<PAGE>   1
================================================================================

                                  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, 2000*

                                       OR

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


                        COMMISSION FILE NUMBER: 000-24923



                             CONEXANT SYSTEMS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


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


                               4311 JAMBOREE ROAD
                      NEWPORT BEACH, CALIFORNIA 92660-3095
               (Address of principal executive offices) (Zip code)


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


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

Registrant's number of shares of common stock outstanding as of January 24, 2001
was 243,068,941.

----------

* For presentation purposes of this Form 10-Q, references made to the December
  31, 2000 period relate to the actual fiscal first quarter ended December 29,
  2000.

================================================================================


<PAGE>   2
                             CONEXANT SYSTEMS, INC.

                                      INDEX


<TABLE>
<CAPTION>
                                                                                                        PAGE
                                                                                                        ----
<S>                                                                                                     <C>
PART I. FINANCIAL INFORMATION

Item 1.   Financial Statements (unaudited):

          Consolidated Condensed Balance Sheets -- December 31, 2000 and September 30, 2000               3

          Consolidated Condensed Statements of Operations -- Three Months Ended
            December 31, 2000 and 1999                                                                    4

          Consolidated Condensed Statements of Cash Flows -- Three Months Ended
            December 31, 2000 and 1999                                                                    5

          Notes to Consolidated Condensed Financial Statements                                            6

Item 2.   Management's Discussion and Analysis of Financial Condition and Results
          of Operations                                                                                  11

Item 3.   Quantitative and Qualitative Disclosures About Market Risk                                     30


PART II. OTHER INFORMATION

Item 1.   Legal Proceedings                                                                              32

Item 6.   Exhibits and Reports on Form 8-K                                                               33

          Signatures                                                                                     34
</TABLE>


                                       2


<PAGE>   3
PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS


                             CONEXANT SYSTEMS, INC.
                      CONSOLIDATED CONDENSED BALANCE SHEETS
               (unaudited, in thousands, except per share amounts)


<TABLE>
<CAPTION>
                                                              December 31,      September 30,
                                                                  2000              2000
                                                              -----------       ------------
<S>                                                           <C>               <C>
                                     ASSETS
Current assets:
  Cash and cash equivalents ............................      $   292,629       $   831,100
  Receivables, net of allowances of $10,098 and
     $6,949 at December 31 and September 30,
     2000, respectively ................................          369,915           422,650
  Inventories ..........................................          360,091           341,002
  Deferred income taxes ................................           95,161            95,260
  Other current assets .................................          102,021            84,130
                                                              -----------       -----------
          Total current assets .........................        1,219,817         1,774,142

Marketable securities ..................................          292,241            95,876
Property, plant and equipment, net .....................          856,688           828,511
Goodwill and intangible assets, net ....................        1,427,715         1,507,326
Other assets ...........................................          279,887           209,056
Deferred income taxes ..................................           27,248             1,286
                                                              -----------       -----------
          Total assets .................................      $ 4,103,596       $ 4,416,197
                                                              ===========       ===========


                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable .....................................      $   211,091       $   233,865
  Deferred revenue .....................................           42,591            37,586
  Accrued compensation and benefits ....................           58,649            88,399
  Other current liabilities ............................           88,234            95,158
                                                              -----------       -----------
          Total current liabilities ....................          400,565           455,008

Convertible subordinated notes .........................          709,849           999,997
Other long-term liabilities ............................           55,225            54,433
                                                              -----------       -----------
          Total liabilities ............................        1,165,639         1,509,438
                                                              -----------       -----------

Commitments and contingencies ..........................               --                --

Shareholders' equity:
  Preferred and junior preferred stock .................               --                --
  Common stock ($1.00 par value, 1,000,000 shares
     authorized; 242,907 and 231,164 shares issued at
     December 31 and September 30, 2000,
     respectively) .....................................          242,907           231,164
  Additional paid-in capital ...........................        3,025,608         2,775,115
  Accumulated deficit ..................................         (320,451)         (120,875)
  Accumulated other comprehensive income ...............            7,938            47,295
  Treasury stock, 30 shares at cost ....................           (1,624)           (1,619)
  Unearned compensation ................................          (16,421)          (24,321)
                                                              -----------       -----------
          Total shareholders' equity ...................        2,937,957         2,906,759
                                                              -----------       -----------
          Total liabilities and shareholders' equity ...      $ 4,103,596       $ 4,416,197
                                                              ===========       ===========
</TABLE>


     See accompanying notes to consolidated condensed financial statements.


                                       3


<PAGE>   4
                             CONEXANT SYSTEMS, INC.
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
               (unaudited, in thousands, except per share amounts)


<TABLE>
<CAPTION>
                                                                 Three Months Ended
                                                                    December 31,
                                                             -------------------------
                                                              2000             1999
                                                             ---------       ---------
<S>                                                          <C>             <C>
Net revenues ..........................................      $ 410,361       $ 509,963
Cost of goods sold ....................................        296,603         277,446
                                                             ---------       ---------
Gross margin ..........................................        113,758         232,517

Operating expenses:
  Research and development ............................        118,538          88,477
  Selling, general and administrative .................         80,376          68,168
  Amortization of intangible assets ...................         82,304           2,405
  Separation costs ....................................          7,927              --
                                                             ---------       ---------
          Total operating expenses ....................        289,145         159,050
                                                             ---------       ---------

Operating income (loss) ...............................       (175,387)         73,467

Debt conversion costs .................................        (42,584)             --
Other income (expense), net ...........................         (4,356)            578
                                                             ---------       ---------

Income (loss) before income taxes .....................       (222,327)         74,045

Provision (benefit) for income taxes ..................        (15,467)         22,214
                                                             ---------       ---------

Income (loss) before extraordinary item ...............       (206,860)         51,831

Extraordinary gain on extinguishment of debt,
   net of income taxes of $4,426 ......................          7,284              --
                                                             ---------       ---------

Net income (loss) .....................................      $(199,576)      $  51,831
                                                             =========       =========


Income (loss) per share:
  Basic:
      Income (loss) before extraordinary item .........      $   (0.88)      $    0.26
      Extraordinary item ..............................           0.03              --
                                                             ---------       ---------
      Net income (loss) ...............................      $   (0.85)      $    0.26
                                                             =========       =========

  Diluted:
      Income (loss) before extraordinary item .........      $   (0.88)      $    0.24
      Extraordinary item ..............................           0.03              --
                                                             ---------       ---------
      Net income (loss) ...............................      $   (0.85)      $    0.24
                                                             =========       =========

Number of shares used in per share computation:
  Basic ...............................................        236,119         196,715
                                                             =========       =========
  Diluted .............................................        236,119         228,974
                                                             =========       =========
</TABLE>


     See accompanying notes to consolidated condensed financial statements.


                                       4


<PAGE>   5
                             CONEXANT SYSTEMS, INC.
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                            (unaudited, in thousands)


<TABLE>
<CAPTION>
                                                                    Three Months Ended
                                                                        December 31,
                                                                  -------------------------
                                                                     2000            1999
                                                                  ---------       ---------
<S>                                                               <C>             <C>
Cash flows from operating activities:
Net income (loss) ..........................................      $(199,576)      $  51,831

Adjustments to reconcile net income (loss) to
  net cash provided by (used in) operating activities:
      Depreciation .........................................         47,691          44,357
      Amortization of intangible assets ....................         82,304           2,405
      Deferred income taxes ................................        (17,106)             --
      Stock compensation ...................................          3,548             449
      Debt conversion costs ................................         42,584              --
      Extraordinary gain--extinguishment of debt ...........        (11,710)             --
      Other non-cash charges ...............................          6,371              --
  Changes in assets and liabilities:
     Receivables ...........................................         52,735         (47,568)
     Inventories ...........................................        (19,089)          1,765
     Accounts payable ......................................        (22,461)        (40,642)
     Accrued expenses and other current liabilities ........        (32,123)         30,535
     Other .................................................         (7,015)         16,692
                                                                  ---------       ---------

  Net cash provided by (used in) operating activities ......        (73,847)         59,824
                                                                  ---------       ---------


Cash flows from investing activities:
Capital expenditures .......................................        (65,665)        (84,656)
Investments in and advances to businesses ..................        (86,090)       (105,498)
Proceeds from sale of marketable securities ................        208,515              --
Purchase of marketable securities ..........................       (461,903)             --
                                                                  ---------       ---------

  Net cash used in investing activities ....................       (405,143)       (190,154)
                                                                  ---------       ---------

Cash flows from financing activities:
Payment of debt conversion costs ...........................        (42,584)             --
Repurchase of convertible subordinated notes ...............        (22,400)             --
Proceeds from exercise of stock options ....................          5,503           9,330
                                                                  ---------       ---------

  Net cash provided by (used in) financing
     activities ............................................        (59,481)          9,330
                                                                  ---------       ---------

Net decrease in cash and cash equivalents ..................       (538,471)       (121,000)

Cash and cash equivalents at beginning of period ...........        831,100         398,516
                                                                  ---------       ---------

Cash and cash equivalents at end of period .................      $ 292,629       $ 277,516
                                                                  =========       =========
</TABLE>


     See accompanying notes to consolidated condensed financial statements.


                                       5


<PAGE>   6
                             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") is focused exclusively on
providing semiconductor products and system solutions for a wide variety of
communications electronics. The Company's products facilitate communications
worldwide through wireline voice and data communications networks, cordless and
cellular wireless telephony systems, personal imaging devices and equipment, and
emerging cable and wireless broadband communications networks. The Company
operates in two business segments: the Personal Networking business and the
Internet Infrastructure business.

On January 18, 2001, the Company announced that it will postpone the
previously-announced initial public offering of common stock of its Internet
Infrastructure business. The Company intends to complete the separation of the
Internet Infrastructure and Personal Networking businesses as soon as business
conditions and the equity capital markets improve. However, there can be no
assurance that any initial public offering or separation will be successfully
completed.

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 fiscal 2001 separation costs, debt conversion
costs, and extraordinary gain on extinguishment of debt, 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, 2000.

