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

4000 MacArthur Boulevard
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 January 30,
2004 was 280,357,286.



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|* |  | For presentation purposes of this Form 10-Q, references made to the
December 31, 2003 period relate to the actual fiscal first quarter ended
January 2, 2004.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



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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; changes
in product mix; product obsolescence; the availability of manufacturing
capacity; fluctuations in manufacturing yields; pricing pressures and other
competitive factors; our ability to develop and implement new technologies and
to obtain protection of the related intellectual property; the uncertainty of
litigation; our ability to attract and retain qualified personnel; costs
related to our proposed merger with GlobespanVirata, Inc.; successful
completion of our proposed merger with GlobespanVirata; and the risk that our
and GlobespanViratas businesses will not be successfully integrated, as well
as other risks and uncertainties, including 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.

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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 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURE                    
|EXHIBIT INDEX                
|EXHIBIT 31.1                 
|EXHIBIT 31.2                 
|EXHIBIT 32                   



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CONEXANT SYSTEMS, INC.

INDEX

|                              |  |                                                                                       |  |                                                                                                 |    |      |    | 
|----------------------------- |  | ------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                              |  |                                                                                       |  |                                                                                                 |    | PAGE
|                              |  |                                                                                       |  |                                                                                                 |    |     
|PART I. FINANCIAL INFORMATION |  |                                                                                       |  |                                                                                                
|Item 1.                       |  | Financial Statements (unaudited):                                                     |  |                                                                                                 |    |     
|                              |  |                                                                                       |  | Consolidated Condensed Balance Sheets  December 31, 2003 and September 30, 2003                |    |      | 4  | 
|                              |  |                                                                                       |  | Consolidated Condensed Statements of Operations  Three Months Ended December
31, 2003 and 2002 |    |      | 5  | 
|                              |  |                                                                                       |  | Consolidated Condensed Statements of Cash Flows  Three Months Ended
December 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 |  |                                                                                                 | 16 |     
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                            |  |                                                                                                 | 23 |     
|Item 4.                       |  | Controls and Procedures                                                               |  |                                                                                                 | 24 |     
|PART II. OTHER INFORMATION    |  |                                                                                       |  |                                                                                                
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                      |  |                                                                                                 | 25 |     
|                              |  |                                                                                       |  | Signature                                                                                       |    |      | 26 | 

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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)

|                                     |                                                                                                                                                         |                                            |         |              |         |               |         |            |         | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------------ | ------- | ------------- | ------- | ---------- | ------- | 
|                                     |                                                                                                                                                         |                                            |         | December 31, |         | September 30,
|                                     |                                                                                                                                                         |                                            |         | 2003         |         | 2003         
|                                     |                                                                                                                                                         |                                            |         |              |         |              
|ASSETS                               |                                                                                                                                                         |                                            |         |              |         |               |         |           
|Current assets:                      |                                                                                                                                                         |                                            |         |              |         |               |         |           
|                                     | Cash and cash equivalents                                                                                                                               |                                            | $       | 89,762       |         |               | $       | 76,186     |        
|                                     | Short-term investments                                                                                                                                  |                                            |         | 98,550       |         |               |         | 99,283     |        
|                                     | Receivables, net of allowance of $1,536 and $1,547 at
December 31, 2003 and September 30, 2003, respectively                                            |                                            |         | 85,614       |         |               |         | 79,557     |        
|                                     | Inventories                                                                                                                                             |                                            |         | 58,979       |         |               |         | 59,548     |        
|                                     | Deferred income taxes                                                                                                                                   |                                            |         | 13,641       |         |               |         | 13,600     |        
|                                     | Mindspeed warrant-current portion                                                                                                                       |                                            |         | 21,350       |         |               |         |           |        
|                                     | Other current assets                                                                                                                                    |                                            |         | 27,917       |         |               |         | 26,524     |        
|                                     |                                                                                                                                                         |                                            |         |              |         |               |         |           
|                                     |                                                                                                                                                         | Total current assets                       |         |              | 395,813 |               |         |            | 354,698 | 
|Property, plant and equipment, net   |                                                                                                                                                         |                                            | 37,739  |              |         |               | 36,310  |           
|Goodwill                             |                                                                                                                                                         |                                            | 56,865  |              |         |               | 56,865  |           
|Intangible assets, net               |                                                                                                                                                         |                                            | 11,550  |              |         |               | 12,506  |           
|Deferred income taxes                |                                                                                                                                                         |                                            | 241,440 |              |         |               | 241,260 |           
|Mindspeed warrant                    |                                                                                                                                                         |                                            | 122,510 |              |         |               | 119,230 |           
|Other assets                         |                                                                                                                                                         |                                            | 121,593 |              |         |               | 110,838 |           
|                                     |                                                                                                                                                         |                                            |         |              |         |               |         |           
|                                     |                                                                                                                                                         | Total assets                               |         | $            | 987,510 |               |         | $          | 931,707 | 
|                                     |                                                                                                                                                         |                                            |         |              |         |               |         |            |        
|LIABILITIES AND SHAREHOLDERS EQUITY |                                                                                                                                                         |                                            |         |              |         |               |         |           
|Current liabilities:                 |                                                                                                                                                         |                                            |         |              |         |               |         |           
|                                     | Accounts payable                                                                                                                                        |                                            | $       | 68,092       |         |               | $       | 55,909     |        
|                                     | Accrued compensation and benefits                                                                                                                       |                                            |         | 30,990       |         |               |         | 28,865     |        
|                                     | Other current liabilities                                                                                                                               |                                            |         | 34,227       |         |               |         | 36,907     |        
|                                     |                                                                                                                                                         |                                            |         |              |         |               |         |           
|                                     |                                                                                                                                                         | Total current liabilities                  |         |              | 133,309 |               |         |            | 121,681 | 
|Convertible subordinated notes       |                                                                                                                                                         |                                            | 581,825 |              |         |               | 581,825 |           
|Other liabilities                    |                                                                                                                                                         |                                            | 58,772  |              |         |               | 61,435  |           
|                                     |                                                                                                                                                         |                                            |         |              |         |               |         |           
|                                     |                                                                                                                                                         | Total liabilities                          |         |              | 773,906 |               |         |            | 764,941 | 
|                                     |                                                                                                                                                         |                                            |         |              |         |               |         |           
|Commitments and contingencies        |                                                                                                                                                         |                                            |        |              |         |               |        |           
|Shareholders equity:                |                                                                                                                                                         |                                            |         |              |         |               |         |           
|                                     | Preferred and junior preferred stock                                                                                                                    |                                            |         |             |         |               |         |           |        
|                                     | Common stock, $0.01 par value: 1,000,000 shares
authorized; 278,206 and 276,134 shares issued at
December 31, 2003 and September 30, 2003, respectively |                                            |         | 2,782        |         |               |         | 2,761      |        
|                                     | Additional paid-in capital                                                                                                                              |                                            |         | 3,511,951    |         |               |         | 3,506,070  |        
|                                     | Accumulated deficit                                                                                                                                     |                                            |         | (3,291,880   | )       |               |         | (3,332,527 | )      
|                                     | Accumulated other comprehensive loss                                                                                                                    |                                            |         | (9,232       | )       |               |         | (9,496     | )      
|                                     | Unearned compensation                                                                                                                                   |                                            |         | (17          | )       |               |         | (42        | )      
|                                     |                                                                                                                                                         |                                            |         |              |         |               |         |           
|                                     |                                                                                                                                                         | Total shareholders equity                 |         |              | 213,604 |               |         |            | 166,766 | 
|                                     |                                                                                                                                                         |                                            |         |              |         |               |         |           
|                                     |                                                                                                                                                         | Total liabilities and shareholders equity |         | $            | 987,510 |               |         | $          | 931,707 | 
|                                     |                                                                                                                                                         |                                            |         |              |         |               |         |            |        

