmarketable inventory in an amount equal to the difference between the cost of
inventory and the estimated market value based upon assumptions about future
demand and market conditions. If actual market conditions are less favorable
than our estimates, additional inventory write-downs may be required.

Non-Marketable Equity Securities As of March 31, 2003, the carrying value of
our portfolio of strategic investments in non-marketable equity securities
totaled $92.1 million. Our ability to recover our investments in private,
non-marketable equity securities and to earn a return on these investments is
primarily dependent on how successfully these companies are able to execute to
their business plans and how well their products are accepted, as well as their
ability to obtain venture capital funding to continue operations and to grow.
We review all of our investments periodically for impairment and an impairment
analysis of non-marketable equity securities requires significant judgment.
This analysis includes assessment of each investees financial condition, the
business outlook for its products and technology, its projected results and
cash flows, the likelihood of obtaining subsequent rounds of financing and the
impact of any relevant contractual equity preferences held by us or by others.
Equity prices, including non-marketable equity securities, have declined
significantly over the past two years and we have experienced substantial
impairments in the value of non-marketable equity securities investments we
hold. Future adverse changes in market conditions or poor operating results of
underlying investments could result in an inability to recover the carrying
value of our investments that may not be reflected in their current carrying
values, which could require additional impairment charges to write down the
carrying values of such investments.

Certain Business Risks

Our business, financial condition and operating results can be impacted by a
number of factors, any one of which could cause our actual results to vary
materially from recent results or from our anticipated future results.

You should carefully consider and evaluate all of the information in this
Quarterly Report, including the risk factors listed below. Any of these risks
could materially and adversely affect our business, financial condition and
results of operations, which in turn could materially and adversely affect the
price of our common stock or other securities. Except where otherwise noted,
the financial information contained herein represents our continuing
operations, excluding the discontinued wireless communications business and the
Mexicali Operations.

We have recently incurred substantial operating losses and we anticipate
additional future losses.

We incurred a loss from continuing operations of $120.2 million in the first
six months of fiscal 2003 compared to a loss of $351.6 million in the first six
months of fiscal 2002. We incurred losses from continuing operations of $812
million in fiscal 2002 and $1.2 billion in fiscal 2001.

During the past nine fiscal quarters, we implemented a number of expense
reduction and restructuring initiatives to improve our operating cost
structure. However, our expense reduction initiatives alone will not return us
to profitability. We expect that reduced end-customer demand (as compared to
fiscal 2000 levels), changes in our revenue mix and other factors will continue
to adversely affect our operating results in the near term. In order to return
to profitability, we must achieve substantial revenue growth and currently we
continue to face an environment of uncertain demand in many of the markets our
products address. While our Broadband Communications segment returned to
operating profitability for the first six months of fiscal 2003, on a
consolidated basis we anticipate

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incurring additional losses from our continuing operations. We cannot assure
you as to whether or when we will return to profitability or whether we will be
able to sustain such profitability, if achieved.

We operate in the highly cyclical semiconductor industry, which is subject to
significant downturns. We have recently experienced the worst downturn in
industry history.

The semiconductor industry is highly cyclical and is characterized by constant
and rapid technological change, rapid product obsolescence and price erosion,
evolving technical standards, short product life cycles and wide fluctuations
in product supply and demand. From time to time these and other factors,
together with changes in general economic conditions, cause significant upturns
and downturns in the industry, and in our business in particular. Periods of
industry downturns such as we are now experiencing have been characterized by
diminished product demand, production overcapacity, high inventory levels and
accelerated erosion of average selling prices. These factors have caused
substantial fluctuations in our revenues and our results of operations. We have
in the past experienced these cyclical fluctuations in our business and may
experience cyclical fluctuations in the future.

During the late 1990s and extending into 2000, the semiconductor industry in
general, and communications applications in particular, enjoyed unprecedented
growth, benefiting from the rapid expansion of the Internet and other
communication services worldwide. Since fiscal 2001, welike many of our
customers and competitorshave been adversely impacted by a global economic
slowdown and an abrupt decline in demand for many of the end-user products that
incorporate our communications semiconductor products. The impact of weakened
end-customer demand has been compounded by higher-than-normal levels of
equipment and component inventories held by many of our OEM, subcontractor and
distributor customers in fiscal 2001.

Demand for our products in each of the communications electronics end-markets
which we address is subject to a unique set of factors, and a downturn in
demand affecting one market may be more pronounced, or last longer, than a
downturn affecting another of our markets. In particular, demand for the
products sold by our Mindspeed Technologies business, which are incorporated
into telecommunications and data communications infrastructure equipment, is
recovering more slowly than demand for products offered by our Broadband
Communications business, which are ultimately sold to individual consumers in
products such as PCs, cable and satellite set-top boxes and other small office
and home networking products.

We are subject to intense competition.

