CEO Talks of 'Refounding' LSI

It's been three months since LSI unveiled its $4 billion plan to acquire Agere. (See LSI to Buy Agere for $4B.) Yesterday, the deal was done, shares of the newly merged company traded for the first time, and LSI got a new name -- LSI Corp. (See LSI Completes Agere Merger.)

"It's the second founding of the two companies. In light of that, we've eliminated the 'Logic' from the LSI name," said LSI CEO Abhi Talwalkar in a call today from a coffee shop where he'd stopped for a break.

Figure 1: Abhi Talwalkar, CEO, LSI Corp.

Mow that Agere and LSI have merged, what can he say about the company?

LSI's focus remains the same, Talwalkar says. It's on storage, networking, and consumer markets, in that order."We're far from saturated in any of these markets," he maintains. Of the $3.5 billion Agere and LSI combined made in 2006, about $2 billion was from storage technology, including silicon for hard drives as well as systems and software. About $1 billion came from networking components, and the remainder, roughly $600 million, was from consumer-oriented devices, such as living room electronics and handsets.

LSI will continue in this vein. Besides branching out in storage (more on that in a minute), Talwalker anticipates serving the big networking and telecom equipment vendors, such as Cisco, Ericsson, and Huawei, as their customers demand network upgrades. And in the consumer market that's expected to grow as much as 40 percent, Talwalker says LSI will evaluate how best to carve out its piece of that.

Back to storage: Talwalkar sees opportunities in the SAS market, where LSI has made inroads. (See IBM Turns to LSI for SAS and SAS Wave Breaks Big.)

Despite its forays into cheaper tiered storage, LSI continues to target OEMs involved in high-performance, transaction-oriented Fibre Channel applications. It's to this market LSI aims new features and functions, including virtualization from LSI's purchase of StoreAge late in 2006, and chips from its acqusition of Siliconstor in February 2007. (See LSI Lassos SiliconStor and LSI Annexes StoreAge.)

LSI also has its eye on entry-level products for its FC OEMs, and Talwalkar says we can expect to hear more about the as-yet-unnamed range of SMB systems LSI announced in December -- in a departure from its traditional midrange focus. (See LSI Releases SMB Wares.)Talwalkar isn't convinced his prime FC market will give way to iSCSI. Indeed, LSI plans its first 8-Gbit/s FC products for the second half of 2008, while iSCSI, famously missing from LSI's roster, is still not in its arsenal. "I think that the whole iSCSI vs Fibre Channel debate is premature. The Fibre Channel storage market is $12 to $13 billion in size, representing multiple years, even decades, of investment. It's not going anywhere," Talwalkar asserts.

Talwalker isn't ruling out iSCSI. "There are absolute needs for iSCSI and as 10 Gbit/s becomes more available we'll see iSCSI get a boost." Where LSI will get its own iSCSI boost remains to be seen.

So when will the new LSI start to make money from Agere? "We're slightly dilutive in 2007, largely driven by how we had to do the accounting for some of the Agere IP revenue," Talwalkar says. "In 2008, we'll be meaningfully accretive."

What about that $125 million in combined synergies claimed for the merged company when the deal was announced? Will there be layoffs? "We haven't provided any specifics as to the composition of that [synergies number]... Clearly, as we look into that and to various analyst gatherings in the coming quarters, we'll provide more information."

Mary Jander, Site Editor, Byte and Switch