LSI Laps Up Infineon's Disk Drive Biz

LSI is grabbing the hard disk drive assets of Infineon for an estimated $150 million in a bid to boost LSI's storage presence at a time when disk sales are booming.

In a statement this morning, Ruediger Stroh, general manager of LSI's storage peripherals group, described the plan: "We expect the acquisition to immediately accelerate revenue with a top-tier customer, Hitachi Global Storage Technologies (HGST), while enhancing our competitive position in the desktop and enterprise space."

Only a "very small number" of Infineon employees, none of which are execs, will be moving over to LSI, according to LSI spokesman Robert Guenther, who confirmed that the workers will become part of LSI's storage peripherals group.

The Infineon deal is the latest in a barrage of M&A moves from LSI, which include acquiring content accelerator Tarari for $85 million and selling LSI's mobile business unit to Infineon for $450 million last year.

Although LSI would not reveal the value of today's deal, Caris Research analyst Shebly Seyrafi estimates that the purchase price is likely to be at least $100 million."We believe Infineon's hard disk drive business had roughly $100 million to $150 million in revenue over the past 12 months," Seyrafi wrote in a research note released this morning. "Assuming that LSI paid close to one times sales for this business, it would imply that LSI is paying around $100 million to $150 million, and we believe that the deal will be done for cash."

Earlier this year, analyst firm iSuppli reported that the hard disk drive industry was undergoing a resurgence, with 138 million drives shipped in the third quarter of 2007, a 20 percent increase on the prior quarter.

At least one analyst, Tayyib Shaw of Longbow Research, thinks today's move is a shrewd one by LSI, given the level of activity in the disk drive business.

"LSI were gaining market share in hard disk drives, and that hastened Infineon's departure from the market," he wrote in an email to Byte and Switch. "LSI benefits by gaining share at HGST," he added, explaining that this should help LSI make up lost ground at partner Seagate, which has signed a deal with Marvell to collaborate on consumer storage.

Recent months have certainly seen a frenzy of activity around hard disk drives. Late last year, for example, there were rumors that HGST planned to sell up to 50 percent of its U.S.-based disk drive business to investment firm Silver Lake Partners, although this was denied by HGST.LSI has also had to deal with upheavals of its own recently, absorbing blows from its $4 billion merger with Agere in 2006, and weakness in its networking business.

As a result, the vendor announced plans to streamline its business last year, narrowing its focus onto storage and networking technologies.

The future now looks much rosier, at least according to Caris's Seyrafi.

"LSI historically has had a strong hard disk drive presence at Seagate and landed Samsung as a new customer for select SKUs a few years ago," he wrote in this morning's research note. "The current deal will allow LSI to penetrate HGST for desktop and enterprise hard disk drives."

LSI expects its Infineon deal be complete within the next 60 days, and anticipates that the acquisition will be neutral to slightly accretive to its 2008 non-GAAP EPS.Have a comment on this story? Please click "Discuss" below. If you'd like to contact Byte and Switch's editors directly, send us a message.