Fiscal Periods

For presentation purposes, references made to the period ended December 31, 2000
relate to the actual fiscal 2001 first quarter ended December 29, 2000.

Reclassifications

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

Recent Accounting Standards

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. SFAS 133 requires that
an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Derivatives that are not hedges must be adjusted to fair value through earnings.
If the derivative is a hedge, depending on the nature of the hedge, changes in
fair value of derivatives either offset the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings, or are recognized in
other comprehensive income until the hedged item is recognized in earnings.
Generally, the change in a derivative's fair value related to the ineffective
portion of a hedge, if any, is immediately recognized in earnings. The Company
adopted SFAS 133 as of October 1, 2000, with no significant effect on the
Company's financial position or results of operations.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements". SAB
101 provides guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. The Company will be required
to adopt SAB 101 no later than the fourth quarter of fiscal 2001. Management
believes that the adoption of SAB 101 will not have a significant effect on its
financial position or results of operations.


                                       6


<PAGE>   7
                             CONEXANT SYSTEMS, INC.
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
                                   (unaudited)

2. INVENTORIES

Inventories consist of the following (in thousands):


<TABLE>
<CAPTION>
                                         December 31,     September 30,
                                             2000            2000
                                         -----------      -----------
<S>                                      <C>              <C>
Raw materials .....................      $    41,480      $    38,866
Work-in-process ...................          187,360          209,871
Finished goods ....................          131,251           92,265
                                         -----------      -----------
                                         $   360,091      $   341,002
                                         ===========      ===========
</TABLE>


3. MARKETABLE SECURITIES

Marketable securities include commercial paper, corporate bonds, and government
securities, principally having remaining terms of up to five years, and
marketable equity securities. The Company enters into certain equity investments
for the promotion of business and strategic objectives. The marketable portion
of these strategic investments is classified as marketable securities;
non-marketable equity and other investments are included in other assets. All of
the Company's marketable securities are classified as available for sale and are
recorded on the consolidated condensed balance sheet at fair value, based upon
quoted market prices. As of December 31, 2000, unrealized gains of $16.5 million
(net of related income taxes of $10.0 million) on these securities are included
in other comprehensive income. Available-for-sale securities (short-term and
long-term) consisted of the following (in thousands):


<TABLE>
<CAPTION>
                                                             Gross             Gross
                                                           Unrealized       Unrealized
                                          Amortized         Holding           Holding            Fair
                                            Cost             Gains             Losses            Value
                                         -----------      -----------       -----------       -----------
<S>                                      <C>              <C>               <C>               <C>
As of December 31, 2000:
U.S. government agencies ..........      $    11,950      $        16       $        --       $    11,966
Foreign governments ...............           14,599              128                --            14,727
Corporate debt securities .........          247,493            1,630               (59)          249,064
Equity securities .................           15,374           24,860                --            40,234
                                         -----------      -----------       -----------       -----------
                                         $   289,416      $    26,634       $       (59)      $   315,991
                                         ===========      ===========       ===========       ===========

As of September 30, 2000:
U.S. government agencies ..........      $    14,795      $         1       $       (60)      $    14,736
Corporate debt securities .........            5,961                2                (7)            5,956
Equity securities .................           15,374           77,207                --            92,581
                                         -----------      -----------       -----------       -----------
                                         $    36,130      $    77,210       $       (67)      $   113,273
                                         ===========      ===========       ===========       ===========
</TABLE>


The amortized cost and estimated fair value of debt securities at December 31,
2000, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because the issuers of the securities may have the
right to prepay obligations without prepayment penalties.


<TABLE>
<CAPTION>
                                               Amortized           Fair
                                                 Cost             Value
                                              -----------      -----------
                                                    (in thousands)
<S>                                           <C>              <C>
Due within one year ....................      $    23,680      $    23,750
Due after one year through five years ..          240,164          241,717
Due after five years through ten years .            3,479            3,536
Due after ten years ....................            6,719            6,754
                                              -----------      -----------
                                              $   274,042      $   275,757
                                              ===========      ===========
</TABLE>


                                       7


<PAGE>   8
                             CONEXANT SYSTEMS, INC.
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
                                   (unaudited)

4. CONVERTIBLE SUBORDINATED NOTES

During the three months ended December 31, 2000, approximately $255.1 million
principal amount of the Company's 4-1/4% Convertible Subordinated Notes due 2006
were converted into approximately 11.0 million shares of common stock at a cost
to the Company of $42.6 million. In addition, the Company purchased $35.0
million principal amount of its 4% Convertible Subordinated Notes due 2007 at
prevailing market prices, resulting in an extraordinary gain of $7.3 million
(net of income taxes of $4.4 million).


5. CONTINGENT LIABILITIES

Claims have been asserted against the Company for utilizing 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 the Company's spin-off from Rockwell International
Corporation ("Rockwell"), the Company assumed responsibility for all contingent
liabilities and then current and future litigation (including environmental and
intellectual property proceedings) against Rockwell or its subsidiaries in
respect of the operations of the semiconductor systems business of Rockwell.

The 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 Company's financial condition or results of operations.


6. COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) for the three months ended December 31, 2000 and
1999 is as follows (in thousands):


<TABLE>
<CAPTION>
                                                                                       Three months ended
                                                                                          December 31,
                                                                                  -----------------------------
                                                                                      2000              1999
                                                                                  -----------       -----------
<S>                                                                               <C>               <C>
Net income (loss) ..........................................................      $  (199,576)      $    51,831

Other comprehensive income (loss):
  Foreign currency translation adjustments .................................           (8,272)            2,207
  Change in unrealized gains on available for sale securities ..............          (50,568)           43,856
  Change in unrealized gains on foreign currency forward contracts .........               71                --
  Effect of income taxes ...................................................           19,412           (16,744)
                                                                                  -----------       -----------
    Other comprehensive income (loss) ......................................          (39,357)           29,319
                                                                                  -----------       -----------
    Comprehensive income (loss) ............................................      $  (238,933)      $    81,150
                                                                                  ===========       ===========
</TABLE>

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


<TABLE>
<CAPTION>
                                                                      December 31,      September 30,
                                                                          2000             2000
                                                                      -----------       ------------
<S>                                                                   <C>               <C>
Unrealized gains on marketable securities, net of tax ..........      $    16,529       $    47,685
Unrealized gains on foreign currency forward contracts .........               71                --
Foreign currency translation adjustments .......................           (8,662)             (390)
                                                                      -----------       -----------

    Accumulated other comprehensive income .....................      $     7,938       $    47,295
                                                                      ===========       ===========
</TABLE>


                                       8


<PAGE>   9
                             CONEXANT SYSTEMS, INC.
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
                                   (unaudited)

7. 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 basic and diluted income (loss)
per share before extraordinary item (in thousands, except per share data):


<TABLE>
<CAPTION>
                                                                          Three months ended
                                                                             December 31,
                                                                    -----------------------------
                                                                        2000              1999
                                                                    -----------       -----------
<S>                                                                 <C>               <C>
Income:
Income (loss) before extraordinary item available to
 common shareholders -- basic ................................      $  (206,860)      $    51,831
Interest expense on convertible subordinated
   notes, net of tax..........................................               --             2,299
                                                                    -----------       -----------
Income (loss) before extraordinary item available to
 common shareholders -- diluted ..............................      $  (206,860)      $    54,130
                                                                    ===========       ===========

Shares:
Weighted-average shares outstanding -- basic .................          236,119           196,715
Effect of dilutive securities:
  Stock options ..............................................               --            16,791
  Restricted stock ...........................................               --               315
  Convertible subordinated notes .............................               --            15,153
                                                                    -----------       -----------

Weighted-average shares outstanding -- diluted ...............          236,119           228,974
                                                                    ===========       ===========

Income (loss) per share before extraordinary item:
  Basic ......................................................      $     (0.88)      $      0.26
                                                                    ===========       ===========
  Diluted ....................................................      $     (0.88)      $      0.24
                                                                    ===========       ===========
</TABLE>


The average shares listed below were not included in the computation of diluted
earnings per share, as their effect would have been antidilutive for the periods
presented (in thousands):


<TABLE>
<CAPTION>
                                                                    Three months ended
                                                                         December 31,
                                                                 ---------------------------
                                                                    2000             1999
                                                                 ---------         ---------
<S>                                                              <C>               <C>
Stock options (under the treasury stock method) .........           11,523               --
4-1/4% Convertible Subordinated Notes due 2006 ..........           10,224               --
4% Convertible Subordinated Notes due 2007 ..............            5,905               --
Restricted stock and other ..............................            3,301               --
</TABLE>


8. SUPPLEMENTAL CASH FLOW DISCLOSURES

Cash paid for interest, net of amounts capitalized, was $8.4 million and $6.4
million for the three months ended December 31, 2000 and 1999, respectively.
Cash paid for income taxes for the three months ended December 31, 2000 and 1999
was $0.4 million and $15.4 million, respectively.

Significant noncash transactions during the three months ended December 31, 2000
and 1999 include income tax benefits of approximately $4.7 million and $52.7
million, respectively, resulting from employee stock transactions which were
credited to additional paid-in capital.


                                       9


<PAGE>   10
                             CONEXANT SYSTEMS, INC.
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
                                   (unaudited)

9. SEGMENT INFORMATION

The Company operates in two reportable segments--Personal Networking and
Internet Infrastructure. The Company evaluates segment performance based on
operating income (loss) excluding amortization of intangible assets and special
charges. Special charges excluded from segment operating income (loss) for the
three months ended December 31, 2000 include separation costs incurred in
connection with the proposed spin-off of the Internet Infrastructure segment and
stock compensation costs, representing the amortization of the value of unvested
in-the-money stock options assumed by Conexant in connection with certain fiscal
2000 business acquisitions. The table below presents information about reported
segments for the three months ended December 31 (in thousands):


<TABLE>
<CAPTION>
                                                        Net Revenues              Operating Income (Loss)
                                                 -------------------------      -------------------------
                                                   2000             1999           2000            1999
                                                 ---------       ---------      ---------       ---------
<S>                                              <C>             <C>            <C>             <C>
Personal Networking .......................      $ 244,456       $ 391,416      $(106,352)      $  59,511
Internet Infrastructure ...................        165,905         118,547         23,683          16,361
                                                 ---------       ---------      ---------       ---------
  Segment totals ..........................      $ 410,361       $ 509,963        (82,669)         75,872
                                                 =========       =========

Amortization of intangible assets .........                                        82,304           2,405
Separation costs ..........................                                         7,927              --
Stock compensation ........................                                         2,487              --
                                                                                ---------       ---------
  Operating income (loss) .................                                     $(175,387)      $  73,467
                                                                                =========       =========
</TABLE>


                                       10


<PAGE>   11

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


This information should be read in conjunction with the unaudited consolidated
condensed financial statements and the notes thereto included in this Quarterly
Report, and the audited consolidated financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report on Form 10-K for the year
ended September 30, 2000.