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
|                                                       |                                     |                          |         | December 31,      
|                                                       |                                     |                          |         |                   
|                                                       |                                     |                          |         | 2003               |        | 2002
|                                                       |                                     |                          |         |                    |        |     
|Net revenues                                           |                                     | $                        | 177,333 |                    |        | $    | 144,201  |       
|Cost of goods sold                                     |                                     |                          | 98,196  |                    |        |      | 81,462   |       
|                                                       |                                     |                          |         |                    |        |      |          |       
|Gross margin                                           |                                     |                          | 79,137  |                    |        |      | 62,739   |       
|Operating expenses:                                    |                                     |                          |         |                    |        |      |          |       
|                                                       | Research and development            |                          |         | 39,154             |        |      |          | 40,237 |       
|                                                       | Selling, general and administrative |                          |         | 22,809             |        |      |          | 22,779 |       
|                                                       | Amortization of intangible assets   |                          |         | 955                |        |      |          | 799    |       
|                                                       | Special charges                     |                          |         | 605                |        |      |          | 6,774  |       
|                                                       |                                     |                          |         |                    |        |      |          |       
|                                                       |                                     | Total operating expenses |         |                    | 63,523 |      |          |        | 70,589 | 
|                                                       |                                     |                          |         |                    |        |      |          |       
|Operating income (loss)                                |                                     |                          | 15,614  |                    |        |      | (7,850   | )     
|Other income, net                                      |                                     |                          | 25,281  |                    |        |      | 3,403    |       
|                                                       |                                     |                          |         |                    |        |      |          |       
|Income (loss) before income taxes                      |                                     |                          | 40,895  |                    |        |      | (4,447   | )     
|Provision for income taxes                             |                                     |                          | 248     |                    |        |      | 316      |       
|                                                       |                                     |                          |         |                    |        |      |          |       
|Income (loss) from continuing operations               |                                     |                          | 40,647  |                    |        |      | (4,763   | )     
|Loss from discontinued operations, net of income taxes |                                     |                          |        |                    |        |      | (620,610 | )     
|                                                       |                                     |                          |         |                    |        |      |          |       
|Net income (loss)                                      |                                     | $                        | 40,647  |                    |        | $    | (625,373 | )     
|                                                       |                                     |                          |         |                    |        |      |          |       
|Income (loss) per share, basic:                        |                                     |                          |         |                    |        |      |          |       
|                                                       | Continuing operations               |                          | $       | 0.15               |        |      | $        | (0.02  | )     
|                                                       | Discontinued operations             |                          |         |                   |        |      |          | (2.33  | )     
|                                                       |                                     |                          |         |                    |        |      |          |       
|                                                       | Net income (loss)                   |                          | $       | 0.15               |        |      | $        | (2.35  | )     
|                                                       |                                     |                          |         |                    |        |      |          |       
|Number of shares used in per share computation-basic   |                                     |                          | 277,190 |                    |        |      | 265,714  |       
|                                                       |                                     |                          |         |                    |        |      |          |       
|Income (loss) per share, diluted:                      |                                     |                          |         |                    |        |      |          |       
|                                                       | Continuing operations               |                          | $       | 0.13               |        |      | $        | (0.02  | )     
|                                                       | Discontinued operations             |                          |         |                   |        |      |          | (2.33  | )     
|                                                       |                                     |                          |         |                    |        |      |          |       
|                                                       | Net income (loss)                   |                          | $       | 0.13               |        |      | $        | (2.35  | )     
|                                                       |                                     |                          |         |                    |        |      |          |       
|Number of shares used in per share computation-diluted |                                     |                          | 307,545 |                    |        |      | 265,714  |       
|                                                       |                                     |                          |         |                    |        |      |          |       

See accompanying notes to consolidated condensed financial statements.

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

|                                                                                                                                                                     |                                                             |                                                |         |                    |        |      |         |        |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | ---------------------------------------------- | ------- | ------------------ | ------ | ---- | ------- | ------ | ------- | -
|                                                                                                                                                                     |                                                             |                                                |         | Three months ended
|                                                                                                                                                                     |                                                             |                                                |         | December 31,      
|                                                                                                                                                                     |                                                             |                                                |         |                   
|                                                                                                                                                                     |                                                             |                                                |         | 2003               |        | 2002
|                                                                                                                                                                     |                                                             |                                                |         |                    |        |     
|Cash flows from operating activities:                                                                                                                                |                                                             |                                                |         |                    |        |      |         |       
|Income (loss) from continuing operations                                                                                                                             |                                                             | $                                              | 40,647  |                    |        | $    | (4,763  | )     
|Adjustments to reconcile income (loss) from
continuing operations to net cash provided by (used
in) operating activities, net of effects of
disposition of business: |                                                             |                                                |         |                    |        |      |         |       
|                                                                                                                                                                     | Depreciation                                                |                                                |         | 3,155              |        |      |         | 5,540  |        
|                                                                                                                                                                     | Amortization of intangible assets                           |                                                |         | 955                |        |      |         | 799    |        
|                                                                                                                                                                     | Asset impairments                                           |                                                |         | 153                |        |      |         | 2,196  |        
|                                                                                                                                                                     | Provision for losses on accounts receivable                 |                                                |         |                   |        |      |         | (2,432 | )      
|                                                                                                                                                                     | Inventory provisions                                        |                                                |         | 1,644              |        |      |         | 6,384  |        
|                                                                                                                                                                     | Change in fair value of Skyworks note and
Mindspeed warrant |                                                |         | (19,719            | )      |      |         | (4,029 | )      
|                                                                                                                                                                     | Equity in earnings of equity method investees               |                                                |         | (10,165            | )      |      |         | (1,303 | )      
|                                                                                                                                                                     | Other non-cash items, net                                   |                                                |         | 235                |        |      |         | 3,459  |        
|                                                                                                                                                                     | Changes in assets and liabilities:                          |                                                |         |                    |        |      |         |        |        
|                                                                                                                                                                     |                                                             | Receivables                                    |         |                    | (6,057 | )    |         |        | 81      |  
|                                                                                                                                                                     |                                                             | Inventories                                    |         |                    | (1,075 | )    |         |        | (19,132 | )
|                                                                                                                                                                     |                                                             | Accounts payable                               |         |                    | 12,074 |      |         |        | (9,130  | )
|                                                                                                                                                                     |                                                             | Accrued expenses and other current liabilities |         |                    | 3,445  |      |         |        | 1,233   |  
|                                                                                                                                                                     |                                                             | Other                                          |         |                    | (2,976 | )    |         |        | 6,985   |  
|                                                                                                                                                                     |                                                             |                                                |         |                    |        |      |         |       
|Net cash provided by (used in) operating activities                                                                                                                  |                                                             |                                                | 22,316  |                    |        |      | (14,112 | )     
|                                                                                                                                                                     |                                                             |                                                |         |                    |        |      |         |       
|Cash flows from investing activities:                                                                                                                                |                                                             |                                                |         |                    |        |      |         |       
|Advances to Skyworks                                                                                                                                                 |                                                             |                                                |        |                    |        |      | (35,000 | )     
|Repayment of Term Notes and advances by Skyworks                                                                                                                     |                                                             |                                                |        |                    |        |      | 170,000 |       
|Purchase of marketable securities                                                                                                                                    |                                                             |                                                | (12,580 | )                  |        |      | (10,792 | )     
|Sale of marketable securities                                                                                                                                        |                                                             |                                                | 8,266   |                    |        |      | 1,106   |       
|Capital expenditures                                                                                                                                                 |                                                             |                                                | (4,857  | )                  |        |      | (3,197  | )     
|Proceeds from sales of assets                                                                                                                                        |                                                             |                                                | 269     |                    |        |      | 1,000   |       
|Deferred merger costs                                                                                                                                                |                                                             |                                                | (1,432  | )                  |        |      |        |       
|Payment of deferred purchase consideration                                                                                                                           |                                                             |                                                | (4,000  | )                  |        |      |        |       
|Investments in and advances to businesses                                                                                                                            |                                                             |                                                | (471    | )                  |        |      | (1,500  | )     
|                                                                                                                                                                     |                                                             |                                                |         |                    |        |      |         |       
|Net cash (used in) provided by investing activities                                                                                                                  |                                                             |                                                | (14,805 | )                  |        |      | 121,617 |       
|                                                                                                                                                                     |                                                             |                                                |         |                    |        |      |         |       
|Cash flows from financing activities:                                                                                                                                |                                                             |                                                |         |                    |        |      |         |       
|Proceeds from exercise of stock options                                                                                                                              |                                                             |                                                | 6,065   |                    |        |      | 749     |       
|                                                                                                                                                                     |                                                             |                                                |         |                    |        |      |         |       
|Net cash provided by financing activities                                                                                                                            |                                                             |                                                | 6,065   |                    |        |      | 749     |       
|                                                                                                                                                                     |                                                             |                                                |         |                    |        |      |         |       
|Net cash used in discontinued operations                                                                                                                             |                                                             |                                                |        |                    |        |      | (43,433 | )     
|                                                                                                                                                                     |                                                             |                                                |         |                    |        |      |         |       
|Net increase in cash and cash equivalents                                                                                                                            |                                                             |                                                | 13,576  |                    |        |      | 64,821  |       
|Cash and cash equivalents at beginning of period                                                                                                                     |                                                             |                                                | 76,186  |                    |        |      | 161,088 |       
|                                                                                                                                                                     |                                                             |                                                |         |                    |        |      |         |       
|Cash and cash equivalents at end of period                                                                                                                           |                                                             | $                                              | 89,762  |                    |        | $    | 225,909 |       
|                                                                                                                                                                     |                                                             |                                                |         |                    |        |      |         |       

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 use in products driving broadband digital
home information and entertainment applications. The Companys solutions
connect the client, or end-customer, side of personal communications access
products such as personal computers (PCs), set-top boxes and game consoles to
audio, video, voice and data services over broadband and dial-up Internet
connections. In addition, the Companys media processing products enable the
capture, display, storage, playback and transfer of audio and video content in
applications throughout the digital home and small office environments. The
Company operates in one segment.