The communications semiconductor industry in general and the markets in which
we compete in particular are intensely competitive. We compete worldwide with a
number of United States and international semiconductor manufacturers that are
both larger and smaller than us in terms of resources and market share. We
currently face significant competition in our markets and expect that intense
price and product competition will continue. This competition has resulted and
is expected to continue to result in declining average selling prices for our
products. We also anticipate that additional competitors will enter our markets
as a result of expected growth opportunities in communications electronics, the
trend toward global expansion by foreign and domestic competitors,
technological and public policy changes and relatively low barriers to entry in
certain markets of the industry. Moreover, as with many companies in the
semiconductor industry, customers for certain of our products offer other
products that compete with similar products offered by us.

We believe that the principal competitive factors for semiconductor suppliers
in our addressed markets are:



| |  |  | time-to-market;                              
| | - |  | ---------------------------------------------
|
| |  |  | product quality, reliability and performance;
|
| |  |  | level of integration;                        
|
| |  |  | price and total system cost;                 
|
| |  |  | compliance with industry standards;          
|
| |  |  | design and engineering capabilities;         
|
| |  |  | strategic relationships with customers;      
|
| |  |  | customer support; and                        

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| |  |  | new product innovation.
| | - |  | -----------------------

The specific bases on which we compete vary by market. We cannot assure you
that we will be able to successfully address these factors.

Many of our current and potential competitors have certain advantages over us,
including:



| |  |  | stronger financial position and liquidity;                                                            
| | - |  | ------------------------------------------------------------------------------------------------------
|
| |  |  | longer presence in key markets;                                                                       
|
| |  |  | greater name recognition;                                                                             
|
| |  |  | access to larger customer bases; and                                                                  
|
| |  |  | significantly greater sales and marketing, manufacturing, distribution, technical and other resources.

As a result, these competitors may be able to adapt more quickly to new or
emerging technologies and changes in customer requirements or may be able to
devote greater resources to the development, promotion and sale of their
products than we can. Moreover, we have recently incurred substantial operating
losses and we anticipate future losses. Our OEM customers may choose
semiconductor suppliers whom they believe have a stronger financial position or
liquidity.

Current and potential competitors also have established or may establish
financial or strategic relationships among themselves or with our existing or
potential customers, resellers or other third parties. These relationships may
affect customers purchasing decisions. Accordingly, it is possible that new
competitors or alliances among competitors could emerge and rapidly acquire
significant market share. We cannot assure you that we will be able to compete
successfully against current and potential competitors.

Our success depends on our ability to timely develop competitive new products
and reduce costs.

Our operating results will depend largely on our ability to continue to
introduce new and enhanced semiconductor products on a timely basis. Successful
product development and introduction depends on numerous factors, including,
among others:



| |  |  | our ability to anticipate customer and market requirements and
changes in technology and industry standards;  
| | - |  | --------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to accurately define new products;                                                                
|
| |  |  | our ability to timely complete development of new products and bring
our products to market on a timely basis;
|
| |  |  | our ability to differentiate our products from offerings of our competitors; and                              
|
| |  |  | overall market acceptance of our products.                                                                    

We cannot assure you that we will have sufficient resources to make the
substantial investment in research and development in order to develop and
bring to market new and enhanced products. Furthermore, we are required to
continually evaluate expenditures for planned product development and to choose
among alternative technologies based on our expectations of future market
growth. We cannot assure you that we will be able to develop and introduce new
or enhanced products in a timely and cost-effective manner, that our products
will satisfy customer requirements or achieve market acceptance, or that we
will be able to anticipate new industry standards and technological changes. We
also cannot assure you that we will be able to respond successfully to new
product announcements and introductions by competitors.

In addition, prices of established products may decline, sometimes
significantly and rapidly, over time. We believe that in order to remain
competitive we must continue to reduce the cost of producing and delivering
existing products at the same time that we develop and introduce new or
enhanced products. We cannot assure you that we will be able to continue to
reduce the cost of our products to remain competitive.

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We may not be able to keep abreast of the rapid technological changes in our
markets.

The demand for our products can change quickly and in ways we may not
anticipate because our markets generally exhibit the following characteristics:



| |  |  | rapid technological developments;                                                      
| | - |  | ---------------------------------------------------------------------------------------
|
| |  |  | rapid changes in customer requirements;                                                
|
| |  |  | frequent new product introductions and enhancements;                                   
|
| |  |  | short product life cycles with declining prices over the life cycle of the product; and
|
| |  |  | evolving industry standards.                                                           

Our products could become obsolete sooner than anticipated because of a faster
than anticipated change in one or more of the technologies related to our
products or in market demand for products based on a particular technology,
particularly due to the introduction of new technology that represents a
substantial advance over current technology. Currently accepted industry
standards are also subject to change, which may contribute to the obsolescence
of our products.

We may not be able to attract and retain qualified personnel necessary for the
design, development and sale of our products. Our success could be negatively
affected if key personnel leave.