OVERVIEW

Conexant is focused exclusively on providing semiconductor products and system
solutions for a wide variety of communications electronics. The Company's
products facilitate communications worldwide through wireline voice and data
communications networks, cordless and cellular wireless telephony systems,
personal imaging devices and equipment, and emerging cable and wireless
broadband communications networks. The Company operates in two business
segments: the Personal Networking business and the Internet Infrastructure
business.

The Personal Networking business designs, develops and sells semiconductor
products and system solutions in four general communications applications
markets -- Personal Computing, Personal Imaging, Digital Infotainment and
Wireless Communications. Personal Computing products include telephony-based
communications solutions for personal computing terminals and other
communication devices such as gaming consoles, web browsers and handheld
devices. Personal Imaging products consist of semiconductor and software
products that enable image capture, processing and output for fax machines,
printers and digital still and video cameras. Digital Infotainment products
include semiconductor solutions that perform communication and media processing
functions within a variety of information and entertainment platforms. Wireless
Communications products are comprised of components, subsystems and system-level
semiconductor solutions for wireless voice and data communication applications,
including digital cellular handsets and base stations, cordless telephones and
global positioning system ("GPS") receivers.

The Internet Infrastructure business designs, develops and sells semiconductor
products and system solutions for some of the highest-growth areas in the
communications markets including broadband access, multi-service access and wide
area network ("WAN") transport. The Company's broad product portfolio allows it
to provide network infrastructure original equipment manufacturers ("OEMs") with
system level semiconductor solutions including multi-service access and
high-speed digital subscriber line ("DSL") products used in a variety of network
access platforms such as remote access concentrators, voice gateways, digital
loop carriers, DSL access multiplexers and integrated access devices. The
Company also provides network infrastructure OEMs with an extensive family of
communication solutions that support the aggregation, transmission and switching
of data, video and voice from the edge of the network to the optical backbone,
including T/E carrier, asynchronous transfer mode ("ATM") and synchronous
optical networking ("SONET")/synchronous digital hierarchy ("SDH") products and
network processors. These products are used in a variety of network equipment
including high-speed routers, ATM switches, optical switches, add-drop
multiplexers and digital cross-connect systems.

The Company markets and sells its semiconductor products and system solutions
directly to leading OEMs of communication electronics products and third-party
electronic manufacturing service providers, and indirectly through electronic
components distributors. One customer accounted for 10% of net revenues in the
first quarter of fiscal 2001; no other customer accounted for more than 10% of
net revenues for the period. The Company's top 20 customers accounted for 62% of
fiscal 2001 first quarter net revenues. Revenues derived from customers located
in the Americas, Europe, Japan, and the Asia-Pacific region were 39%, 15%, 6%
and 40%, respectively, of the Company's net revenues in the first quarter of
fiscal 2001.

The semiconductor industry is highly cyclical and is characterized by constant
and rapid technological change, rapid product obsolescence and price erosion,
evolving standards, short product life cycles and wide fluctuations in product
supply and demand. In addition, the Company's operating results may be
negatively affected by substantial quarterly and annual fluctuations and market
downturns due to a number of factors, such as changes in demand for end-user
equipment, the timing of the receipt, reduction or cancellation of significant
customer orders, the gain or loss of significant customers, market acceptance of
the Company's products and its customer's products, the


                                       11


<PAGE>   12

Company's ability to develop, introduce and market new products and technologies
on a timely basis, availability and cost of products from the Company's
suppliers, new product and technology introductions by competitors, changes in
the mix of products produced and sold, intellectual property disputes, the
timing and extent of product development costs and general economic conditions.
In the past, average selling prices of established products have generally
declined over time and the Company expects this trend to continue in the future.

On January 18, 2001, the Company announced that it will postpone the
previously-announced initial public offering of common stock of its Internet
Infrastructure business. The Company intends to complete the separation of the
Internet Infrastructure and Personal Networking businesses as soon as business
conditions and the equity capital markets improve. However, there can be no
assurance that any initial public offering or separation will be successfully
completed.


RESULTS OF OPERATIONS


NET REVENUES

The following table summarizes the Company's net revenues by business segment:

<TABLE>
<CAPTION>
                                                                      Three months ended December 31,
                                                             -------------------------------------------
                                                                2000             Change           1999
                                                             ---------           ------        ---------
                                                                             (in thousands)
<S>                                                          <C>                <C>            <C>
Net revenues:
Personal Networking ...................................      $ 244,456              (38)%      $ 391,416
Internet Infrastructure ...............................        165,905               40%         118,547
                                                             ---------                         ---------
                                                             $ 410,361              (20)%      $ 509,963
                                                             =========                         =========
As a percentage of Conexant's total net revenues:
Personal Networking ...................................             60%                              77%
Internet Infrastructure ...............................             40%                              23%
</TABLE>


Personal Networking

The following table summarizes the net revenues of the Personal Networking
segment by product category:

<TABLE>
<CAPTION>
                                                                      Three months ended December 31,
                                                             -------------------------------------------
                                                                2000              Change         1999
                                                             ---------           --------      ---------
                                                                              (in thousands)
<S>                                                          <C>                 <C>           <C>
Net revenues:
Personal Computing ....................................      $  75,115              (60)%      $ 190,096
Personal Imaging ......................................         24,719              (21)%         31,176
Digital Infotainment ..................................         60,785               (9)%         67,126
Wireless Communications ...............................         83,837              (19)%        103,018
                                                             ---------                         ---------
                                                             $ 244,456              (38)%      $ 391,416
                                                             =========                         =========
As a percentage of Conexant's total net revenues:
Personal Computing ....................................             18%                               38%
Personal Imaging ......................................              6%                                6%
Digital Infotainment ..................................             15%                               13%
Wireless Communications ...............................             21%                               20%
                                                             ---------                         ---------
                                                                    60%                               77%
                                                             =========                         =========
</TABLE>


Personal Computing product revenues reflect a decline in unit shipments of
dial-up and embedded modem solutions resulting from the extremely weak PC and
related peripheral device sell-through rates during the holiday season and the
excess channel inventory build-up by PC OEMs in the face of weakening demand.
These factors ultimately led to significant order deferrals and cancellations
during the latter part of the quarter. The decline in revenues in the first
quarter of fiscal of 2001 was partially offset by a significant increase in the
unit shipments of asymmetric DSL ("ADSL") chipset solutions, which commenced
volume shipments in the middle of fiscal 2000. Unit shipments of


                                       12


<PAGE>   13

ADSL chipsets increased more than 50% sequentially during the first quarter of
fiscal 2001 over the fourth quarter of fiscal 2000 .

Personal Imaging product revenues reflect a decline in the unit shipments of
products for fax modem applications as result of a significant slowdown in
customer demand in the United States and Europe, as well as excess channel
inventory build-ups by OEMs. Revenues in the first quarter of fiscal of 2001
also included a significant increase in the unit shipments of products for
digital still camera applications from the comparable period of fiscal 2000.

Digital Infotainment product revenues declined due to lower demand for media
processing products, including video encoders and decoders, as a result of the
overall weakness in demand for consumer PCs, and reduced demand for legacy
low-speed modems used in satellite set-top box applications. However, net
revenues from the strategic broadband communications portfolio, including cable
modems and satellite set-top box tuners and demodulators was up more than 100%
from the comparable prior year quarter.

Wireless Communications product revenues declined as a result of overall softer
global demand for digital cellular handsets. Net revenues from the code division
multiple access ("CDMA") product portfolio declined as a result of the Korean
government's decision to impose a ban on Korean service providers subsidizing
new digital cellular handsets. The subsidy ban curtailed domestic demand for
CDMA digital cellular handset production and attendant semiconductor component
supply. The Company also experienced lower sales volume from 900MHz digital
cordless telephone chipsets. However, unit shipments of global system for mobile
communications ("GSM") power amplifiers, radio frequency subsystems and full
system solutions in the first quarter of fiscal 2001 increased significantly
from the comparable prior year period.

Internet Infrastructure

Internet Infrastructure segment revenues for the first quarter of fiscal 2001
increased 40% from the similar period of fiscal 2000, principally reflecting
increased sales of optical networking, ATM, network processor and T/E carrier
products used in network infrastructure equipment for metropolitan and optical
backbone networks. The Company also experienced moderate growth in demand for
high-speed DSL products, used by network infrastructure OEMs in DSL access
multiplexers, integrated access devices and other products for the delivery of
symmetric DSL ("SDSL") services. However, demand for the Company's AnyPort(TM)
family of multi-service access processors was adversely affected by a slowing
capacity expansion among North American Internet service providers ("ISPs"), and
by higher-than-normal inventory levels among several OEM, subcontractor, and
distributor customers.

The Company's fiscal 2001 first quarter net revenues for both the Personal
Networking and Internet Infrastructure businesses were adversely affected by a
number of external factors including, but not limited to, weakened demand for
consumer PCs and related peripheral devices, higher than normal customer
inventory levels, delays in the development and launch of new products by the
Company's customers, and slowing investment in communications network capacity
expansion by ISPs and competitive local exchange carriers. The Company believes
that these and other factors will continue to adversely affect its revenues in
the near term.