On June 27, 2003, Conexant completed the distribution to Conexant shareholders
of all outstanding shares of Mindspeed Technologies, Inc. (Mindspeed), a
wholly owned subsidiary of Conexant to which Conexant contributed its Internet
infrastructure business, including the stock of certain subsidiaries, and
certain other assets and liabilities, including approximately $100.0 million in
cash (hereinafter, the Mindspeed Spin). In the Mindspeed Spin, Conexant
shareholders received one share of Mindspeed common stock for every three
Conexant shares held and the Conexant shareholders continued to hold their
Conexant shares. Mindspeed issued to Conexant a warrant to purchase 30 million
shares of Mindspeed common stock, representing approximately 20 percent of
Mindspeeds outstanding common stock on a fully diluted basis. The warrant is
exercisable for a period of ten years, commencing one year after the completion
of the Mindspeed Spin, at an exercise price of $3.408 per share (the fair
market value on the date of grant). The warrant is recorded as an
asset on the
consolidated condensed balance sheet (see Note 2). Additionally, Conexant
entered into a senior secured revolving credit facility pursuant to which
Mindspeed may borrow up to $50.0 million for working capital and general
corporate purposes (see Note 9).

The operating results of the discontinued Mindspeed Technologies Internet
infrastructure business (through June 27, 2003) included in the accompanying
consolidated condensed statements of operations were as follows (in thousands):

|                                                       |  |              |          |  
|------------------------------------------------------ |  | ------------ | -------- | -
|                                                       |  | Three months
|                                                       |  | ended       
|                                                       |  | December 31,
|                                                       |  | 2002        
|                                                       |  |             
|Net revenues                                           |  | $            | 20,255   |  
|                                                       |  |              |          |  
|Loss before income taxes                               |  | $            | (47,306  | )
|Provision for income taxes                             |  |              | 120      |  
|Cumulative effect of change in accounting for goodwill |  |              | (573,184 | )
|                                                       |  |              |          |  
|Loss from discontinued operations                      |  | $            | (620,610 | )
|                                                       |  |              |          |  

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, 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, 2003.

Pending Merger with GlobespanVirata, Inc. On November 3, 2003, the Company
entered into a definitive merger agreement with GlobespanVirata, Inc., a
provider of broadband communications solutions for consumer, enterprise,
personal computer and service provider markets. In the merger, GlobespanVirata
shareholders will receive 1.198 shares of Conexant common stock for each share
of GlobespanVirata common stock. This transaction will be accounted for under
the purchase method of accounting with the Company as the acquiror for
accounting purposes. The closing of the transaction is subject to shareholder
approvals. Shareholders of both companies will vote on the proposed merger at
their respective meetings to be held on February 25, 2004. It is expected that
the transaction will be completed promptly after obtaining such approvals.

7



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##### Table of Contents



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

Fiscal PeriodsFor presentation purposes, references made to the periods
ended December 31, 2003 and 2002 relate to the actual fiscal 2004 first quarter
ended January 2, 2004 and the actual fiscal 2003 first quarter ended December
27, 2002, respectively.

Supplemental Cash Flow Information Cash paid for interest was $1.4 million
for each of the three months ended December 31, 2003 and 2002. Cash paid for
income taxes for the three months ended December 31, 2003 and
2002 was $0.6 million and $0.3 million, respectively.

Income (Loss) Per Share Basic income (loss) per share is based on the
weighted-average number of shares of common stock outstanding during the
period. Diluted income (loss) per share also includes the effect of stock
options and other common stock equivalents outstanding during the period, and
assumes the conversion of the Companys convertible subordinated notes for the
period of time such notes were outstanding, if such stock options and
convertible notes are dilutive.

The following table sets forth the computation of the numerator and
denominator of basic and diluted earnings per share (in thousands):

|                                                               |                                                                      |  |                    |         |      |  |   |          |  
|-------------------------------------------------------------- | -------------------------------------------------------------------- |  | ------------------ | ------- | ---- |  | - | -------- | -
|                                                               |                                                                      |  | Three months ended
|                                                               |                                                                      |  | December 31,      
|                                                               |                                                                      |  |                   
|                                                               |                                                                      |  | 2003               |         | 2002
|                                                               |                                                                      |  |                    |         |     
|Numerator
(dollars in thousands):                              |                                                                      |  |                    |         |      |  |   |         
|                                                               | Income (loss) from continuing operations                             |  | $                  | 40,647  |      |  | $ | (4,763   | )
|                                                               | Discontinued operations, net of income taxes                         |  |                    |        |      |  |   | (620,610 | )
|                                                               |                                                                      |  |                    |         |      |  |   |         
|                                                               | Net income (loss)- Basic                                             |  |                    | 40,647  |      |  |   | (625,373 | )
|                                                               | Effect of assumed conversion of 4.25% Convertible Subordinated Notes |  |                    | 439     |      |  |   |         |  
|                                                               |                                                                      |  |                    |         |      |  |   |         
|                                                               | Net income (loss)- Diluted                                           |  | $                  | 41,086  |      |  | $ | (625,373 | )
|                                                               |                                                                      |  |                    |         |      |  |   |         
|Denominator
(weighted-average number of shares, in thousands): |                                                                      |  |                    |         |      |  |   |         
|                                                               | Weighted average shares outstanding- Basic                           |  |                    | 277,190 |      |  |   | 265,714  |  
|                                                               | Stock
options and warrant (under the treasury stock method)          |  |                    | 22,973  |      |  |   |         |  
|                                                               | Restricted stock                                                     |  |                    | 18      |      |  |   |         |  
|                                                               | Assumed conversion of 4.25% Convertible Subordinated Notes           |  |                    | 7,364   |      |  |   |         |  
|                                                               |                                                                      |  |                    |         |      |  |   |         
|                                                               | Weighted average shares outstanding - Diluted                        |  |                    | 307,545 |      |  |   | 265,714  |  
|                                                               |                                                                      |  |                    |         |      |  |   |         

The potential dilutive effect of the common stock equivalents shown below was
not included in the denominator for the computation of diluted earnings per share for the
respective periods as the effect of these securities was antidilutive:

|                                                            |  |                    |        |      |  |  |        | 
|----------------------------------------------------------- |  | ------------------ | ------ | ---- |  |  | ------ | 
|                                                            |  | Three months ended
|                                                            |  | December 31,      
|                                                            |  |                   
|(weighted-average number of shares, in thousands)           |  | 2003               |        | 2002
|                                                            |  |                    |        |     
|Stock options and warrant (under the treasury stock
method) |  |                    |       |      |  |  | 659    | 
|4.25% Convertible Subordinated Notes due 2006               |  |                    |       |      |  |  | 5,897  | 
|4% Convertible Subordinated Notes due 2007                  |  |                    | 12,137 |      |  |  | 11,607 | 
|Restricted stock                                            |  |                    |       |      |  |  | 108    | 

Stock-Based Compensation The Company accounts for employee stock-based
compensation in accordance with the provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and
therefore no compensation expense has been recognized for fixed stock option
plans as options are granted at fair market value on the date of grant. The
Company also has an employee stock purchase plan for all eligible employees.
The Company has adopted the pro forma disclosure provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, as amended by SFAS No. 148, Accounting for Stock-Based
Compensation- Transition and Disclosure.

8



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##### Table of Contents



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

Had stock-based compensation been determined based on the fair value at the
grant date for awards consistent with the provisions of SFAS No. 123, the
Companys pro forma income (loss) from continuing operations and pro forma
income (loss) from continuing operations per share would have been the amounts
indicated below (in thousands, except per share amounts):

|                                                                          |  |                    |         |      |  |   |         |  
|------------------------------------------------------------------------- |  | ------------------ | ------- | ---- |  | - | ------- | -
|                                                                          |  | Three months ended
|                                                                          |  | December 31,      
|                                                                          |  |                   
|                                                                          |  | 2003               |         | 2002
|                                                                          |  |                    |         |     
|Income (loss) from continuing operations,
as reported                     |  | $                  | 40,647  |      |  | $ | (4,763  | )
|Add: total expense determined under fair
value accounting for all
awards  |  |                    | (13,602 | )    |  |   | (22,640 | )
|                                                                          |  |                    |         |      |  |   |         |  
|Pro forma income (loss) from continuing
operations                        |  | $                  | 27,045  |      |  | $ | (27,403 | )
|                                                                          |  |                    |         |      |  |   |         |  
|Income (loss) from continuing operations
per share - basic, as reported   |  | $                  | 0.15    |      |  | $ | (0.02   | )
|Pro forma income (loss) from continuing
operations per share - basic      |  | $                  | 0.10    |      |  | $ | (0.10   | )
|Income (loss) from continuing operations
per share - diluted, as reported |  | $                  | 0.13    |      |  | $ | (0.02   | )
|Pro forma income (loss) from continuing
operations per share - diluted    |  | $                  | 0.09    |      |  | $ | (0.10   | )

For purposes of pro forma disclosures under SFAS No. 123, the estimated fair
value of the stock-based awards is assumed to be amortized to expense over the
instruments vesting period. The fair value has been estimated at the date of
grant using the Black-Scholes option valuation model with the following
assumptions for the three months ended December 31:

|                                               |  |      |      |      |  |   |      |  
|---------------------------------------------- |  | ---- | ---- | ---- |  | - | ---- | -
|                                               |  | 2003 |      | 2002
|                                               |  |      |      |     
|Risk-free interest rate                        |  |      | 3.3  | %    |  |   | 3.2  | %
|Expected volatility                            |  |      | 97   | %    |  |   | 97   | %
|Dividend yield                                 |  |      |     |      |  |   |     |  
|Expected life (years)                          |  |      | 4.5  |      |  |   | 4.5  |  
|Weighted-average fair value
of options granted |  | $    | 4.23 |      |  | $ | 1.27 |  

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility
and time to exercise. Because awards held by employees and directors have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in the opinion of management, the existing models do not
necessarily provide a reliable single measure of the fair value of these
options.