Our future success depends on our ability to attract, retain and motivate
qualified personnel, including executive officers and other key management and
technical personnel. As the source of our technological and product
innovations, our key technical personnel represent a significant asset. The
competition for such personnel can be intense in the semiconductor industry. We
cannot assure you that we will be able to attract and retain qualified
management and other personnel necessary for the design, development and sale
of our products.

We may have particular difficulty attracting and retaining key personnel during
periods of poor operating performance. The loss of the services of one or more
of our key employees, including Dwight W. Decker, our Chairman and Chief
Executive Officer, or certain key design and technical personnel, or our
inability to attract, retain and motivate qualified personnel could have a
material adverse effect on our ability to operate our business.

If OEMs of communications electronics products do not design our products into
their equipment, we will be unable to sell those products. Moreover, a design
win from a customer does not guarantee future sales to that customer.

Our products are not sold directly to the end-user but are components of other
products. As a result, we rely on OEMs of communications electronics products
to select our products from among alternative offerings to be designed into
their equipment. We may be unable to achieve these design wins. Without
design wins from OEMs, we would be unable to sell our products. Once an OEM
designs another suppliers semiconductors into one of its product platforms, it
will be more difficult for us to achieve future design wins with that OEMs
product platform because changing suppliers involves significant cost, time,
effort and risk. Achieving a design win with a customer does not ensure that we
will receive significant revenues from that customer and we may be unable to
convert design wins into actual sales. Even after a design win, the customer is
not obligated to purchase our products and can choose at any time to stop using
our products if, for example, its own products are not commercially successful.

Because of the lengthy sales cycles of many of our products, we may incur
significant expenses before we generate any revenues related to those products.

Our customers may need six months or longer to test and evaluate our products
and an additional six months or more to begin volume production of equipment
that incorporates our products. This lengthy period of time required also
increases the possibility that a customer may decide to cancel or change
product plans, which could reduce or eliminate sales to that customer. As a
result of this lengthy sales cycle, we may incur significant research and
development, and selling, general and administrative expenses before we
generate the related revenues for these products, and we may never generate the
anticipated revenues if our customer cancels or changes its product plans.

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Uncertainties involving the ordering and shipment of our products could
adversely affect our business.

Our sales are typically made pursuant to individual purchase orders and we
generally do not have long-term supply arrangements with our customers.
Generally, our customers may cancel orders until 30 days prior to shipment. In
addition, we sell a portion of our products through distributors, some of whom
have a right to return unsold products to us. Sales to distributors accounted
for approximately 41% and 45% of our net revenues for fiscal 2002 and the first
six months of fiscal 2003, respectively. We routinely purchase inventory based
on estimates of end-market demand for our customers products, which is
difficult to predict. This difficulty may be compounded when we sell to OEMs
indirectly through distributors or contract manufacturers, or both, as our
forecasts of demand are then based on estimates provided by multiple parties.
In addition, our customers may change their inventory practices on short notice
for any reason. The cancellation or deferral of product orders, the return of
previously sold products or overproduction due to the failure of anticipated
orders to materialize could result in our holding excess or obsolete inventory,
which could result in write-downs of inventory.

The communications electronics markets we address have been characterized by
dramatic changes in end-user demand and levels of channel inventories that
reduce visibility into future demand for our products. As a result of sharply
reduced demand across our product portfolio, in fiscal 2001 we recorded $188.8
million of inventory write-downs.

We are dependent upon third parties for the manufacture, assembly and test of
our products.

We are entirely dependent upon outside wafer fabrication facilities (known as
foundries), including Jazz, in which we hold a minority interest, and Skyworks,
for wafer fabrication services. Under our fabless business model, our long-term
revenue growth is dependent on our ability to obtain sufficient external
manufacturing capacity, including wafer production capacity. During times when
the semiconductor industry is experiencing a shortage of wafer fabrication
capacity, we may experience delays in shipments or increased manufacturing
costs.

There are significant risks associated with our reliance on third-party
foundries, including:



| |  |  | the lack of assured wafer supply, potential wafer shortages and higher wafer prices;                    
| | - |  | --------------------------------------------------------------------------------------------------------
|
| |  |  | limited control over delivery schedules, manufacturing yields, production costs and product quality; and
|
| |  |  | the unavailability of, or delays in obtaining, access to key process technologies.                      

We have entered into long-term supply arrangements with major foundry partners,
including Jazz, to obtain external wafer manufacturing capacity. However, these
and other foundries we use may allocate their limited capacity to fulfill the
production requirements of other customers that are larger and better financed
than we. If we choose to use a new foundry, it typically takes several months
to complete the qualification process before we can begin shipping products
from the new foundry.

We are also dependent upon third parties, including Skyworks, for the assembly
and test of our products. Our reliance on others to assemble and test our
products subjects us to many of the same risks as are described above with
respect to our reliance on outside wafer fabrication facilities.

Wafer fabrication processes are subject to obsolescence, and foundries may
discontinue a wafer fabrication process used for certain of our products. In
such event, we generally offer our customers a last-time buy program to
satisfy their anticipated requirements for our products. The unanticipated
discontinuation of a wafer fabrication process on which we rely may adversely
affect our revenues and our customer relationships.