GROSS MARGIN

<TABLE>
<CAPTION>
                                        Three months ended December 31,
                                    ---------------------------------------
                                      2000             Change        1999
                                    --------           ------      --------
                                                 (in thousands)
<S>                                 <C>               <C>          <C>
Gross margin .................      $113,758            (51)%      $232,517
Percent of net revenues ......            28%                            46%
</TABLE>


Costs of goods sold consists predominantly of purchased materials, labor and
overhead (including depreciation) associated with product manufacturing, royalty
and other intellectual property costs, warranties and sustaining engineering
expenses pertaining to products sold. Gross margins for the first quarter of
fiscal 2001 reflect the impact of lower quarterly revenues on a base of
relatively fixed manufacturing support costs. The fiscal 2001 gross margin also
reflects additional inventory reserves of approximately $57.5 million primarily
associated with the dial-up modem product portfolio, as a result of the rapidly
changing demand environment for PCs. The Company


                                       13


<PAGE>   14
anticipates that its gross margins in the near term will continue to be
adversely affected by lower quarterly revenues, and by higher energy costs
resulting from the electrical power shortages currently affecting the state of
California.

RESEARCH AND DEVELOPMENT


<TABLE>
<CAPTION>
                                             Three months ended December 31,
                                         --------------------------------------
                                           2000             Change       1999
                                         --------           ------     --------
                                                      (in thousands)
<S>                                      <C>                <C>        <C>
Research and development ..........      $118,538             34%      $ 88,477
Percent of net revenues ...........            29%                           17%
</TABLE>


The increase in research and development ("R&D") expenses for the first quarter
of fiscal 2001 compared to the first quarter of fiscal 2000 primarily reflects
higher headcount and personnel-related costs as the Company expanded its R&D
efforts in the areas of Internet infrastructure, wireless communications and
broadband access. As a result of the successful acquisition of ten businesses
and its ongoing recruiting programs, the Company increased its engineering team
by more than 375 engineers since December 1999. The Company expects fiscal 2001
R&D expenses to continue to increase from fiscal 2000 amounts as it continues to
invest in semiconductor system solutions and products for key growth market
opportunities.

SELLING, GENERAL AND ADMINISTRATIVE


<TABLE>
<CAPTION>
                                                 Three months ended December 31,
                                              -----------------------------------
                                                2000          Change        1999
                                              -------         ------      -------
                                                         (in thousands)
<S>                                           <C>             <C>         <C>
Selling, general and administrative ....      $80,376            18%      $68,168
Percent of net revenues ................           20%                         13%
</TABLE>


The increase in selling, general and administrative ("SG&A") expenses for the
first quarter of fiscal 2001 compared to the first quarter of fiscal 2000
primarily reflects the addition of the selling, marketing and administrative
teams of the businesses acquired in fiscal 2000 and the expansion of the
Company's sales and marketing organizations, including an increase in the
worldwide sales force to over 330 personnel to support the anticipated future
sales growth. The increase also reflects the continued development of corporate
infrastructure, including the Company's information systems, human resource and
finance teams, partially in support of the planned separation of the Internet
Infrastructure and Personal Networking businesses. The Company expects fiscal
2001 SG&A expenses to continue to increase from fiscal 2000 amounts as it
continues to invest in marketing and sales functions in support of anticipated
new product launches and the continued expansion of its customer base.

AMORTIZATION OF INTANGIBLE ASSETS


<TABLE>
<CAPTION>
                                             Three months ended December 31,
                                             -------------------------------
                                               2000      Change      1999
                                             -------     ------     --------
                                                    (in thousands)
<S>                                           <C>        <C>       <C>
Amortization of intangible assets ......      $82,304      nm      $ 2,405
</TABLE>

nm = not meaningful

The higher amortization expense in the fiscal 2001 first quarter resulted from
the ten business acquisitions completed during fiscal 2000. In connection with
these acquisitions, the Company recorded an aggregate of $1.6 billion of
identified intangible assets and goodwill. These assets are being amortized over
their estimated lives (principally five years). Consequently, the Company
expects to record amortization expense related to goodwill and intangible assets
in excess of $320 million annually for five years.


                                       14


<PAGE>   15
SEPARATION COSTS

In the first quarter of fiscal 2001, the Company incurred costs of approximately
$7.9 million related to the previously announced separation of the Company into
two independent companies to operate its Internet Infrastructure and Personal
Networking business segments.


DEBT CONVERSION COSTS

In the first quarter of fiscal 2001, approximately $255.1 million principal
amount of the Company's 4-1/4% Convertible Subordinated Notes due 2006 were
converted into approximately 11.0 million shares of common stock, at a cost to
the Company of $42.6 million.


OTHER INCOME (EXPENSE), NET


<TABLE>
<CAPTION>
                                         Three months ended December 31,
                                         ------------------------------
                                          2000       Change      1999
                                         -------     ------    -------
                                                 (in thousands)
<S>                                      <C>         <C>       <C>
Other income (expense), net .......      $(4,356)      nm      $   578
</TABLE>


Other expense, net in the first quarter of fiscal 2001 is comprised primarily of
a $5.0 million write-off of certain non-marketable investments, which management
determined to be permanently impaired, and interest expense on the Company's
convertible subordinated notes, partially offset by interest income on invested
cash balances. In the first quarter of fiscal 2000, other income, net
principally reflected interest income on invested cash balances, partially
offset by interest expense on the Company's convertible subordinated notes.


PROVISION (BENEFIT) FOR INCOME TAXES

For the first quarter of fiscal 2001, the Company recorded an income tax benefit
of $15.5 million (7% of pretax loss), which reflects the Company's net loss and
the impact of non-deductible debt conversion costs and amortization of
intangible assets. In the first quarter of fiscal 2000, the Company recorded a
provision for income taxes of $22.2 million (30% of pretax income) which
reflected the Company's net income and the favorable impact of state and federal
research and experimentation tax credits available to the Company. The Company
anticipates that its effective tax rate, exclusive of the non-deductible debt
conversion costs and amortization of intangible assets, will be approximately
30% for fiscal year 2001.


EXTRAORDINARY ITEM

During the first quarter of fiscal 2001, the Company purchased $35.0 million
principal amount of its 4% Convertible Subordinated Notes due 2007 at prevailing
market prices, resulting in a gain of $11.7 million. Such gain has been
presented in the accompanying statement of operations as an extraordinary item,
net of incomes taxes of $4.4 million.


ADJUSTED EARNINGS

Adjusted income (loss) before extraordinary item and adjusted income (loss) per
share before extraordinary item exclude the amortization of intangible assets
and special charges. Special charges excluded from the first quarter of fiscal
2001 period include debt conversion costs, separation costs, the write-down of
certain investments, and stock compensation costs (representing the amortization
of the value of unvested in-the-money stock options assumed by Conexant in
connection with certain fiscal 2000 business acquisitions). In addition,
adjusted income (loss) before extraordinary item reflects a provision (benefit)
for income taxes based upon a 30% effective tax rate. These measures of earnings
are not in accordance with, or an alternative for, generally accepted accounting
principles and may not be consistent with measures used by other companies.
However, the Company believes these measures of earnings provide its investors
additional insight on its underlying operating results and the Company uses
these measures internally to evaluate its operating performance.


                                       15


<PAGE>   16
Adjusted income (loss) before extraordinary item and adjusted income (loss) per
share before extraordinary item is calculated as follows (in thousands, except
per share data):


<TABLE>
<CAPTION>
                                                                           Three months ended
                                                                              December 31,
                                                                       -------------------------
                                                                          2000           1999
                                                                       ---------       ---------
                                                                            (in thousands)
<S>                                                                    <C>             <C>
Income (loss) before extraordinary item .........................      $(206,860)      $  51,831
Amortization of intangible assets ...............................         82,304           2,405
Debt conversion costs ...........................................         42,584              --
Separation costs ................................................          7,927              --
Write-down of investments .......................................          5,000              --
Stock compensation ..............................................          2,487              --
Income taxes ....................................................          9,141            (918)
                                                                       ---------       ---------
    Adjusted income (loss) before extraordinary
     item .......................................................      $ (57,417)      $  53,318
                                                                       =========       =========

Adjusted income (loss) per share before extraordinary item:
  Basic .........................................................      $   (0.24)      $    0.27
  Diluted .......................................................      $   (0.24)      $    0.24
Shares used per share computation:
  Basic .........................................................        236,119         196,715
  Diluted .......................................................        236,119         228,974
</TABLE>


LIQUIDITY AND CAPITAL RESOURCES

Cash used by operating activities was $73.8 million for the first quarter of
fiscal 2001, compared to cash provided by operating activities of $59.8 million
for the similar period in fiscal 2000. Operating cash flows reflect the
Company's net loss of $199.6 million offset by noncash charges (depreciation and
amortization and other) of $153.7 million, and net working capital increases of
$27.9 million. Before the effect of the working capital changes, cash used in
operations was $45.9 million for the first quarter of fiscal 2001, compared to
cash provided by operations of $99.0 million for the fiscal 2000 period.

The fiscal 2001 working capital increase includes a $52.7 million decrease in
net receivables, principally due to lower quarterly sales. The Company's
allowance for doubtful accounts increased by $3.1 million during the fiscal 2001
period, resulting from additional reserves taken for certain slow-paying
accounts. The working capital change also included a $19.1 million build-up in
net inventories, principally reflecting higher inventory levels in anticipation
of increasing shipments of new products and, to a lesser extent, the impact of
lower demand for CDMA products in the Korean market. The change in inventories
also reflects additional inventory provisions of approximately $57.5 million,
primarily associated with the Company's V.90 modem portfolio, resulting from
slowing demand for PCs. The working capital increase also reflects reductions of
accounts payable of $22.5 million and accrued expenses and other current
liabilities of $32.1 million resulting from the timing of certain payments, and
other working capital changes.