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

Recent Accounting StandardsIn January 2003
the Financial Accounting Standards Board (FASB) issued FASB Interpretation No.
(FIN) 46, Consolidation of Variable Interest
Entities, which was amended in December 2003. The Company must
adopt FIN 46 in the second quarter ending March 2004 and does not expect the
adoption to have a significant impact on its financial position or results of
operations.

9



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##### Table of Contents



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

2. Supplemental Financial Statement Data

Short-term Investments

Short-term investments consist of available-for-sale securities as follows (in
thousands):

|                                                   |  |           |        |         |  |            |        |            |  |   |     |   |  |   |        | 
|-------------------------------------------------- |  | --------- | ------ | ------- |  | ---------- | ------ | ---------- |  | - | --- | - |  | - | ------ | 
|                                                   |  |           |        |         |  | Gross      |        | Gross      |  |   |     |  
|                                                   |  |           |        |         |  | Unrealized |        | Unrealized |  |   |     |  
|                                                   |  | Amortized |        | Holding |  | Holding    |        | Fair      
|                                                   |  | Cost      |        | Gains   |  | Losses     |        | Value     
|                                                   |  |           |        |         |  |            |        |           
|December 31, 2003:                                 |  |           |        |         |  |            |        |            |  |   |     |   |  |   |        | 
|U.S. government agencies                           |  | $         | 18,024 |         |  | $          | 9      |            |  | $ | (34 | ) |  | $ | 17,999 | 
|Foreign government securities                      |  |           | 2,543  |         |  |            | 7      |            |  |   |    |   |  |   | 2,550  | 
|Corporate debt securities                          |  |           | 22,002 |         |  |            | 27     |            |  |   | (56 | ) |  |   | 21,973 | 
|Skyworks 15% convertible senior subordinated notes |  |           | 46,910 |         |  |            | 4,113  |            |  |   |    |   |  |   | 51,023 | 
|Equity securities                                  |  |           | 2,320  |         |  |            | 2,685  |            |  |   |    |   |  |   | 5,005  | 
|                                                   |  |           |        |         |  |            |        |            |  |   |     |   |  |   |        | 
|                                                   |  | $         | 91,799 |         |  | $          | 6,841  |            |  | $ | (90 | ) |  | $ | 98,550 | 
|                                                   |  |           |        |         |  |            |        |            |  |   |     |   |  |   |        | 
|September 30, 2003:                                |  |           |        |         |  |            |        |            |  |   |     |   |  |   |        | 
|U.S. government agencies                           |  | $         | 14,640 |         |  | $          | 25     |            |  | $ | (18 | ) |  | $ | 14,647 | 
|Foreign government securities                      |  |           | 2,044  |         |  |            | 15     |            |  |   |    |   |  |   | 2,059  | 
|Corporate debt securities                          |  |           | 21,625 |         |  |            | 74     |            |  |   | (59 | ) |  |   | 21,640 | 
|Skyworks 15% convertible senior subordinated notes |  |           | 46,542 |         |  |            | 9,024  |            |  |   |    |   |  |   | 55,566 | 
|Equity securities                                  |  |           | 2,320  |         |  |            | 3,051  |            |  |   |    |   |  |   | 5,371  | 
|                                                   |  |           |        |         |  |            |        |            |  |   |     |   |  |   |        | 
|                                                   |  | $         | 87,171 |         |  | $          | 12,189 |            |  | $ | (77 | ) |  | $ | 99,283 | 
|                                                   |  |           |        |         |  |            |        |            |  |   |     |   |  |   |        | 

The Company accounts for the 15% convertible senior subordinated notes issued
by Skyworks Solutions, Inc. (Skyworks) 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 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):

|                |  |              |        |               |  |   |        | 
|--------------- |  | ------------ | ------ | ------------- |  | - | ------ | 
|                |  | December 31, |        | September 30,
|                |  | 2003         |        | 2003         
|                |  |              |        |              
|Work-in-process |  | $            | 36,463 |               |  | $ | 42,662 | 
|Finished goods  |  |              | 22,516 |               |  |   | 16,886 | 
|                |  |              |        |               |  |   |        | 
|                |  | $            | 58,979 |               |  | $ | 59,548 | 
|                |  |              |        |               |  |   |        | 

Goodwill

During the first quarter of fiscal 2004, goodwill was not adjusted.

Intangible Assets

Intangible assets consist of the following (in thousands):

|                        |  |                   |        |                    |  |     |         |       |  |              |        |             |  |   |        |  |  |   |         |   |  |   |        | 
|----------------------- |  | ----------------- | ------ | ------------------ |  | --- | ------- | ----- |  | ------------ | ------ | ----------- |  | - | ------ |  |  | - | ------- | - |  | - | ------ | 
|                        |  | December 31, 2003 |        | September 30, 2003
|                        |  |                   |        |                   
|                        |  | Gross             |        | Accumulated        |  |     |         |       |  | Gross        |        | Accumulated |  |   |        | 
|                        |  | Asset             |        | Amortization       |  | Net |         | Asset |  | Amortization |        | Net        
|                        |  |                   |        |                    |  |     |         |       |  |              |        |            
|Developed technology    |  | $                 | 15,904 |                    |  | $   | (7,991  | )     |  | $            | 7,913  |             |  | $ | 15,904 |  |  | $ | (7,456  | ) |  | $ | 8,448  | 
|Customer base           |  |                   | 2,050  |                    |  |     | (480    | )     |  |              | 1,570  |             |  |   | 2,050  |  |  |   | (358    | ) |  |   | 1,692  | 
|Other intangible assets |  |                   | 7,443  |                    |  |     | (5,376  | )     |  |              | 2,067  |             |  |   | 7,443  |  |  |   | (5,077  | ) |  |   | 2,366  | 
|                        |  |                   |        |                    |  |     |         |       |  |              |        |             |  |   |        |  |  |   |         |   |  |   |        | 
|                        |  | $                 | 25,397 |                    |  | $   | (13,847 | )     |  | $            | 11,550 |             |  | $ | 25,397 |  |  | $ | (12,891 | ) |  | $ | 12,506 | 
|                        |  |                   |        |                    |  |     |         |       |  |              |        |             |  |   |        |  |  |   |         |   |  |   |        | 

Intangible assets are amortized over a weighted-average period of approximately
five years. Annual amortization expense, exclusive of the impact of the pending
merger with GlobespanVirata, is expected to be as follows (in thousands):

|                     |  |      |       |      |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       | 
|-------------------- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- |  |  | - | ----- | 
|                     |  | 2004 |       | 2005 |  | 2006 |       | 2007 |  | 2008
|                     |  |      |       |      |  |      |       |      |  |     
|Amortization expense |  | $    | 3,822 |      |  | $    | 2,627 |      |  | $    | 1,804 |  |  | $ | 1,805 |  |  | $ | 1,564 | 

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##### Table of Contents



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

Mindspeed Warrant

The Company accounts for the Mindspeed warrant as a derivative instrument, and
changes in the fair value of the warrant are included in other income
(expense), net each period. At December 31, 2003, the fair value of the
Mindspeed warrant included on the accompanying consolidated condensed balance
sheet was $143.9 million. The current portion of $21.4 million was determined
using current pricing data, and the remaining portion was valued using a
Black-Scholes model with the term of the warrant varying from 1 to 5 years to
coincide with the Companys intent and ability to liquidate the warrant in
installments, volatility of 90%, a risk-free interest rate of 3.2% and no
dividend yield. It is the Companys intent to liquidate the portion of the
warrant classified as current in the next twelve months.

Other Income (Expense), Net

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

|                                                                           |  |                    |        |      |  |   |        |  
|-------------------------------------------------------------------------- |  | ------------------ | ------ | ---- |  | - | ------ | -
|                                                                           |  | Three months ended
|                                                                           |  | December 31,      
|                                                                           |  |                   
|                                                                           |  | 2003               |        | 2002
|                                                                           |  |                    |        |     
|Investment and interest income                                             |  | $                  | 2,497  |      |  | $ | 5,649  |  
|Change in fair value of Skyworks 15% convertible
senior subordinated notes |  |                    | (4,911 | )    |  |   | 4,029  |  
|Change in fair value of the Mindspeed warrant                              |  |                    | 24,630 |      |  |   |       |  
|Interest expense                                                           |  |                    | (6,689 | )    |  |   | (7,588 | )
|Equity in earnings of equity method investees                              |  |                    | 10,165 |      |  |   | 1,303  |  
|Other                                                                      |  |                    | (411   | )    |  |   | 10     |  
|                                                                           |  |                    |        |      |  |   |        |  
|                                                                           |  | $                  | 25,281 |      |  | $ | 3,403  |  
|                                                                           |  |                    |        |      |  |   |        |  

During the quarter ended December 31, 2003, an unrelated party paid a $30.0
million note receivable for a previous equity investment in an entity in which
the Company owns a 38% interest. In accordance with Staff Accounting Bulletin
No. 51, the Company recognized an $11.4 million gain upon the payment of this
note, which is included in equity in earnings of equity method investees.