The foundries and other suppliers on whom we rely may experience financial
difficulties or suffer disruptions in their operations due to causes beyond our
control, including labor strikes, work stoppages, electrical power outages,
fire, earthquake, flooding or other natural disasters. Certain of our
suppliers manufacturing facilities are located near major earthquake fault
lines in California, Mexico and the Asia-Pacific region. In the event of a
disruption of the operations of one or more of our suppliers, we may not have a
second manufacturing source immediately available. Such an event could cause
significant delays in shipments until we could shift the products from an
affected facility or supplier to another facility or supplier. The
manufacturing processes we rely on are specialized and are available from a
limited number of suppliers. Alternate sources of manufacturing capacity,
particularly

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wafer production capacity, may not be available to us on a timely basis. Even
if alternate wafer production capacity is available, we may not be able to
obtain it on favorable terms, or at all. Difficulties or delays in securing an
adequate supply of our products on favorable terms, or at all, could impair our
ability to meet our customers requirements and have a material adverse effect
on our operating results.

In addition, the highly complex and technologically demanding nature of
semiconductor manufacturing has caused foundries to experience from time to
time lower than anticipated manufacturing yields, particularly in connection
with the introduction of new products and the installation and start-up of new
process technologies. Lower than anticipated manufacturing yields may affect
our ability to fulfill our customers demands for our products on a timely
basis. Moreover, lower than anticipated manufacturing yields may adversely
affect our cost of goods sold and our results of operations.

Our success depends, in part, on our ability to effect suitable investments,
alliances and acquisitions; we may have difficulty integrating companies we
acquire.

Although we invest significant resources in research and development
activities, the complexity and rapidity of technological changes make it
impractical for us to pursue development of all technological solutions on our
own. On an ongoing basis, we review investment, alliance and acquisition
prospects that would complement our existing product offerings, augment our
market coverage or enhance our technological capabilities. However, we cannot
assure you that we will be able to identify and consummate suitable investment,
alliance or acquisition transactions in the future.

Moreover, if we consummate such transactions, they could result in:



| |  |  | issuances of equity securities dilutive to our existing shareholders;    
| | - |  | -------------------------------------------------------------------------
|
| |  |  | large one-time write-offs;                                               
|
| |  |  | the incurrence of substantial debt and assumption of unknown liabilities;
|
| |  |  | the potential loss of key employees from the acquired company;           
|
| |  |  | amortization expenses related to intangible assets; and                  
|
| |  |  | the diversion of managements attention from other business concerns.    

Additionally, in periods subsequent to an acquisition, we must evaluate
goodwill and acquisition-related intangible assets for impairment. When such
assets are found to be impaired, they will be written down to estimated fair
value, with a charge against earnings.

Integrating acquired organizations and their products and services may be
expensive, time-consuming and a strain on our resources and our relationships
with employees and customers, and ultimately may not be successful.

We face a risk that capital needed for our business will not be available when
we need it.

We believe that our existing sources of liquidity, together with cash expected
to be generated from product sales, will be sufficient to fund our operations,
research and development efforts, anticipated capital expenditures, working
capital and other financing requirements for at least the next twelve months.
However, we cannot assure you that this will be the case and we may need to
obtain alternate sources of financing in the future. We cannot assure you that
we will have access to additional sources of capital on favorable terms or at
all.

In addition, any strategic investments and acquisitions that we may make to
help us grow our business may require additional capital resources. We cannot
assure you that the capital required to fund these investments and acquisitions
will be available in the future.

We are subject to the risks of doing business internationally.

For fiscal 2002 and the first six months of fiscal 2003, approximately 83% and
86%, respectively, of our net revenues were from customers located outside the
United States, primarily in the Asia-Pacific region and European countries. In
addition, we have design centers and suppliers located outside the United
States, including the

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Skyworks assembly and test facility in Mexico and assembly and test service
providers and foundries located in the Asia-Pacific region. Our international
sales and operations are subject to a number of risks inherent in selling and
operating abroad. These include, but are not limited to, risks regarding:



| |  |  | currency exchange rate fluctuations;                                                                                                                                                              
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | local economic and political conditions;                                                                                                                                                          
|
| |  |  | disruptions of capital and trading markets;                                                                                                                                                       
|
| |  |  | restrictive governmental actions (such as restrictions on the
transfer or repatriation of funds and trade protection measures,
including export duties and quotas and customs duties and tariffs);
|
| |  |  | changes in legal or regulatory requirements;                                                                                                                                                      
|
| |  |  | difficulty in obtaining distribution and support;                                                                                                                                                 
|
| |  |  | the laws and policies of the United States and other countries
affecting trade, foreign investment and loans, and import or export
licensing requirements;                                        
|
| |  |  | tax laws; and                                                                                                                                                                                     
|
| |  |  | limitations on our ability under local laws to protect our intellectual property.                                                                                                                 

Because most of our international sales, other than sales to Japan (which are
denominated principally in Japanese yen), are currently denominated in U.S.
dollars, our products could become less competitive in international markets if
the value of the U.S. dollar increases relative to foreign currencies. We
cannot assure you that the factors described above will not have a material
adverse effect on our ability to increase or maintain our foreign sales.