Cash used in investing activities of $405.1 million during the first quarter of
fiscal 2001 principally consisted of net purchases of marketable securities
totaling $253.4 million. Capital expenditures totaled $65.7 million during the
fiscal 2001 period, primarily for continued investment in production and test
facilities and corporate information systems. In addition, the Company made
investments in and advances to businesses totaling $86.1 million, including a
vendor advance of $75.0 million and $11.1 million of equity investments,
principally in early-stage communications technology companies. The vendor
advance was made pursuant to an agreement under which the Company receives
foundry capacity to meet current production requirements and to support
anticipated future growth. Cash used in investing activities during the fiscal
2000 period consisted of routine capital expenditures of $84.7 million and
investments in, or advances to, businesses totaling $105.5 million

Cash used in financing activities totaled $59.5 million during the first quarter
of fiscal 2001 principally consisted of $65.0 million paid in connection with
the conversion and repurchase of a portion of the Company's convertible
subordinated notes. During the quarter, approximately $255.1 million principal
amount of the Company's 4-1/4% Convertible Subordinated Notes due 2006 were
converted into approximately 11.0 million shares of common stock, at a cost to
the Company of $42.6 million. Also during the quarter, the Company purchased
$35.0 million principal


                                       16


<PAGE>   17
amount of its 4% Convertible Subordinated Notes due 2007 at prevailing market
prices, resulting in an extraordinary gain of $11.7 million. These costs were
partially offset by proceeds from the exercise of stock options of $5.5 million.
Cash provided by financing activities during the first quarter of fiscal 2000
consisted of proceeds from the exercise of stock options of $9.3 million.

The Company's principal sources of liquidity are its existing cash reserves and
available-for-sale marketable securities, cash generated from operations, and
available borrowings under its $475.0 million credit facility. As of December
31, 2000, there were no borrowings outstanding under the credit facility and the
Company was in compliance with all covenants thereunder. Combined cash and cash
equivalents and marketable debt securities at December 31, 2000 totaled $568.4
million compared to $851.8 million at September 30, 2000. Working capital at
December 31, 2000 was approximately $819 million compared to $1.3 billion at
September 30, 2000. The overall working capital decrease principally reflects
the Company's use of cash for the purchase of available-for-sale marketable debt
securities and for the payment of a vendor advance (each of which are not
included in working capital) and cash paid in connection with reducing the
amounts of the Company's long-term debt.

The Company believes that its existing sources of liquidity, along with cash
expected to be generated from future operations, will be sufficient to fund
operations, research and development efforts, and anticipated capital
expenditures and advances for the foreseeable future. However, the Company
continues to evaluate acquisition opportunities to extend its technology
portfolio and design expertise and to expand its product offerings. The
Company's manufacturing operations are capital intensive, and the Company may
need to increase its capital spending to obtain sufficient manufacturing
capacity to support anticipated future revenue growth. In order to complete any
such acquisitions or increased capital expenditures, the Company may seek to
obtain additional borrowings or issue additional shares of its common stock.
There can be no assurance that such financing will be available on terms
favorable to the Company, or at all.


CERTAIN BUSINESS RISKS

The Company's business, financial condition and operating results can be
impacted by a number of factors including, but not limited to, those set forth
below, any one of which could cause the Company's actual results to vary
materially from recent results or from the Company's anticipated future results.

You should carefully consider and evaluate all of the information in this
Report, including the risk factors listed below. Any of these risks could
materially and adversely affect our business, financial condition and results of
operations, which in turn could materially and adversely affect the price of our
common stock or other securities.

We operate in the highly cyclical semiconductor industry, which is subject to
significant downturns.

The semiconductor industry is highly cyclical and is characterized by constant
and rapid technological change, rapid product obsolescence and price erosion,
evolving standards, short product life cycles and wide fluctuations in product
supply and demand.

The industry has experienced significant downturns, often in connection with, or
in anticipation of, maturing product cycles (of both semiconductor companies'
and their customers' products) and declines in general economic conditions.
These downturns have been characterized by diminished product demand, production
overcapacity, high inventory levels and accelerated erosion of average selling
prices.

We have experienced these conditions in our business in the past and may
experience such downturns in the future. Any future downturns of this nature
could have a material adverse effect on our business, financial condition and
results of operations. From time to time the semiconductor industry also has
experienced periods of increased demand and production capacity constraints. We
may experience substantial changes in future operating results due to general
semiconductor industry conditions and general economic conditions.


                                       17

<PAGE>   18

We are subject to intense competition and could lose business to our
competitors.

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

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

    o   time-to-market;

    o   product performance;

    o   level of integration;

    o   price and total system cost;

    o   compliance with industry standards;

    o   design and engineering capabilities;

    o   strategic relationships with customers;

    o   customer support;

    o   new product innovation; and

    o   quality.

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

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

    o   longer operating histories and presence in key markets;

    o   greater name recognition;

    o   access to larger customer bases; and

    o   significantly greater financial, sales and marketing, manufacturing,
        distribution, technical and other resources.

As a result, these competitors may be able to adapt more quickly to new or
emerging technologies and changes in customer requirements or may be able to
devote greater resources to the development, promotion and sale of their
products than we can.

Current and potential competitors also have established or may establish
financial or strategic relationships among themselves or with our existing or
potential customers, resellers or other third parties. These relationships may
affect customers' purchasing decisions. Accordingly, it is possible that new
competitors or alliances among competitors


                                       18
<PAGE>   19

could emerge and rapidly acquire significant market share. We cannot assure you
that we will be able to compete successfully against current and potential
competitors. We also cannot assure you that competition will not have a material
adverse effect on our business, financial condition and results of operations.

Many of our competitors have combined with each other and consolidated their
businesses, including the consolidation of competitors with our customers. This
is attributable to a number of factors, including the high-growth nature of the
communications electronic industry and the time-to-market pressures on suppliers
to decrease the time required for product conception, research and development,
sampling and production launch before a product reaches the market. This
consolidation trend is expected to continue, since investments, alliances and
acquisitions may enable semiconductor suppliers, including us and our
competitors, to augment technical capabilities or to achieve faster
time-to-market for their products than would be possible solely through internal
development.

Consolidations by industry participants, including in some cases, acquisitions
of certain of our customers by our competitors, are creating entities with
increased market share, customer base, technology and marketing expertise in
markets in which we compete. These developments may significantly and adversely
affect our current markets, the markets we are seeking to serve and our ability
to compete successfully in those markets.

Our success is dependent upon our ability to timely develop new products and
reduce costs.

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

    o   our ability to anticipate customer and market requirements and changes
        in technology and industry standards;

    o   our ability to accurately define new products;

    o   our ability to timely complete development of new products and bring our
        products to market on a timely basis;

    o   our ability to differentiate our products from offerings of our
        competitors; and

    o   market acceptance of our products.

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

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

We must incur substantial research and development expenses.

The semiconductor industry requires substantial investment in research and
development. In order to remain competitive, we must continue to make
substantial investments in research and development to develop new and enhanced
products. We cannot assure you that we will have sufficient resources to develop
new and enhanced technologies and competitive products. Our failure to continue
to make sufficient investments in research and development programs could have a
material adverse effect on our business, financial condition and results of
operations.


                                       19
<PAGE>   20

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

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

    o   rapid technological developments;

    o   evolving industry standards;

    o   changes in customer requirements;

    o   frequent new product introductions and enhancements; and

    o   short product life cycles with declining prices over the life cycle of
        the product.

Our products could become obsolete sooner than anticipated because of a faster
than anticipated change in one or more of the technologies related to our
products or in market demand for products based on a particular technology,
particularly due to the introduction of new technology that represents a
substantial advance over current technology. Currently accepted industry
standards are also subject to change, which may contribute to the obsolescence
of our products. If we are unable to keep abreast of these developments, these
events could have a material adverse effect on our business, financial condition
and results of operations.

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

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

We may have particular difficulty attracting and retaining key personnel during
periods of poor operating performance, given the significant use of equity-based
compensation by our competitors and us. The loss of the services of one or more
of our key employees, including Dwight W. Decker, our Chairman and Chief
Executive Officer, or certain key design and technical personnel, or our
inability to attract, retain and motivate qualified personnel could have a
material adverse effect on our ability to operate our business and on our
financial condition and results of operations.

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

Our products are not sold directly to the end-user but are components of other
products. As a result, we rely on OEMs of communications electronics products to
select our products from among alternative offerings to be designed into their
equipment. Without these "design wins" from OEMs, we would have difficulty
selling our products. Once an OEM designs another supplier's semiconductors into
its products, it will be more difficult for us to achieve future design wins
with that OEM's product platform because changing suppliers involves significant
cost, time, effort and risk. Achieving a design win with a customer does not
ensure that we will receive significant revenues from that customer. Even after
a design win, the customer is not obligated to purchase our products and can
choose at any time to stop using our products, for example, if its own products
are not commercially successful or for any other reason. Our inability to
achieve design wins or to convert design wins into actual sales could have a
material adverse effect on our business, financial condition and results of
operations.


                                       20
<PAGE>   21

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

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

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

Our sales are typically made pursuant to individual purchase orders and we
generally do not have long-term supply arrangements with our customers.
Generally, our customers may cancel orders until 30 days prior to shipment. In
addition, we sell a portion of our products through distributors, some of whom
have rights to return unsold products to us. We routinely purchase inventory
based on estimates of customer demand for their products, which is difficult to
predict. This difficulty may be compounded when we sell to OEMs indirectly
through distributors or contract manufacturers, or both, as our forecasts of
demand are then based on estimates provided by multiple parties. In addition,
our customers may change their inventory practices on short notice for any
reason. The cancellation or deferral of product orders, the return of previously
sold products or overproduction due to the failure of anticipated orders to
materialize could result in our holding excess or obsolete inventory, which
could result in write-downs of inventory that would have a material adverse
effect on our operating results.

Our manufacturing process is extremely complex and specialized.

Our manufacturing operations are complex and subject to disruption due to causes
beyond our control. The fabrication of integrated circuits is an extremely
complex and precise process consisting of hundreds of separate steps. It
requires production in a highly controlled, clean environment. Minute
impurities, errors in any step of the fabrication process, defects in the masks
used to print circuits on a wafer or a number of other factors can cause a
substantial percentage of wafers to be rejected or numerous die on each wafer
not to function.