3. Skyworks Notes

In November 2002, the Company restructured its previous financing agreements
with Skyworks whereby Skyworks repaid $105.0 million of the principal amount
and all accrued interest owed to the Company under the $150.0 million
promissory notes issued by Skyworks and certain Skyworks subsidiaries and
collateralized by substantially all of the assets of Skyworks (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 previous 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 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 December 31, 2003, the 15% convertible senior subordinated notes are
carried at their fair value of $51.0 million (including the $6.6 million fair
value of the related conversion right) and are included in short-term
investments in the accompanying consolidated condensed balance sheet because
the Company has the ability and intent to liquidate the 15% convertible senior
subordinated notes or shares underlying the notes within the next twelve
months.

11



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##### Table of Contents



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

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.

Conexant has been designated as a potentially responsible party and is 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 the Company. In addition, the Company is
engaged in remediation of groundwater contamination at its former Newport
Beach, California wafer fabrication facility. Management currently estimates
the aggregate remaining costs for these remediations to be approximately $3.2
million and has accrued for these costs as of December 31, 2003.

At December 31, 2003, the Company is contingently liable for approximately
$33.4 million in operating lease commitments on facility leases that were
assigned to Mindspeed and Skyworks at the time of their separation from the
Company.

5. Comprehensive Income (Loss)

Comprehensive income (loss) is as follows (in thousands):

|                                   |                                                             |                             |        |                    |        |      |          |       |          |  
|---------------------------------- | ----------------------------------------------------------- | --------------------------- | ------ | ------------------ | ------ | ---- | -------- | ----- | -------- | -
|                                   |                                                             |                             |        | Three months ended
|                                   |                                                             |                             |        | December 31,      
|                                   |                                                             |                             |        |                   
|                                   |                                                             |                             |        | 2003               |        | 2002
|                                   |                                                             |                             |        |                    |        |     
|Net income (loss)                  |                                                             | $                           | 40,647 |                    |        | $    | (625,373 | )    
|Other comprehensive income (loss): |                                                             |                             |        |                    |        |      |          |      
|                                   | Foreign currency translation adjustments                    |                             |        | 458                |        |      |          | 2,135 |         
|                                   | Change in unrealized gains on available-for-sale securities |                             |        | (451               | )      |      |          | 2,048 |         
|                                   | Minimum pension liability adjustments                       |                             |        | 86                 |        |      |          | 1,562 |         
|                                   | Effect of income taxes                                      |                             |        | 172                |        |      |          |      |         
|                                   |                                                             |                             |        |                    |        |      |          |      
|                                   |                                                             | Other comprehensive income  |        |                    | 265    |      |          |       | 5,745    |  
|                                   |                                                             |                             |        |                    |        |      |          |      
|                                   |                                                             | Comprehensive income (loss) |        | $                  | 40,912 |      |          | $     | (619,628 | )
|                                   |                                                             |                             |        |                    |        |      |          |      

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

|                                                              |                                      |   |              |        |               |   |        |        |  
|------------------------------------------------------------- | ------------------------------------ | - | ------------ | ------ | ------------- | - | ------ | ------ | -
|                                                              |                                      |   | December 31, |        | September 30,
|                                                              |                                      |   | 2003         |        | 2003         
|                                                              |                                      |   |              |        |              
|Foreign currency translation adjustments                      |                                      | $ | (2,566       | )      |               | $ | (3,023 | )     
|Unrealized gains on available-for-sale securities, net of tax |                                      |   | 1,628        |        |               |   | 1,907  |       
|Minimum pension liability adjustments                         |                                      |   | (8,294       | )      |               |   | (8,380 | )     
|                                                              |                                      |   |              |        |               |   |        |       
|                                                              | Accumulated other comprehensive loss |   | $            | (9,232 | )             |   | $      | (9,496 | )
|                                                              |                                      |   |              |        |               |   |        |       

12



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##### Table of Contents



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

6. Special Charges

Special charges consist of the following (in thousands):

|                      |  |                    |     |      |  |   |       | 
|--------------------- |  | ------------------ | --- | ---- |  | - | ----- | 
|                      |  | Three months ended
|                      |  | December 31,      
|                      |  |                   
|                      |  | 2003               |     | 2002
|                      |  |                    |     |     
|Asset impairments     |  | $                  | 153 |      |  | $ | 2,196 | 
|Restructuring charges |  |                    | 448 |      |  |   | 1,904 | 
|Other special charges |  |                    | 4   |      |  |   | 2,674 | 
|                      |  |                    |     |      |  |   |       | 
|                      |  | $                  | 605 |      |  | $ | 6,774 | 
|                      |  |                    |     |      |  |   |       | 

Asset Impairments

During the first fiscal quarter of 2003, the Company recorded impairment
charges of $2.2 million, related to leasehold improvements associated with
properties no longer occupied by the Company and other assets that management
determined to abandon or scrap.

Restructuring Charges

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

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 of its former wireless communications
division. In connection with the fiscal 2002 corporate and manufacturing
restructuring actions, the Company terminated approximately 120 employees and
recorded charges aggregating $2.4 million based upon estimates of the cost of
severance benefits for the affected employees. The Company completed these
actions in fiscal 2002. In addition, the Company recorded restructuring
charges of $12.5 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.

As part of the 2002 Corporate and Manufacturing Restructuring Plan, during the
first quarter of fiscal 2003, the Company initiated a further workforce
reduction affecting 58 employees and recorded additional charges of $1.9
million based upon estimates of the cost of severance benefits for the affected
employees. During the third quarter of fiscal 2003, the Company revised its
estimate of liabilities for severance benefits and facility costs due to
unfavorable sublease experience to date, and charged an additional $1.5 million
to restructuring expense. In the fourth quarter of 2003, the Company reversed
$1.1 million of the estimated cost to settle the remaining commitment under a
license obligation after its favorable resolution, and increased the estimate
of remaining facility costs due to unfavorable sublease experience.

Activity and liability balances related to the 2002 Corporate and Manufacturing
Restructuring Plan through December 31, 2003 were as follows (in thousands):

|                                          |  |            |        |           |  |       |        |   |  |   |        |  
|----------------------------------------- |  | ---------- | ------ | --------- |  | ----- | ------ | - |  | - | ------ | -
|                                          |  | Workforce  |        | Facility  |  |       |        |  
|                                          |  | reductions |        | and other |  | Total
|                                          |  |            |        |           |  |      
|Charged to costs and expenses             |  | $          | 2,437  |           |  | $     | 12,519 |   |  | $ | 14,956 |  
|Cash payments                             |  |            | (1,664 | )         |  |       | (431   | ) |  |   | (2,095 | )
|                                          |  |            |        |           |  |       |        |   |  |   |        |  
|Restructuring balance, September 30, 2002 |  |            | 773    |           |  |       | 12,088 |   |  |   | 12,861 |  
|Charged to costs and expenses             |  |            | 2,898  |           |  |       | 888    |   |  |   | 3,786  |  
|Expense reversal                          |  |            |       |           |  |       | (1,100 | ) |  |   | (1,100 | )
|Cash payments                             |  |            | (3,173 | )         |  |       | (3,930 | ) |  |   | (7,103 | )
|                                          |  |            |        |           |  |       |        |   |  |   |        |  
|Restructuring balance, September 30, 2003 |  |            | 498    |           |  |       | 7,946  |   |  |   | 8,444  |  
|Cash payments                             |  |            | (124   | )         |  |       | (1,138 | ) |  |   | (1,262 | )
|                                          |  |            |        |           |  |       |        |   |  |   |        |  
|Restructuring balance, December 31, 2003  |  | $          | 374    |           |  | $     | 6,808  |   |  | $ | 7,182  |  
|                                          |  |            |        |           |  |       |        |   |  |   |        |  

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##### Table of Contents



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

2003 Corporate Restructuring Plan In the fourth quarter of fiscal 2003, the
Company initiated another workforce reduction, closed a design center and
consolidated some facilities. The Company involuntarily terminated
approximately 35 employees in the sales and administration areas and recorded
charges aggregating $1.2 million based upon estimates of the cost of severance
benefits for the affected employees. The Company also recorded restructuring
costs of $2.8 million relating to the consolidation of certain facilities under
non-cancelable leases which were vacated. In the first quarter of fiscal 2004,
as a continuation of the 2003 Corporate Restructuring Plan, the Company vacated
an additional facility and involuntarily terminated additional employees, which
resulted in an additional $0.5 million in restructuring expense.

