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LSI Storage Swims Against Tide

While its parent company struggles, LSI's storage systems unit surges on strength of OEM deals

LSI Logic Storage Systems Inc. was one of the few storage companies that actually grew in 2002 -- increasing its revenues 59 percent year over year -- even as IDC says the overall industry saw storage systems sales drop 15 percent. Now it has its eye on the nascent iSCSI market as an opportunity to suck up even more business.

How did LSI Logic Storage Systems fight the prevailing winds of a tough economy and zero-growth IT spending? In a nutshell: It dissolved its reseller channel and focused on delivering high-performance, low-cost storage arrays to its original equipment manufacturer (OEM) partners.

A wholly owned subsidiary of LSI Logic Corp. (NYSE: LSI), LSI Logic Storage Systems refocused itself on a pure OEM business model with customers that include IBM Corp. (NYSE: IBM), Storage Technology Corp. (StorageTek) (NYSE: STK), NCR Corp., and Silicon Graphics Inc. (SGI) (NYSE: SGI). That matched up well with the strategy of its parent company, which develops and sells a range of components, including RAID controllers and Fibre Channel and SCSI adapter chips.

"In the last year, we've taken apart our indirect channel and concentrated that business with our partners," says Mitch Seigle, senior marketing director for LSI Logic Storage Systems.

As a result, even as other areas of LSI's business have struggled, the storage systems group is profitable and growing. LSI announced yesterday that it will cut its work force by 11 percent, eliminating 580 jobs, after posting a net loss of $122 million on revenues of $373 million. However, its 820-employee storage systems unit hasn't been affected -- and is actually hiring in certain areas, such as systems engineering and field marketing, Seigle says (see LSI Posts Q1 Loss).

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