Our operating results are highly dependent upon our ability to produce large
volumes of integrated circuits at acceptable manufacturing yields. Our
operations may be affected by lengthy or recurring disruptions of operations at
any of our production facilities or those of our subcontractors. These
disruptions may include labor strikes, work stoppages, fire, earthquake,
flooding or other natural disasters. These disruptions could cause significant
delays in shipments until we could shift the products from an affected facility
or subcontractor to another facility or subcontractor.

In the event of these types of delays, we cannot assure you that the required
alternate capacity, particularly wafer production capacity, would be available
on a timely basis or at all. Even if alternate wafer production capacity is
available, we may not be able to obtain it on favorable terms, which could
result in a loss of customers. Any inability to obtain sufficient manufacturing
capacities to meet demand, either at our own facilities or through foundry or
similar arrangements with others, could have a material adverse effect on our
business, financial condition and results of operations. Certain of our
manufacturing facilities are located near major earthquake fault lines,
including our California and Mexico facilities. We maintain only minimal
earthquake insurance coverage on these facilities.

Due to the highly specialized nature of the gallium arsenide semiconductor
manufacturing process, in the event of a disruption at our Newbury Park,
California wafer fabrication facility, alternate gallium arsenide production
capacity would not be readily available from third-party sources. Although we
have a multi-year agreement with a foundry that guarantees us access to
additional gallium arsenide wafer production capacity, a disruption of
operations at our Newbury Park wafer fabrication facility or the interruption in
the supply of epitaxial wafers used in our gallium arsenide process could have a
material adverse effect on our business, financial condition and results of
operations, particularly with respect to our Wireless Communications products.


                                       21
<PAGE>   22

Our long-term revenue growth is also dependent on our ability to secure adequate
additional manufacturing capacity, including wafer production capacity. We have
recently entered into agreements with outside foundries to secure additional
wafer manufacturing capacity, including additional gallium arsenide wafer
production capacity. In addition, we continue to explore wafer manufacturing
alternatives, which may include increased use of outside foundries, entering
into new or expanded business relationships with respect to wafer manufacturing
or other actions related to our wafer manufacturing facilities. We cannot assure
you that we will be successful in securing adequate additional manufacturing
capacity. Our inability to do so could result in delays in customer shipments
and the possible loss of customers.

We may not be able to achieve manufacturing yields to maintain our
profitability.

Minor deviations in the manufacturing process can cause substantial
manufacturing yield loss, and in some cases, cause production to be suspended.
Manufacturing yields for new products initially tend to be lower as we complete
product development and commence volume manufacturing, and will typically
increase as we ramp to full production. Our forward product pricing includes
this assumption of improving manufacturing yields and, as a result, material
variances between projected and actual manufacturing yields have a direct effect
on our gross margin and profitability. The difficulty of forecasting
manufacturing yields accurately and maintaining cost competitiveness through
improving manufacturing yields will continue to be magnified by the
ever-increasing process complexity of manufacturing semiconductor products. Our
manufacturing operations also face pressures arising from the compression of
product life cycles which requires us to bring new products on line faster and
for shorter periods while maintaining acceptable manufacturing yields and
quality without, in many cases, reaching the longer-term, high-volume
manufacturing conducive to higher manufacturing yields and declining costs.

We are dependent upon third parties for the supply of raw materials and
components.

We believe we have adequate sources for the supply of raw materials and
components for our manufacturing needs with suppliers located around the world.
Although we currently purchase wafers used in the production of our
complementary metal oxide semiconductor ("CMOS") products from one major
supplier, such wafers are available from several other suppliers. We are
currently dependent on two suppliers for epitaxial wafers used in the gallium
arsenide semiconductor manufacturing processes at our Newbury Park, California
facility and we are in the process of arranging another supplier for epitaxial
wafers. The number of qualified alternative suppliers for wafers is limited and
the process of qualifying a new wafer supplier could require a substantial
lead-time. Although we historically have not experienced any significant
difficulties in obtaining an adequate supply of raw materials and components
necessary for our manufacturing operations, the loss of a significant supplier
or the inability of a supplier to meet performance and quality specifications or
delivery schedules could have a material adverse effect on our business,
financial condition and results of operations.

We must incur significant capital expenditures for manufacturing technology and
equipment to remain competitive.

The semiconductor industry is highly capital intensive. Semiconductor
manufacturing requires a constant upgrading of process technology to remain
competitive, as new and enhanced semiconductor processes are developed which
permit smaller, more efficient and more powerful semiconductor devices. We
maintain our own manufacturing, assembly and test facilities, which have
required and will continue to require significant investments in manufacturing
technology and equipment.

We have made substantial capital expenditures and installed significant
production capacity to support new technologies and increased production volume.
We made capital expenditures during fiscal 2000 of approximately $315 million,
compared to approximately $214 million during fiscal 1999. We expect our capital
expenditures for fiscal 2001 will exceed $350 million.

There can be no assurance that we will have sufficient capital resources to make
necessary investments in manufacturing technology and equipment.


                                       22
<PAGE>   23

Our success depends on our ability to effect suitable investments, alliances or
acquisitions.

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

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

    o   issuances of equity securities dilutive to our existing shareholders;

    o   large one-time write-offs;

    o   the incurrence of substantial debt and assumption of unknown
        liabilities;

    o   the potential loss of key employees from the acquired company;

    o   amortization expenses related to goodwill and other intangible assets;
        and

    o   the diversion of management's attention from other business concerns.

Any of these events could have a material adverse effect on our business,
financial condition and results of operations and the price of our common stock
or other securities.

In fiscal 2000, we recorded charges of $215.7 million for purchased in-process
research and development and amortization expenses of $160.2 million for
acquisition-related intangible assets, principally related to the ten
acquisitions we completed in fiscal 2000. As a result of these acquisitions, we
expect to record amortization expense related to goodwill and intangible assets
in excess of $320 million annually for five years.

We may have difficulty integrating companies we acquire.

We completed ten acquisitions in fiscal 2000. We evaluate acquisitions on an
ongoing basis and we may make additional acquisitions in the future. Integrating
acquired organizations and their products and services may be expensive,
time-consuming and a strain on our resources. We could face several challenges
integrating current and future acquisitions, including:

    o   the difficulty of integrating acquired technology into our product
        offerings;

    o   the impairment of relationships with employees and customers;

    o   the difficulty of coordinating and integrating overall business
        strategies and worldwide operations;

    o   the potential disruption of our ongoing business and distraction of
        management;

    o   the inability to maintain brand recognition of acquired businesses;

    o   the inability to maintain corporate controls, procedures and policies;

    o   the failure of acquired features, functions, products or services to
        achieve market acceptance; and

    o   the potential unknown liabilities associated with acquired businesses.

Our inability to address any of these challenges successfully could have a
material adverse effect on our business, financial condition and results of
operations.


                                       23
<PAGE>   24

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

We believe that cash flows from operations, existing cash reserves and
available-for-sale marketable securities, and available borrowings under our
$475 million revolving credit facility will be sufficient to satisfy our future
research and development, capital expenditure, working capital and other
financing requirements. However, we cannot assure you that this will be the case
or that we will have access to alternative sources of capital on favorable terms
or at all.

In addition, we have and will continue to review, on an ongoing basis, strategic
investments and acquisitions, which will help us grow our business. These
investments and acquisitions may require additional capital resources. We cannot
assure you that the capital required to fund these investments and acquisitions
will be available in the future.

Our credit facility may restrict our operating and financial flexibility.

We have a $475 million revolving credit facility which expires in 2003. This
credit facility includes covenants that may restrict our operating and financial
flexibility in the future. The credit facility includes restrictions on capital
expenditures, indebtedness, acquisitions, mergers, asset sales and liens on
assets that apply to us and our subsidiaries. We also must meet certain
financial tests and maintain certain financial ratios. Although we believe that
we will be able to comply with these requirements, compliance with these
requirements may restrict our operating and financial flexibility. We cannot
assure you that we will in fact be able to satisfy all of the requirements in
the credit facility. If we do not satisfy the financial ratios or comply with
the other covenants included in the credit facility, the lenders under the
credit facility could declare all amounts owed to them due and payable and
proceed against their collateral. Such a foreclosure on the collateral could
have a material adverse effect on our business, financial condition and results
of operations. The credit facility is secured by a pledge of the stock of our
significant subsidiaries (as that term is defined in the credit facility),
subject to certain exceptions for stock of foreign significant subsidiaries, and
by a pledge of certain intercompany indebtedness owed by any significant
subsidiary to us or any other subsidiary. If there is a downgrading of the
ratings on our long-term, unsecured indebtedness by Standard & Poor's Rating
Services Group to B or less and a rating by Moody's Investor Service of B2 or
less (in the event of a rating by Moody's), we will be required to secure the
credit facility by pledging substantially all of our assets and the assets of
our domestic subsidiaries and the stock of all of our subsidiaries, subject to
certain exceptions. Our obligations under the credit facility must be guaranteed
by any domestic significant subsidiary.

We are subject to the risks of doing business internationally.

For fiscal 2000 and the first quarter of fiscal 2001, approximately 70 percent
and 64 percent, respectively, of our net revenues were from customers located
outside the United States, primarily in the Asia-Pacific and European countries.
In addition, we have facilities and suppliers located outside the United States,
including our assembly and test facility in Mexicali, Mexico and third-party
foundries located in the Asia-Pacific region. Our international sales and
operations are subject to a number of risks inherent in selling and operating
abroad. These include, but are not limited to, risks regarding:

    o   currency exchange rate fluctuations;

    o   local economic and political conditions;

    o   disruptions of capital and trading markets;

    o   restrictive governmental actions (such as restrictions on transfer of
        funds and trade protection measures, including export duties and quotas
        and customs duties and tariffs);

    o   changes in legal or regulatory requirements;

    o   limitations on the repatriation of funds;

    o   difficulty in obtaining distribution and support;


                                       24
<PAGE>   25

    o   the laws and policies of the United States and other countries affecting
        trade, foreign investment and loans, and import or export licensing
        requirements;

    o   tax laws; and

    o   limitations on our ability under local laws to protect our intellectual
        property.