Activity and liability balances related to the 2003 Corporate Restructuring
Plan through December 31, 2003 were as follows (in thousands):

|                                          |  |            |       |           |  |       |       |   |  |   |        |  
|----------------------------------------- |  | ---------- | ----- | --------- |  | ----- | ----- | - |  | - | ------ | -
|                                          |  | Workforce  |       | Facility  |  |       |       |  
|                                          |  | reductions |       | and other |  | Total
|                                          |  |            |       |           |  |      
|Charged to costs and expenses             |  | $          | 1,181 |           |  | $     | 2,830 |   |  | $ | 4,011  |  
|Cash payments                             |  |            | (364  | )         |  |       |      |   |  |   | (364   | )
|                                          |  |            |       |           |  |       |       |   |  |   |        |  
|Restructuring balance, September 30, 2003 |  |            | 817   |           |  |       | 2,830 |   |  |   | 3,647  |  
|Charged to costs and expenses             |  |            | 350   |           |  |       | 98    |   |  |   | 448    |  
|Cash payments                             |  |            | (681  | )         |  |       | (334  | ) |  |   | (1,015 | )
|                                          |  |            |       |           |  |       |       |   |  |   |        |  
|Restructuring balance, December 31, 2003  |  | $          | 486   |           |  | $     | 2,594 |   |  | $ | 3,080  |  
|                                          |  |            |       |           |  |       |       |   |  |   |        |  

Through December 31, 2003, the Company has paid an aggregate of $28.4 million
in connection with all of its restructuring plans and has a remaining accrued
restructuring balance of $10.3 million. The Company expects to pay the amounts
accrued for the workforce reductions during fiscal 2004 and expects to pay the
obligations for the non-cancelable lease and other commitments over their
respective terms, which expire through fiscal 2006. 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.

Other Special Charges

Other special charges in the first fiscal quarter of 2003 principally consist
of a $2.7 million loss on the sale of certain semiconductor test equipment.

7. Segment Information

The Company operates and tracks its
results in one segment (see Note 1).

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

|                               |  |                    |         |      |  |   |         | 
|------------------------------ |  | ------------------ | ------- | ---- |  | - | ------- | 
|                               |  | Three months ended
|                               |  | December 31,      
|                               |  | 2003               |         | 2002
|                               |  |                    |         |     
|Americas                       |  | $                  | 22,401  |      |  | $ | 19,232  | 
|Asia-Pacific                   |  |                    | 140,362 |      |  |   | 113,113 | 
|Europe, Middle East and Africa |  |                    | 14,570  |      |  |   | 11,856  | 
|                               |  |                    |         |      |  |   |         | 
|                               |  | $                  | 177,333 |      |  | $ | 144,201 | 
|                               |  |                    |         |      |  |   |         | 

The Company believes a substantial portion of the products sold to original
equipment manufacturers (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 three months ended December 31, 2003, one customer
(a foreign distributor) accounted for 14% of net revenues and for the three
months ended December 31, 2002, one customer (a foreign distributor) accounted
for 13% of net revenues. No other customer accounted for 10% or more of the
Companys net revenues for the three months ended December 31, 2003 or 2002.

14



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##### Table of Contents



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

8. 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. 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.

9. Mindspeed Credit Facility

In connection with the Mindspeed Spin, the Company entered into a senior
secured revolving credit facility pursuant to which Mindspeed may borrow up to
$50.0 million for working capital and general corporate purposes. Mindspeed
may borrow under the credit facility only to restore its cash balance to $25.0
million. Borrowings accrue interest at 10% per annum, payable at maturity, and
are collateralized by substantially all the assets of Mindspeed. The credit
facility expires on June 29, 2007. As of December 31, 2003, no amounts were
outstanding under the credit facility.

In connection with the credit facility, Mindspeed issued to the Company
warrants to purchase up to approximately 8.3 million shares of Mindspeed common
stock. The number of shares that may be acquired under the warrants will
depend on the level of borrowings under the credit facility, increasing pro
rata as the principal balance of Mindspeeds borrowings increases. The
warrants will be exercisable for a period of ten years after the Mindspeed Spin
at a price per share equal to the fair market value of a share of Mindspeed
common stock at the time of issuance of the warrants or at the time of the
borrowing that entitles the Company to acquire shares thereunder, whichever is
lower.

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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, 2003.

Overview

Except where otherwise noted, this discussion of our financial condition and
results of operations represents our continuing operations, excluding our
discontinued Mindspeed Technologies business which we spun off in June 2003.
See Note 1 of Notes to Consolidated Condensed Financial Statements for further
information on this transaction.

We design, develop and sell semiconductor system solutions for use in products
driving broadband digital home information and entertainment applications. Our
expertise in mixed-signal processing allows us to deliver semiconductor devices
and integrated systems that connect the client, or end-customer, side of
personal communications access products such as PCs, set-top boxes, residential
gateways and game consoles to audio, video, voice and data services over
broadband wireline communications networks, including asynchronous digital
subscriber line (ADSL), cable and ethernet, over wireless local area networks
and over direct broadcast satellite, terrestrial and fixed wireless systems.
Our dial-up access products include a broad portfolio of modem chipsets and
software for desktop and notebook PC applications as well as embedded equipment
applications including fax machines, multifunction peripherals (MFPs),
point-of-sale (POS) terminals, set-top boxes, gaming consoles and Internet
terminals. Our media processing solutions include a variety of broadcast audio
and video decoder and encoder devices that enable the capture, display,
storage, playback and transfer of audio and video in digital home and small
office environment products such as PCs, set-top boxes, gaming consoles,
personal video recorders and digital versatile disk (DVD) applications. We
operate in one business segment.

We market and sell our semiconductor products and system solutions directly to
leading original equipment manufacturers (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 44% of net revenues in the
first three months of fiscal 2004. One customer (a foreign distributor)
accounted for 14% of our net revenues in the first three months of fiscal 2004.
No other customer accounted for 10% or more of our net revenues for the
period. Our top 20 customers accounted for approximately 74% of net revenues
for the first three months of fiscal 2004. Revenues derived from customers
located in the Americas, Europe and the Asia-Pacific region were 13%, 8% and
79%, respectively, of our net revenues for the first three months of fiscal
2004. 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.

Pending Merger with GlobespanVirata, Inc.

On November 3, 2003, we entered into a definitive merger agreement with
GlobespanVirata, Inc., a provider of broadband communications solutions for
consumer, enterprise, personal computer and service provider markets. In the
merger, GlobespanVirata shareholders will receive 1.198 shares of our common
stock for each share of GlobespanVirata common stock. This transaction will be
accounted for under the purchase method of accounting with Conexant as the
acquiror for accounting purposes. The closing of this transaction is subject
to shareholder approvals. Shareholders of both companies will vote on the
proposed merger at their respective meetings to be held on February 25, 2004.
We expect that the transaction will close promptly after obtaining such
approvals.

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##### Table of Contents



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. The following table
summarizes our net revenues:

|              |  |                    |       |             |  |             |       |            |  |           |       |  |  |  |   |   |  |  |    |  
|------------- |  | ------------------ | ----- | ----------- |  | ----------- | ----- | ---------- |  | --------- | ----- |  |  |  | - | - |  |  | -- | -
|              |  | Three months ended |       |             |  |             |       |            |  |          
|              |  |                    |       | Change from |  | Change from
|              |  | Dec. 31,           |       | Sept. 30,   |  | Dec. 31,    |       | Sept. 2003 |  | Dec. 2002
|(in millions) |  | 2003               |       | 2003        |  | 2002        |       | Quarter    |  | Quarter  
|              |  |                    |       |             |  |             |       |            |  |          
|Net revenues  |  | $                  | 177.3 |             |  | $           | 164.7 |            |  | $         | 144.2 |  |  |  | 8 | % |  |  | 23 | %

Net revenues for the three months ended December 31, 2003 increased 23% over
the comparable period in 2002. The increase primarily resulted from increased
volume for our ADSL client-side modems, set-top box solutions, convergence
video products using MPEG codec technology and embedded modem solutions. Soft
modem revenues from products acquired from PCTEL in the third quarter of fiscal
2003 also contributed to the year over year growth.

Net revenues for the three months ended December 31, 2003 increased 8%
sequentially from the previous quarter. This increase is primarily driven by
increased volume of our ADSL client-side modems, set-top box solutions and PC
video products.

Gross Margin

|                        |  |                    |      |             |  |             |      |            |  |           |      |   |  |  |    |   |  |  |    |  
|----------------------- |  | ------------------ | ---- | ----------- |  | ----------- | ---- | ---------- |  | --------- | ---- | - |  |  | -- | - |  |  | -- | -
|                        |  | Three months ended |      |             |  |             |      |            |  |          
|                        |  |                    |      | Change from |  | Change from
|                        |  | Dec. 31,           |      | Sept. 30,   |  | Dec. 31,    |      | Sept. 2003 |  | Dec. 2002
|(in millions)           |  | 2003               |      | 2003        |  | 2002        |      | Quarter    |  | Quarter  
|                        |  |                    |      |             |  |             |      |            |  |          
|Gross margin            |  | $                  | 79.1 |             |  | $           | 72.1 |            |  | $         | 62.7 |   |  |  | 10 | % |  |  | 26 | %
|Percent of net revenues |  |                    | 45   | %           |  |             | 44   | %          |  |           | 44   | % |  |  |    |   |  |  |    |  

Gross margin represents revenues less cost of goods sold. As a fabless
semiconductor company, we use third parties for wafer production, 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.