We enter into foreign currency forward exchange contracts to minimize risk of
loss from currency exchange rate fluctuations for foreign currency commitments
entered into in the ordinary course of business. We have not entered into
foreign currency forward exchange contracts for other purposes. Our financial
condition and results of operations could be affected (adversely or favorably)
by currency fluctuations.

Our operating results may be negatively affected by substantial quarterly and
annual fluctuations and market downturns.

Our revenues and operating results have fluctuated in the past and may
fluctuate in the future. These fluctuations are due to a number of factors,
many of which are beyond our control. These factors include, among others:



| |  |  | changes in end-user demand for the products manufactured and sold by our customers;                         
| | - |  | ------------------------------------------------------------------------------------------------------------
|
| |  |  | the timing of receipt, reduction or cancellation of significant orders by customers;                        
|
| |  |  | seasonal customer demand;                                                                                   
|
| |  |  | the gain or loss of significant customers;                                                                  
|
| |  |  | market acceptance of our products and our customers products;                                              
|
| |  |  | our ability to develop, introduce and market new products and technologies on a timely basis;               
|
| |  |  | the timing and extent of product development costs;                                                         
|
| |  |  | new product and technology introductions by competitors;                                                    
|
| |  |  | changes in the mix of products we develop and sell;                                                         
|
| |  |  | fluctuations in manufacturing yields;                                                                       
|
| |  |  | availability and cost of products from our suppliers;                                                       
|
| |  |  | intellectual property disputes; and                                                                         
|
| |  |  | the effects of competitive pricing pressures, including decreases in average selling prices of our products.

36



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The foregoing factors are difficult to forecast, and these, as well as other
factors, could materially adversely affect our quarterly or annual operating
results. If our operating results fail to meet the expectations of analysts or
investors, it could materially and adversely affect the price of our common
stock and other securities.

The value of our common stock may be adversely affected by market volatility.

The trading price of our common stock fluctuates significantly. Subsequent to
the spin-off and merger of our wireless communications business with
Alpha on June 25, 2002, the
reported closing price of our common stock on the Nasdaq National Market has
been as high as $2.59 and as low as $0.53 per share. This price may be
influenced by many factors, including:



| |  |  | our operating and financial performance and prospects;                
| | - |  | ----------------------------------------------------------------------
|
| |  |  | the depth and liquidity of the market for our common stock;           
|
| |  |  | investor perception of us and the industry in which we operate;       
|
| |  |  | our inclusion in, or removal from, any equity market indices;         
|
| |  |  | the level of research coverage of our common stock;                   
|
| |  |  | changes in earnings estimates or buy/sell recommendations by analysts;
|
| |  |  | general financial and other market conditions; and                    
|
| |  |  | domestic and international economic conditions.                       

In addition, public stock markets have experienced, and are currently
experiencing, extreme price and trading volume volatility, particularly in the
technology sectors of the market. This volatility has significantly affected
the market prices of securities of many technology companies for reasons
frequently unrelated to or disproportionately impacted by the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of our common stock.

We may be subject to claims of infringement of third-party intellectual
property rights or demands that we license third-party technology, which could
result in significant expense and loss of our ability to use, make, sell, export or
import our products or one or more components comprising our products.

The semiconductor industry is characterized by vigorous protection and pursuit
of intellectual property rights. From time to time, third parties have asserted
and may in the future assert patent, copyright, trademark and other
intellectual property rights to technologies that are important to our business
and have demanded and may in the future demand that we license their patents
and technology. Any litigation to determine the validity of claims that our
products infringe or may infringe these rights, including claims arising
through our contractual indemnification of our customers, regardless of their
merit or resolution, could be costly and divert the efforts and attention of
our management and technical personnel. We cannot assure you that we would
prevail in litigation given the complex technical issues and inherent
uncertainties in intellectual property litigation. If litigation results in an
adverse ruling we could be required to:



| |  |  | pay substantial damages;                                                                                                                      
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | cease the manufacture, use or sale of infringing products;                                                                                    
|
| |  |  | discontinue the use of infringing technology;                                                                                                 
|
| |  |  | expend significant resources to develop non-infringing technology; or                                                                         
|
| |  |  | license technology from the third party claiming infringement, which
license may not be available on commercially reasonable terms, or at
all.

If we are not successful in protecting our intellectual property rights, it may
harm our ability to compete.