Because most of our international sales, other than sales to Japan (which are
denominated principally in Japanese yen), are currently denominated in U.S.
dollars, our products could become less competitive in international markets if
the value of the U.S. dollar increases relative to foreign currencies. Moreover,
we may be competitively disadvantaged relative to our competitors located
outside the United States who may benefit from a devaluation of their local
currency. We cannot assure you that the factors described above will not have a
material adverse effect on our ability to increase or maintain our foreign sales
or on our business, financial condition and results of operations.

Our past operating performance has been impacted by adverse economic conditions
in the Asia-Pacific region, which have increased the uncertainty with respect to
the long-term viability of certain of our customers and suppliers in the region.
Sales to customers in Japan and other countries in the Asia-Pacific region,
principally Taiwan, South Korea and Hong Kong, represented approximately 57
percent and 46 percent, respectively, of our net revenues in fiscal 2000 and the
first quarter of fiscal 2001.

We enter into foreign currency forward exchange contracts, principally for the
Japanese yen, to minimize risk of loss from currency exchange rate fluctuations
for foreign currency commitments entered into in the ordinary course of
business. We have not experienced nor do we anticipate any material adverse
effect on our results of operations or financial condition related to these
foreign currency forward exchange contracts. We have not entered into foreign
currency forward exchange contracts for other purposes and our financial
condition and results of operations could be affected (negatively or positively)
by currency fluctuations.

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

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

    o   changes in end-user demand for the products manufactured and sold by our
        customers;

    o   the effects of competitive pricing pressures, including decreases in
        average selling prices of our products;

    o   production capacity levels and fluctuations in manufacturing yields;

    o   availability and cost of products from our suppliers;

    o   the gain or loss of significant customers;

    o   our ability to develop, introduce and market new products and
        technologies on a timely basis;

    o   new product and technology introductions by competitors;

    o   changes in the mix of products produced and sold;

    o   market acceptance of our products and our customers' products;

    o   intellectual property disputes;

    o   seasonal customer demand;


                                       25
<PAGE>   26

    o   the timing of receipt, reduction or cancellation of significant orders
        by customers; and

    o   the timing and extent of product development costs.

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

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

The trading price of our common stock fluctuates significantly. Since our common
stock began trading publicly, the reported sale price of our common stock on the
NASDAQ National Market has been as high as $132 1/2 and as low as $6 27/32 per
share. This price may be influenced by many factors, including:

    o   our performance and prospects;

    o   the depth and liquidity of the market for our common stock;

    o   investor perception of Conexant and the industry in which we operate;

    o   changes in earnings estimates or buy/sell recommendations by analysts;

    o   general financial and other market conditions; and

    o   domestic and international economic conditions.

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

We may be subject to claims of infringement of third-party intellectual property
rights or demands that we license third-party technology, which could result in
significant expense and loss of our intellectual property rights.

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

    o   pay substantial damages;

    o   cease the manufacture, use or sale of infringing products;

    o   discontinue the use of infringing technology;

    o   expend significant resources to develop non-infringing technology; or

    o   license technology from the third party claiming infringement, which
        license may not be available on commercially reasonable terms, or at
        all.


                                       26
<PAGE>   27

Any of the foregoing results could have a material adverse effect on our
business, financial condition and results of operations.

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

We rely primarily on patent, copyright, trademark and trade secret laws, as well
as nondisclosure and confidentiality agreements and other methods, to protect
our proprietary technologies and processes. In addition, we often incorporate
the intellectual property of our customers into our designs, and we have
obligations with respect to the non-use and non-disclosure of their intellectual
property. In the past, we have found it necessary to engage in litigation to
enforce our intellectual property rights, to protect our trade secrets or to
determine the validity and scope of proprietary rights of others, including our
customers. We expect future litigation on similar grounds, which may require us
to expend significant resources and to divert the efforts and attention of our
management from our business operations. We cannot assure you that:

    o   the steps we take to prevent misappropriation or infringement of our
        intellectual property or the intellectual property of our customers will
        be successful;

    o   any existing or future patents will not be challenged, invalidated or
        circumvented; or

    o   any of the measures described above would provide meaningful protection.

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

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

We use a variety of chemicals in our manufacturing operations and are subject to
a wide range of environmental protection regulations in the United States,
Mexico and Canada. While we have not experienced any material adverse effect on
our operations as a result of such regulations, we cannot assure you that
current or future regulations would not have a material adverse effect on our
business, financial condition and results of operations.

In the United States, environmental regulations often require parties to fund
remedial action regardless of fault. Consequently, it is often difficult to
estimate the future impact of environmental matters, including potential
liabilities. We cannot assure you that the amount of expense and capital
expenditures that might be required to complete remedial actions and to continue
to comply with applicable environmental laws will not have a material adverse
effect on our business, financial condition and results of operations.

We have been designated as a potentially responsible party at one Superfund site
located at a former silicon wafer manufacturing facility and steel fabrication
plant in Parker Ford, Pennsylvania formerly occupied by the semiconductor
systems business of Rockwell. The site was also formerly occupied by Recticon
Corporation and Allied Steel Products Corporation, each of whom has also been
named as a potentially responsible party and each of whom is insolvent. We have
accrued approximately $2.1 million at December 31, 2000 for the cost of
groundwater remediation, including installation of a public water supply line
and groundwater pump and treatment system, as well as routine groundwater
sampling. In addition, we are engaged in two other remediations of groundwater
contamination at our Newport Beach and Newbury Park, California facilities for
which we have accrued approximately $2.5 million for the costs of remediation at
December 31, 2000. Pursuant to our agreement with Rockwell, we have assumed
liabilities in respect of environmental matters related to current and former
operations of Conexant.

Our management team may be subject to a variety of demands for its attention.

Our management currently faces a variety of challenges, including the
implementation of our ongoing expansion strategy and the integration of
recently-acquired businesses. While we believe that we have sufficient
management


                                       27
<PAGE>   28

resources to execute each of these initiatives, we cannot assure you that we
will have these resources or that our initiatives will be successfully
implemented. Failure to implement these initiatives successfully could have a
material adverse effect on our business, financial condition and results of
operations.

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

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

    o   the ability of our board of directors to issue shares of our preferred
        stock in one or more series without further authorization of our
        shareowners;

    o   a fair price provision;

    o   a prohibition on shareowner action by written consent;

    o   a requirement that shareowners provide advance notice of any shareowner
        nominations of directors or any proposal of new business to be
        considered at any meeting of shareowners;

    o   a requirement that a supermajority vote be obtained to remove a director
        for cause or to amend or repeal certain provisions of our restated
        certificate of incorporation or by-laws;

    o   elimination of the right of shareowners to call a special meeting of
        shareowners; and

    o   the division of our board of directors into three classes to be elected
        on a staggered basis, one class each year.

We also have a rights agreement which gives our shareowners certain rights that
would substantially increase the cost of acquiring us in a transaction not
approved by our board of directors.

In addition to the rights agreement and the provisions in our restated
certificate of incorporation and by-laws, Section 203 of the Delaware General
Corporation Law provides that, subject to certain exceptions, a corporation
shall not engage in any business combination with any interested shareowner
during the three-year period following the time that such shareowner becomes an
interested shareowner. The restrictions of Section 203 of the Delaware General
Corporation Law, in certain circumstances, make it more difficult for a person
who would be an interested shareowner to effect various business combinations
with a corporation during this three-year period. The provisions of Section 203
of the Delaware General Corporation Law provide that the shareowner approval
requirement may be avoided if a majority of the directors then in office
approved either the business combination or the transaction that resulted in the
shareowner becoming an interested shareowner.

We may be responsible for certain federal income tax liabilities that relate to
our spin-off from Rockwell.

In connection with our spin-off from Rockwell, the Internal Revenue Service
issued a tax ruling to Rockwell stating that the spin-off would qualify as a
tax-free reorganization within the meaning of Section 368(a)(1)(D) of the
Internal Revenue Code of 1986, as amended. While the tax ruling generally is
binding on the Internal Revenue Service, the continuing validity of the tax
ruling is subject to certain factual representations and assumptions. We are not
aware of any facts or circumstances that would cause such representations and
assumptions to be untrue.

The Tax Allocation Agreement dated as of December 31, 1998 between Conexant and
Rockwell provides that we will be responsible for any taxes imposed on Rockwell,
Conexant or Rockwell shareowners as a result of either:

    o   the failure of the spin-off from Rockwell to qualify as a tax-free
        reorganization within the meaning of Section 368(a)(1)(D) of the
        Internal Revenue Code or


                                       28
<PAGE>   29

    o   the subsequent disqualification of the spin-off from Rockwell as a
        tax-free transaction to Rockwell under Section 361(c)(2) of the Internal
        Revenue Code,

if the failure or disqualification is attributable to certain post-spin-off
actions by or in respect of Conexant (including our subsidiaries) or our
shareowners, such as our acquisition by a third party at a time and in a manner
that would cause such failure or disqualification.

The Tax Allocation Agreement also provides, among other things, that neither
Rockwell nor Conexant is to take any action inconsistent with, nor fail to take
any action required by, the request for the tax ruling or the tax ruling unless:

    o   required to do so by law;

    o   the other party has given its prior written consent; or

    o   in certain circumstances, a supplemental ruling permitting such action
        is obtained.

Rockwell and Conexant have indemnified each other for any tax liability
resulting from each entity's failure to comply with these provisions.

In addition, we effected certain tax-free intragroup spin-offs as a result of
Rockwell's spin-off of Meritor Automotive, Inc. (now ArvinMeritor, Inc.) on
September 30, 1997. The Tax Allocation Agreement provides that we will be
responsible for any taxes imposed on Rockwell, Conexant or Rockwell shareowners
in respect of those intragroup spin-offs if such taxes are attributable to
certain actions taken after the spin-off from Rockwell by or in respect of
Conexant (including our subsidiaries) or our shareowners, such as our
acquisition by a third party at a time and in a manner that would cause the
taxes to be incurred.