Our gross margin for the first quarter of fiscal 2004 of 45% compared with the
similar period of fiscal 2003 of 44% reflects current quarter product cost
reductions exceeding the decline in average selling prices (ASPs) as compared
to the year ago period.

Our gross margin for the first quarter of fiscal 2003 benefited from the sale
of inventories with an original cost of $7.1 million 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 quarter of
fiscal 2003 would have been $55.6 million (39% of our net revenues). As of
June 30, 2003, all such inventories had been scrapped or sold.

When compared with the immediately preceding quarter, our gross margins for the
first quarter of fiscal 2004 increased from 44% to 45% of net revenues. The
improvement is attributable to a slightly improved product mix, and product
cost reductions exceeding the decline in ASPs.

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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 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 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 years 2004 and 2005. 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 December 31,
|                         |  |                                
|(in millions)            |  | 2003                            |      | Change |  | 2002
|                         |  |                                 |      |        |  |     
|Research and development |  | $                               | 39.2 |        |  |      | (3 | )% |  | $ | 40.2 |  
|Percent of net revenues  |  |                                 | 22   | %      |  |      |    |    |  |   | 28   | %

Our research and development (R&D) expenses consist principally of direct
personnel costs to develop new communications and semiconductor products,
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 design automation and advanced package development. The decrease in R&D
expenses for the first quarter of fiscal 2004 compared to the similar period of
fiscal 2003 primarily reflects lower spending of materials for
experimental lots and photomasks which were partially offset by additional
headcount to support the expansion of new product development efforts in India
and China.

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##### Table of Contents



Selling, General and Administrative

|                                    |  |                                 |      |        |  |      |  |   |      |  |    |  
|----------------------------------- |  | ------------------------------- | ---- | ------ |  | ---- |  | - | ---- |  | -- | -
|                                    |  | Three months ended December 31,
|                                    |  |                                
|(in millions)                       |  | 2003                            |      | Change |  | 2002
|                                    |  |                                 |      |        |  |     
|Selling, general and administrative |  | $                               | 22.8 |        |  | nm   |  | $ | 22.8 | 
|Percent of net revenues             |  |                                 | 13   | %      |  |      |  |   |      |  | 16 | %

nm= not meaningful

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. For the first quarter of fiscal 2004, SG&A expense stayed level with
the same period of fiscal 2003 on a cost basis, but has decreased 3% as a
percentage of net revenues. This reduction is attributable to an 18% decline
in SG&A headcount associated with past restructuring activities offset by
reductions in bad debt charges in the quarter ended December 31, 2002
associated with improving collections experience at that time.

Amortization of Intangible Assets

|                                  |  |                                 |     |        |  |      |  |   |     |  |  | 
|--------------------------------- |  | ------------------------------- | --- | ------ |  | ---- |  | - | --- |  |  | 
|                                  |  | Three months ended December 31,
|                                  |  |                                
|(in millions)                     |  | 2003                            |     | Change |  | 2002
|                                  |  |                                 |     |        |  |     
|Amortization of intangible assets |  | $                               | 1.0 |        |  | nm   |  | $ | 0.8 | 

nm= not meaningful

Amortization expense is recorded for intangible assets other than goodwill
pursuant to SFAS 141 and 142. 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. Goodwill must be tested
at least annually for impairment and written down when impaired.

The increased amortization expense in the first quarter of fiscal 2004 compared
to the first quarter of fiscal 2003 is attributable to additional intangibles
acquired in an acquisition in the latter half of fiscal 2003. We expect that
amortization, exclusive of the impact of our pending merger with
GlobespanVirata, of intangible assets will be approximately $3.8 million for
fiscal 2004.

Special Charges

Special charges consist of the following (in thousands):

|                      |  |                                 |     |        |  |      |  |   |     |  |  | 
|--------------------- |  | ------------------------------- | --- | ------ |  | ---- |  | - | --- |  |  | 
|                      |  | Three months ended December 31,
|                      |  |                                
|(in millions)         |  | 2003                            |     | Change |  | 2002
|                      |  |                                 |     |        |  |     
|Asset impairments     |  | $                               | 0.2 |        |  | nm   |  | $ | 2.2 | 
|Restructuring charges |  |                                 | 0.4 |        |  | nm   |  |   | 1.9 | 
|Other special charges |  |                                 |    |        |  | nm   |  |   | 2.7 | 
|                      |  |                                 |     |        |  |      |  |   |     |  |  | 
|                      |  | $                               | 0.6 |        |  | nm   |  | $ | 6.8 | 
|                      |  |                                 |     |        |  |      |  |   |     |  |  | 

nm= not meaningful

See Note 6 of Notes to Consolidated
Condensed Financial Statements for a discussion of asset
impairment charges, restructuring charges and special charges.

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Other Income, Net

|                  |  |                                 |      |        |  |      |  |   |     |  |  | 
|----------------- |  | ------------------------------- | ---- | ------ |  | ---- |  | - | --- |  |  | 
|                  |  | Three months ended December 31,
|                  |  |                                
|(in millions)     |  | 2003                            |      | Change |  | 2002
|                  |  |                                 |      |        |  |     
|Other income, net |  | $                               | 25.3 |        |  | nm   |  | $ | 3.4 | 

nm= not meaningful

Other income, net for the first quarter of fiscal 2004 was comprised of a $24.6
million increase in the fair value of the Mindspeed warrant, $10.2 million of
income in our equity method investments (including a $11.4 million gain in
accordance with Staff Accounting Bulletin No. 51 for the realization of an
additional investment made by another party in Jazz Semiconductor) and $2.5
million of investment and interest income on invested cash balances, offset by
$6.7 million of interest expense on our convertible subordinated notes and a
$4.9 million decrease in the fair value of the conversion right under the
Skyworks 15% convertible senior subordinated notes. The $11.4 million gain in
our investment in Jazz Semiconductor is the result of our ownership in Jazz
decreasing from 45% to approximately 38% when the additional favorable
investment was realized. Due to variations in the fair values of the common
stock underlying the Skyworks 15% convertible senior subordinated notes and the
Mindspeed warrant, we expect that other income (expense) may fluctuate
significantly in future periods until these derivative instruments are
liquidated.

Other income, net for the first quarter of the previous year was comprised of a
$4.0 million increase in the fair value of the conversion right under the
Skyworks 15% convertible senior subordinated notes, $5.6 million of investment
and interest income on invested cash balances, and $1.3 million of income in
our equity method investments offset by $7.6 million of interest expense on our
convertible subordinated notes.

The carrying values of non-marketable investments are at the lower of cost or
their estimated fair values. These investments consist of equity interests in
early stage technology companies which we had accounted for under the cost
method. We estimate the fair value of these investments based upon available
financial and other information, including the then-current and projected
business prospects for the subject companies, and when we determine that the
decline in the fair value of these investments is other than temporary, they
are written down to their fair value.

Provision for Income Taxes

We recorded income tax expense of $0.2 million and $0.3 million for the three
months ended December 31, 2003 and 2002, respectively, primarily reflecting
taxes imposed on our foreign subsidiaries. No income tax expense was recorded
with respect to the domestic results for the quarter as they will be offset by
net operating loss carryovers that have not been previously recognized. We
expect this will continue for the foreseeable future, and as result, we expect
our income tax provision for fiscal 2004, exclusive of the impact of our
pending merger with GlobespanVirata, to be approximately $1.0 million
consisting primarily of income taxes related to our foreign operations.

As of September 30, 2003, we had a valuation allowance of approximately $413.0
million for the deferred tax assets that 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
or credited to income in the period such determination is made.

Liquidity and Capital Resources

Our cash and cash equivalents increased by $13.6 million during the first
quarter of fiscal 2004. Cash provided by operating activities was $22.3 million
for the first quarter of fiscal 2004, compared to cash used in operating
activities of $14.1 million for the comparable period in fiscal 2003. Operating
cash flows for the fiscal 2004 period reflect our income from continuing
operations of $40.6 million, offset by non-cash charges (depreciation and
amortization and other) of $6.1 million, a net increase in fair value of the
Mindspeed warrant and the Skyworks note of $19.7 million, a net increase in
equity in earnings of equity method investees of $10.2 million, and a net decrease in the
components of working capital of $5.4 million. The working capital decrease
principally consists of a $15.5 million
increase in accounts payable and accrued expenses, offset by a $6.1 million increase
in accounts receivable, both attributable to the growth in our business. Net
inventories have decreased by $0.6 million.