We rely primarily on patent, copyright, trademark and trade secret laws, as
well as nondisclosure and confidentiality agreements and other methods, to
protect our proprietary technologies and processes. At times we incorporate the
intellectual property of our customers into our designs, and we have
obligations with respect to the non-use and non-disclosure of their
intellectual property. In the past, we have engaged in litigation to enforce
our intellectual property

37



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rights, to protect our trade secrets or to determine the validity and scope of
proprietary rights of others, including our customers. We may engage in future
litigation on similar grounds, which may require us to expend significant
resources and to divert the efforts and attention of our management from our
business operations. We cannot assure you that:



| |  |  | the steps we take to prevent misappropriation or infringement of our
intellectual property or the intellectual property of our customers will
be successful;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | any existing or future patents will not be challenged, invalidated or circumvented; or                                                                      
|
| |  |  | any of the measures described above would provide meaningful protection.                                                                                    

Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use our technology without authorization, develop similar
technology independently or design around our patents. If any of our patents
fails to protect our technology it would make it easier for our competitors to
offer similar products. In addition, effective patent, copyright, trademark and
trade secret protection may be unavailable or limited in certain countries.

We may be liable for penalties under environmental laws, rules and regulations,
which could adversely impact our business.

Our former manufacturing operations used a variety of chemicals and were
subject to a wide range of environmental protection regulations in the United
States and Mexico. In connection with our spin-off from Rockwell, we assumed
all liabilities in respect of environmental matters related to the former
operations of our business. We have been designated as a potentially
responsible party and are engaged in groundwater remediation at one Superfund
site located at a former silicon wafer manufacturing facility and steel
fabrication plant in Parker Ford, Pennsylvania formerly occupied by us. In
addition, we are engaged in remediations of groundwater contamination at our
former Newport Beach, California wafer fabrication facility. We currently
estimate the remaining costs for these remediations to be approximately $2.3
million and have accrued for these costs as of March 31, 2003.

In the United States, environmental regulations often require parties to fund
remedial action regardless of fault. Consequently, it is often difficult to
estimate the future impact of environmental matters, including potential
liabilities. While we have not experienced any material adverse effect on our
operations as a result of such regulations, we cannot assure you that the costs
that might be required to complete remedial actions, if any, will not have a
material adverse effect on our business, financial condition and results of
operations.

Provisions in our organizational documents and rights agreement and Delaware
law may make it difficult for someone to acquire control of us.

We have established certain anti-takeover measures that may affect our common
stock and convertible notes. Our restated certificate of incorporation, our
by-laws, our rights agreement with Mellon Investor Services LLC, as rights
agent, dated as of November 30, 1998, as amended, and the Delaware General
Corporation Law contain several provisions that would make more difficult an
acquisition of control of us in a transaction not approved by our board of
directors. Our restated certificate of incorporation and by-laws include
provisions such as:



| |  |  | the division of our board of directors into three classes to be
elected on a staggered basis, one class each year;                                                                  
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the ability of our board of directors to issue shares of our
preferred stock in one or more series without further authorization of
our shareholders;                               
|
| |  |  | a prohibition on shareholder action by written consent;                                                                                                                             
|
| |  |  | a requirement that shareholders provide advance notice of any
shareholder nominations of directors or any proposal of new business to
be considered at any meeting of shareholders; 
|
| |  |  | a requirement that a supermajority vote be obtained to remove a
director for cause or to amend or repeal certain provisions of our
restated certificate of incorporation or by-laws;
|
| |  |  | elimination of the right of shareholders to call a special meeting of shareholders; and                                                                                             
|
| |  |  | a fair price provision.                                                                                                                                                             

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Our rights agreement gives our shareholders certain rights that would
substantially increase the cost of acquiring us in a transaction not approved
by our board of directors.

In addition to the rights agreement and the provisions in our restated
certificate of incorporation and by-laws, Section 203 of the Delaware General
Corporation Law generally provides that a corporation shall not engage in any
business combination with any interested shareholder during the three-year
period following the time that such shareholder becomes an interested
shareholder, unless a majority of the directors then in office approves either
the business combination or the transaction that results in the shareholder
becoming an interested shareholder or specified shareholder approval
requirements are met.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our financial instruments include cash and cash equivalents, marketable debt
securities, the Skyworks 15% convertible senior subordinated notes, equity
securities and our long-term debt. Our main investment objectives are the
preservation of investment capital and the maximization of after-tax returns on
our investment portfolio. Consequently, we invest with only high-credit-quality
issuers and we limit the amount of our credit exposure to any one issuer.

Our cash and cash equivalents are not subject to significant interest rate risk
due to the short maturities of these instruments. As of March 31, 2003, the
carrying value of our cash and cash equivalents approximates fair value. Our
marketable debt securities (consisting of commercial paper, corporate bonds and
government securities) principally have remaining terms of two years or less.
Consequently, such securities are not subject to significant interest rate
risk. Marketable equity securities are subject to equity price risk. As of
March 31, 2003, a 10% adverse change in equity prices would result in a $0.3
million decrease in the value of our marketable equity securities.