If we were required to pay any of the taxes described above, such payment could
have a material adverse effect on our financial position, results of operations
and cash flow.


CAUTIONARY STATEMENT

This Quarterly Report contains statements relating to future results of the
Company (including certain projections and business trends) that are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. 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: global economic and market conditions,
including the cyclical nature of the semiconductor industry and the markets
addressed by the Company's and its customers' products; demand for and market
acceptance of new and existing products; successful development of new products;
the timing of new product introductions; the successful integration of
acquisitions; the availability and extent of utilization of manufacturing
capacity and raw materials; pricing pressures and other competitive factors;
changes in product mix; fluctuations in manufacturing yields; product
obsolescence; the ability to develop and implement new technologies and to
obtain protection of the related intellectual property; the successful
separation of the Company's Internet Infrastructure and Personal Networking
businesses; labor relations of the Company, its customers and suppliers; the
Company's ability to attract and retain qualified personnel; and the
uncertainties of litigation, as well as other risks and uncertainties including
those set forth herein and those detailed from time to time in the filings of
the Company with the Securities and Exchange Commission. These forward-looking
statements are made only as of the date hereof, and the Company undertakes no
obligation to update or revise the forward-looking statements, whether as a
result of new information, future events or otherwise.


                                       29
<PAGE>   30

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


The Company's financial instruments include cash and cash equivalents,
marketable securities and long-term debt. The Company's main investment
objectives are the preservation of investment capital and the maximization of
after-tax returns on its investment portfolio. Consequently, the Company invests
with only high-credit-quality issuers and limits the amount of credit exposure
to any one issuer. The Company does not use derivative instruments for
speculative or investment purposes.

The Company's cash and cash equivalents are not subject to significant interest
rate risk due to the short maturities of these instruments. As of December 31,
2000, the carrying value of the Company's cash and cash equivalents approximates
fair value. The Company's marketable debt securities (consisting of corporate
and government securities) principally have remaining terms of in excess of one
year. Consequently, such securities are subject to interest rate risk.
Marketable equity securities consist of an equity investment in a semiconductor
company, initially made for the promotion of business and strategic objectives,
which is subject to equity price risk.

All of the Company's marketable securities are classified as available for sale
and, as of December 31, 2000, unrealized gains of $16.5 million (net of related
income taxes of $10.0 million) on these securities are included in accumulated
other comprehensive income. A 20% adverse change in equity prices would result
in an approximate $8.0 million decrease in the fair value of the Company's
marketable equity securities as of December 31, 2000.

The Company's long-term debt consists of convertible subordinated notes with
interest at fixed rates. Consequently, the Company does not have significant
cash flow exposure on its long-term debt. However, the fair value of the
convertible subordinated notes is subject to significant fluctuation due to
their convertibility into shares of the Company's common stock. The Company also
has available a $475 million credit facility which provides for borrowings at
variable rates of interest. Should the Company make borrowings under this credit
facility, such borrowing would be subject to interest rate and cash flow risk.

The following table shows the fair values of the Company's investments and
long-term debt as of December 31, 2000 (in thousands):


<TABLE>
<CAPTION>
                                                           Carrying
                                                            Value         Fair Value
                                                           --------       ----------
<S>                                                        <C>            <C>
Cash and equivalents..................................     $292,629        $292,629
Marketable debt securities ...........................      274,042         275,757
Marketable equity securities (including
   unrealized gains of $24.9 million).................       40,234          40,234
Long-term debt........................................      709,849         413,700
</TABLE>



The Company transacts business in various foreign currencies, and is subject to
certain foreign exchange risks, principally arising from customer accounts
receivable at its Japanese subsidiary which are denominated in yen. At December
31, 2000, such receivables totaled approximately $21.1 million. The Company is
also subject to foreign exchange risks relating to certain purchase commitments,
principally denominated in euros. The Company has established a foreign currency
hedging program utilizing foreign currency forward exchange contracts to hedge
certain of its foreign currency transaction exposures (principally to the euro
and the Japanese yen). Under this program, the Company seeks to offset foreign
currency transaction gains and losses with gains and losses on the forward
contracts, so as to mitigate its overall risk of foreign transaction gains and
losses. The Company does not enter into forward contracts for speculative or
trading purposes.


                                       30
<PAGE>   31

The table below provides information about the Company's foreign currency
forward exchange contracts as of December 31, 2000. The table presents the
notional amounts (the U.S. dollar equivalent, based on the contract exchange
rates) and the contract foreign currency exchange rates.


<TABLE>
<CAPTION>
                                              Notional         Contract           Estimated
                                               Amount       Rate Per US$1.00     Fair Value
                                              --------      ----------------     ----------
                                                         (dollars in thousands)
<S>                                          <C>           <C>                   <C>
Buy (Sell):
  Euro...................................     $ 11,340           1.09             $  246
  Japanese yen...........................     $ (3,919)        108.7              $  103
  French franc...........................     $    340           7.36             $   14
</TABLE>


Based on the Company's overall currency rate exposure at December 31, 2000, a 10
percent change in currency rates would not have a significant effect on the
consolidated financial position, results of operations or cash flows of the
Company.


                                       31
<PAGE>   32

                           PART II. OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS


On July 29, 1991, Shumpei Yamazaki filed suit against a Japanese subsidiary of
Rockwell in the Tokyo District Court, Twenty-ninth Civil Division for patent
infringement relating to Conexant's facsimile modem chipsets seeking 685 million
yen (approximately $5.9 million based on the exchange rate on January 26, 2001)
and court costs. In October 1998, the District Court rendered its decision
dismissing the suit against Conexant, from which decision Mr. Yamazaki appealed.
On April 12, 1999, Mr. Yamazaki presented his position, as well as additional
causes of action at the first portion of the appellate hearing. The Tokyo High
Court rejected Mr. Yamazaki's additional claims and set the calendar for
appellate hearings, the last of which was scheduled for December 19, 2000, with
final disposition now expected in the first calendar quarter of 2001. Conexant
believes it has meritorious defenses to these claims and is vigorously defending
this action.

On May 30, 1997, Klaus Holtz filed suit against Rockwell in the U.S. District
Court for the Northern District of California for patent infringement relating
to Conexant's modem products utilizing the V.42bis standard for data
compression. On September 30, 1998, the Court barred any alleged damages arising
before May 30, 1997. On December 17, 1998, the Court issued an order construing
the claims of the patent. Conexant filed a motion for Summary Judgment of
Non-Infringement on February 22, 1999. A hearing was held thereon on June 14,
1999. On October 25, 1999, the Court found in favor of Conexant and the case was
dismissed. On July 10, 2000, the District Court granted Conexant's motion to
declare the case an exceptional case under 35 U.S.C. 285, and awarded Conexant
$250,000. Holtz filed a notice of appeal to the court of appeals for the Federal
Circuit, challenging the District Court's findings on claim construction,
non-infringement and laches. Conexant began collection efforts on the
approximately $275,000 owed to Conexant by Holtz as a result of the litigation
so far. On August 22, 2000, Holtz filed for bankruptcy protection under Chapter
7 of the bankruptcy laws in the State of California. The Federal Circuit appeals
were placed under the control of the trustee in bankruptcy, and were stayed
pending resolution of the bankruptcy. Conexant has reached an agreement with the
bankruptcy trustee, wherein Holtz' appeals against Conexant will be dismissed
and Conexant will receive a license under Holtz' patents. This agreement is
subject to approval of the Bankruptcy Court.

Various other lawsuits, claims and proceedings have been or may be instituted or
asserted against Rockwell or Conexant or their respective subsidiaries,
including those pertaining to product liability, intellectual property,
environmental, safety and health, and employment matters. In connection with the
Company's spin-off from Rockwell, Conexant assumed responsibility for all then
current and future litigation (including environmental and intellectual property
proceedings) against Rockwell or its subsidiaries in respect of the operations
of the semiconductor systems business of Rockwell.

The 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 Company's financial condition or results of operations.


                                       32
<PAGE>   33

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



(a) Exhibits:


10.1    Employment Agreement dated December 15, 1998 between the Company and
        B.S. Iyer, filed as Exhibit 10.5 to the Company's Quarterly Report on
        Form 10-Q for the quarter ended December 31, 1998, is incorporated
        herein by reference.

10.2    Schedule identifying agreements substantially identical to the
        Employment Agreement constituting Exhibit 10.1 hereto entered into by
        the Company with M.M. Beguwala, J.S. Blouin, L.C. Brewster, T.L. Ellis,
        R.Y. Halim, D.E. O'Reilly, A. Rangan, F.M. Rhodes, J.P. Spoto, T.A.
        Stites and K.V. Strong.

12      Statement re: Computation of Ratios



(b) Reports on Form 8-K

Report on Form 8-K dated October 3, 2000, reporting the completion of the
Company's acquisition of NetPlane Systems, Inc.




                                       33
<PAGE>   34

                                   SIGNATURES

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

                                    CONEXANT SYSTEMS, INC.
                                    (Registrant)



Date: January 29, 2001              By /s/  Balakrishnan S. Iyer
                                       ----------------------------------------
                                       Balakrishnan S. Iyer
                                       Senior Vice President and
                                       Chief Financial Officer
                                       (principal financial officer)



Date: January 29, 2001              By /s/   Steven M. Thomson
                                       ----------------------------------------
                                       Steven M. Thomson
                                       Vice President and Controller
                                       (principal accounting officer)





                                       34
<PAGE>   35

                                  EXHIBIT INDEX



10.2    Schedule identifying agreements substantially identical to the
        Employment Agreement constituting Exhibit 10.1 hereto entered into by
        the Company with M.M. Beguwala, J.S. Blouin, L.C. Brewster, T.L. Ellis,
        R.Y. Halim, D.E. O'Reilly, A. Rangan, F.M. Rhodes, J.P. Spoto, T.A.
        Stites and K.V. Strong.

12      Statement re: Computation of Ratios






                                       35