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Cash used by investing activities of $14.8 million for the first quarter of
fiscal 2004 includes capital expenditures of $4.9 million, net purchases of
marketable securities of $4.3 million, payment of deferred purchase
consideration of $4.0 million, payment of deferred merger costs
of $1.4 million
and investments of $0.5 million. Cash provided by investing activities of
$121.6 million in the first quarter of fiscal 2003 principally consisted of the
repayment of the Skyworks note (net of the credit facility of $135.0 million),
$1.0 million in proceeds from the sale of assets, partially offset by $9.7
million of net purchases of marketable securities, capital expenditures of $3.2
million and payments for investments of $1.5 million.

Cash provided by financing activities of $6.1 million and $0.7 million for the
first quarter of fiscal 2004 and 2003, respectively, consisted of proceeds from
the exercise of stock options.

At December 31, 2003, we held $45.0 million principal amount of the Skyworks
15% convertible senior subordinated notes with a maturity date of June 30,
2005. 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 December 31, 2003 the estimated
fair value of the 15% convertible senior subordinated notes was approximately
$51.0 million. We have the ability and intent to sell all or part of the 15%
convertible senior subordinated notes or shares underlying the notes within the
next twelve months.

As of December 31, 2003, our principal sources of liquidity are our existing
cash reserves and short-term investments (including the Skyworks 15%
convertible senior subordinated notes), the current portion of the Mindspeed
warrant and cash generated from product sales. Combined cash and cash
equivalents, short-term investments and Skyworks 15% convertible senior
subordinated notes at December 31, 2003 totaled $188.3 million compared to
$175.5 million at September 30, 2003. The current portion of the Mindspeed
warrant at December 31, 2003 was $21.4 million. Our working capital at
December 31, 2003 was $262.5 million compared to $233.0 million at September
30, 2003.

In connection with the Mindspeed Spin in June 2003, we entered into a senior
secured revolving credit facility with Mindspeed, pursuant to which Mindspeed
may borrow up to $50.0 million from us for working capital and general
corporate purposes. Mindspeed may borrow under the credit facility only to
restore its cash balance to $25.0 million. The credit facility is available
through June 29, 2007 and as of December 31, 2003, no amounts were outstanding.

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, remaining
accrued restructuring balance of $10.3 million, and other capital requirements,
including our commitment under the credit facility with Mindspeed, and amounts
anticipated to complete our pending merger with GlobespanVirata, 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.

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Off-Balance Sheet Arrangements

Our off-balance arrangements consist of conventional operating leases, capital
commitments and purchase commitments as described under Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations -
Off-Balance Sheet Arrangements on pages 33 and 34 of our Annual Report on Form
10-K for the fiscal year ended September 30, 2003. Management believes that at
December 31, 2003, there has been no material change to this information. We
do not have any special purpose entities or variable interest entities as of
December 31, 2003.

See Note 9 of Notes to Consolidated Condensed Financial Statements for a
description of our commitment with respect to the Mindspeed senior secured revolving credit
facility.

In addition, at December 31, 2003 we were contingently liable for approximately
$33.4 million in operating lease commitments on facility leases that were
assigned to Mindspeed and Skyworks at the time of their separation from
Conexant.

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, valuation of derivative
instruments, restructuring costs, long-term employee benefit plans and other
contingencies. 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.
Detailed information on these critical accounting policies is included under
Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations - Critical Accounting Policies on pages 34 to 36 of our
Annual Report on Form 10-K for the fiscal year ended September 30, 2003.
Management believes that at December 31, 2003, there has been no material
change to this information.

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. 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.

Detailed information on these risk factors is included under Item 1.
Business - Certain Business Risks on pages 10 to 18 of our Annual Report on Form
10-K for the fiscal year ended September 30, 2003. Management believes that at
December 31, 2003, there has been no material change to this information.

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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, the
Mindspeed warrant, 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 December 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
December 31, 2003, a 10% adverse change in equity prices would
result in a $0.5 million decrease in the value of our marketable equity securities.

We hold Skyworks 15% convertible senior subordinated notes having an aggregate
principal amount of $45.0 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
December 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 $5.2 million. The Skyworks 15% convertible
senior subordinated notes are also subject to interest rate risk. At December
31, 2003, the market price of Skyworks common stock was $9.00 per share. For
the quarter ended December 31, 2003, the market price of Skyworks common stock
ranged from a low of $7.58 per share to a high of $11.21 per share.

We received the 15% convertible senior subordinated notes from Skyworks in
exchange for the remaining $45.0 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 hold a warrant to purchase 30 million shares of common stock of Mindspeed.
For financial accounting purposes, this is a derivative instrument and the fair
value of the warrant is subject to significant risk related to changes in the
market price of Mindspeeds common stock. As of December 31, 2003, a 10%
decrease in the market price of Mindspeeds common stock would decrease the
fair value of this warrant by approximately $19.8 million. At December 31,
2003, the market price of Mindspeeds common stock was $6.89 per share. For
the quarter ended December 31, 2003, the market price of Mindspeeds common
stock ranged from a low of $5.02 per share to a high of $7.11 per share

We classify all of our marketable debt and equity securities as
available-for-sale securities. As of December 31, 2003, the carrying value of
these securities included net unrealized gain of $2.6 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
December 31, 2003:

|                                                   |  |                |       |            |  |   |       | 
|-------------------------------------------------- |  | -------------- | ----- | ---------- |  | - | ----- | 
|(in millions)                                      |  | Carrying Value |       | Fair Value
|                                                   |  |                |       |           
|Cash and cash equivalents                          |  | $              | 89.8  |            |  | $ | 89.8  | 
|Marketable debt securities                         |  |                | 22.0  |            |  |   | 22.0  | 
|Marketable government securities                   |  |                | 20.5  |            |  |   | 20.5  | 
|Skyworks 15% convertible senior subordinated notes |  |                | 51.0  |            |  |   | 51.0  | 
|Marketable equity securities                       |  |                | 5.0   |            |  |   | 5.0   | 
|Mindspeed warrant                                  |  |                | 143.9 |            |  |   | 143.9 | 
|Long-term debt                                     |  |                | 581.8 |            |  |   | 561.7 | 

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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 December 31, 2003, we held no foreign
currency forward exchange contracts. Based on our overall currency rate
exposure at December 31, 2003, a 10 percent change in the currency rates would
not have a material effect on our consolidated financial position, results of
operations or cash flows.




|        |  |                        
|------- |  | -----------------------
|ITEM 4. |  | CONTROLS AND PROCEDURES

An evaluation as of the end of the period covered by this report was carried
out 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 changes in the Companys internal control over financial
reporting during the quarter ended December 31, 2003 that have materially
affected, or are reasonably likely to materially effect, the Companys internal
control over financial reporting.

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PART II. OTHER INFORMATION




|        |  |                                 
|------- |  | --------------------------------
|ITEM 6. |  | EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:



|2    |  | Agreement and Plan of Reorganization dated as of November 3, 2003, as
amended as of January 15, 2004, by and among the Company, Concentric
Sub, Inc. and GlobespanVirata, Inc., included as Annex A to the
Companys Registration Statement on Form S-4 (Registration No.
333-111179), is incorporated herein by reference.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|31.1 |  | Certification of the Chief Executive Officer of Periodic Report
Pursuant to Rule 13a -15(e) or 15d-15(e).                                                                                                                                                                                                                  
|    
|31.2 |  | Certification of the Chief Financial Officer of Periodic Report
Pursuant to Rule 13a -15(e) or 15d-15(e).                                                                                                                                                                                                                  
|    
|32   |  | Certification by Chief Executive Officer and Chief Financial Officer
of Periodic Report Pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                

(b) Reports on Form 8-K

Current Report on Form 8-K dated October 31, 2003, furnishing the Companys
press release dated October 30, 2003, announcing its financial results for the
fourth quarter and year ended September 30, 2003 (Item 12).

Current Report on Form 8-K dated November 3, 2003, announcing the signing of a
definitive merger agreement with GlobespanVirata, Inc. (Items 5 and 7).

Current Report on Form 8-K dated November 4, 2003, filing the definitive merger
agreement with GlobespanVirata, Inc. (Items 5 and 7).

Current Report on Form 8-K dated January 28, 2004, furnishing the Companys
press release dated January 28, 2004, announcing its financial results for the
first quarter ended December 31, 2003 (Item 12).

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SIGNATURE

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: February 5, 2004 |  | By                     |  | /s/ J. Scott Blouin          
|                       |  |                        |  |                              
|                       |  |                        |  | J. Scott Blouin              
|                       |  |                        |  | Senior Vice President and    
|                       |  |                        |  | Chief Financial Officer      
|                       |  |                        |  | (principal financial officer)

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EXHIBIT INDEX



|31.1 |  | Certification of the Chief Executive Officer of Periodic Report
Pursuant to Rule 13a -15(e) or 15d-15(e).                  
|---- |  | ---------------------------------------------------------------------------------------------------------------------------
|    
|31.2 |  | Certification of the Chief Financial Officer of Periodic Report
Pursuant to Rule 13a -15(e) or 15d-15(e).                  
|    
|32   |  | Certification by Chief Executive Officer and Chief Financial Officer
of Periodic Report Pursuant to 18 U.S.C. Section 1350.

27