We hold Skyworks 15% convertible senior subordinated notes having an aggregate
principal amount of $45 million. The conversion right is considered an
embedded derivative for financial accounting purposes and the value of the
Skyworks 15% convertible senior subordinated notes is subject to significant
risk related to changes in the market price of Skyworks common stock. As of
March 31, 2003, a 10% decrease in the market price of Skyworks common stock
would decrease the fair value of the Skyworks 15% convertible senior
subordinated notes by approximately $2.4 million. The Skyworks 15% convertible
senior subordinated notes are also subject to interest rate risk.

We received the 15% convertible senior subordinated notes from Skyworks in
exchange for the remaining $45 million principal amount of the Term Notes
(originally delivered to us by Skyworks in payment of the purchase price for
our Mexicali assembly and test facility). We do not purchase derivative
financial instruments for speculative or investment purposes.

We classify all of our marketable debt and equity securities, including the
Skyworks 15% convertible senior subordinated notes, as available-for-sale
securities. As of March 31, 2003, the carrying value of these securities
included net unrealized losses of $0.9 million.

Our long-term debt consists of convertible subordinated notes with interest at
fixed rates. Consequently, we do not have significant cash flow exposure on our
long-term debt. However, the fair value of our convertible subordinated notes
is subject to significant fluctuation due to their convertibility into shares
of our common stock.

The following table shows the fair values of our financial instruments as of
March 31, 2003:

|                                                   |  |                |       |            |  |   |       | 
|-------------------------------------------------- |  | -------------- | ----- | ---------- |  | - | ----- | 
|(in millions)                                      |  | Carrying Value |       | Fair Value
|                                                   |  |                |       |           
|Cash and cash equivalents                          |  | $              | 159.2 |            |  | $ | 159.2 | 
|Marketable debt securities                         |  |                | 107.6 |            |  |   | 107.6 | 
|Skyworks 15% convertible senior subordinated notes |  |                | 43.7  |            |  |   | 43.7  | 
|Marketable equity securities                       |  |                | 3.1   |            |  |   | 3.1   | 
|Long-term debt                                     |  |                | 601.7 |            |  |   | 365.9 | 

We transact business in various foreign currencies, and we have established a
foreign currency hedging program utilizing foreign currency forward exchange
contracts to hedge certain foreign currency transaction exposures. Under this
program, we seek to offset foreign currency transaction gains and losses with
gains and losses on the forward contracts, so as to mitigate our overall risk
of foreign transaction gains and losses. We do not enter into forward contracts
for speculative or trading purposes. At March 31, 2003, we held no foreign
currency forward exchange contracts. Based on our overall currency rate
exposure at March 31, 2003, a 10 percent change in currency rates would not
have a significant effect on our consolidated financial position, results of
operations or cash flows.

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ITEM 4. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Companys
management, including the Companys Chairman and Chief Executive Officer and
its Senior Vice President and Chief Financial Officer, of the effectiveness of
the design and operation of the Companys disclosure controls and procedures,
which are defined under Securities and Exchange Commission rules as controls
and other procedures of a company that are designed to ensure that information
required to be disclosed by a company in the reports that it files under the
Exchange Act is recorded, processed, summarized and reported within required
time periods. Based upon that evaluation, the Companys Chairman and Chief
Executive Officer and its Senior Vice President and Chief Financial Officer
concluded that the Companys disclosure controls and procedures were effective.

There were no significant changes in the Companys internal controls or other
factors that could significantly affect these controls subsequent to the date
of their evaluation.

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PART II. OTHER INFORMATION




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Our annual meeting of shareholders was held on February 26, 2003 in Irvine,
California. At the meeting, the following matters were voted on by our
shareholders and approved by the following votes:

|                       |  |                  |             |          |  |  |            | 
|---------------------- |  | ---------------- | ----------- | -------- |  |  | ---------- | 
|                       |  | Number of shares
|                       |  |                 
|                       |  | Voted For        |             | Withheld
|                       |  |                  |             |         
|Election of directors: |  |                  |             |          |  |  |            | 
|Dwight W. Decker       |  |                  | 199,956,019 |          |  |  | 38,023,218 | 
|Hossein Eslambolchi    |  |                  | 200,487,222 |          |  |  | 37,492,015 | 
|F. Craig Farrill       |  |                  | 198,108,055 |          |  |  | 39,871,182 | 

|                                                                                                                                             |  |                  |             |               |  |             |            |  |  |  |           | 
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ----------- | ------------- |  | ----------- | ---------- |  |  |  | --------- | 
|                                                                                                                                             |  | Number of shares
|                                                                                                                                             |  |                 
|                                                                                                                                             |  | Voted For        |             | Voted Against |  | Abstentions
|                                                                                                                                             |  |                  |             |               |  |            
|Proposal to approve an
amendment to our Restated
Certificate of
Incorporation to change
the par value of our
Common Stock                    |  |                  | 228,242,591 |               |  |             | 7,719,700  |  |  |  | 2,016,946 | 
|Proposal to approve an
amendment to our 2001
Employee Stock Purchase
Plan to increase the
maximum number of shares
authorized under the plan |  |                  | 204,175,568 |               |  |             | 31,926,977 |  |  |  | 1,876,692 | 
|Proposal to ratify the
appointment of Deloitte &
Touche LLP as our
independent auditors                                                      |  |                  | 231,874,605 |               |  |             | 4,800,724  |  |  |  | 1,303,908 | 




ITEM 5. OTHER INFORMATION

During the first six months of fiscal 2003, the audit committee of the
Companys board of directors preapproved certain non-audit services to be
rendered by Deloitte & Touche LLP, the Companys independent
auditors. Such non-audit services
consist of (i) income tax preparation, tax compliance and customary tax consulting
services; (ii) special transaction and SEC filing reviews and other
customary miscellaneous consulting services; (iii) services related
to the Companys Retirement Savings Plan, Hourly Employee Savings Plan, Voluntary Early Retirement Plan and Retirement
Plan for Hourly Employees;
and (iv) services related to the planned separation of the Mindspeed
Technologies business from the Broadband Communications business. The Company
believes that the provision of such services by Deloitte & Touche LLP is
compatible with maintaining the independence of that firm.




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

|     |  |                                                                               
|---- |  | ------------------------------------------------------------------------------
|10.1 |  | Agreement dated March 28, 2003 between the Company and Balakrishnan S. Iyer. *
|     |  |                                                                               
|99   |  | Written Statement of Chief Executive Officer and Chief Financial Officer.     



|* |  | Certain confidential portions of this Exhibit have been omitted pursuant
to a request for confidential treatment. Omitted portions have been filed
separately with the Securities and Exchange Commission.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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(b) Reports on Form 8-K

Current Report on Form 8-K dated March 24, 2003, reporting the Companys
approval in principle of a plan to proceed with the separation of the Mindspeed
Technologies business from the Broadband Communications business. (Items 5 and
7).

Current Report on Form 8-K dated March 26, 2003, reporting the cumulative
effect of a change in accounting for goodwill and an asset impairment charge to
be recorded in the Companys consolidated financial statements for the six
months ended March 31, 2003. (Item 5).

Current Report on Form 8-K dated April 17, 2003, furnishing the Companys press
release dated April 17, 2003, announcing its financial results for the quarter
ended March 31, 2003 (Items 7 and 12).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

|                  |                        |                                                                                                                               
|----------------- | ---------------------- | ------------------------------------------------------------------------------------------------------------------------------
|                  | CONEXANT SYSTEMS, INC.
|                  | (Registrant)          
|                  |                        |                                                                                                                               
|Date: May 9, 2003 | By                     | /s/ Balakrishnan S. Iyer

Balakrishnan S. Iyer
Senior Vice President and
Chief Financial Officer
(principal financial officer)
|                  |                        |                                                                                                                               
|Date: May 9, 2003 | By                     | /s/ J. Scott Blouin

J. Scott Blouin
Senior Vice President and
Chief Accounting Officer
(principal accounting officer)        

44



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\




CERTIFICATIONS

I, Dwight W. Decker, Chairman of the Board and Chief Executive Officer of
Conexant Systems, Inc., certify that:



|1. |  | I have reviewed this Quarterly Report on Form 10-Q of Conexant Systems,
Inc.;                                                                                                                                                                                                                                                 
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this Quarterly Report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
Quarterly Report;                   
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                      



| | a. |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Quarterly Report
is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this Quarterly Report (the Evaluation Date); and                                                                                                  
|
| | c. |  | presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officer and I have indicated in this
Quarterly Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Dated: May 9, 2003

/s/ Dwight W. Decker

Dwight W. Decker
Chairman of the Board and  Chief
Executive Officer

45



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I, Balakrishnan S. Iyer, Senior Vice President and Chief Financial Officer
of Conexant Systems, Inc., certify that:



|1. |  | I have reviewed this Quarterly Report on Form 10-Q of Conexant Systems,
Inc.;                                                                                                                                                                                                                                                 
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this Quarterly Report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
Quarterly Report;                   
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                      



| | a. |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Quarterly Report
is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this Quarterly Report (the Evaluation Date); and                                                                                                  
|
| | c. |  | presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officer and I have indicated in this
Quarterly Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Dated: May 9, 2003

/s/ Balakrishnan S. Iyer

Balakrishnan S. Iyer
Senior Vice President and  Chief
Financial Officer

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EXHIBIT INDEX

|     |  |                                                                               
|---- |  | ------------------------------------------------------------------------------
|10.1 |  | Agreement dated March 28, 2003 between the Company and Balakrishnan S. Iyer. *
|     |  |                                                                               
|99   |  | Written Statement of Chief Executive Officer and Chief Financial Officer.     



|* |  | Certain confidential portions of this Exhibit have been omitted pursuant
to a request for confidential treatment. Omitted portions have been filed
separately with the Securities and Exchange Commission.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------