LSI: The Building Block Supplier For Storage And Networking

What large multi-product IT vendors do is hard to describe in a few words, and LSI is no exception. Saying that LSI is a storage and networking solutions company is a good start. Saying that LSI is an IT infrastructure component building block supplier helps define it a bit further. LSI views itself as delivering the foundation for innovation in IT infrastructure, and although IT organizations may not know it, they probably could be called (with apologies to Intel) "LSI Inside," embedded as part of their storage and networking products. Examining LSI a little deeper may help illuminate a company that not only affects IT infrastructures today but is likely to have an even greater impact tomorrow. 

Even though LSI had $2.2 billion in revenues in 2009, the company is probably unfamiliar to most in IT since a good part of its embedded technologies are invisible. If IT recalls the company at all, it is probably as LSI Logic, whose main focus was ASICs. So last week, LSI held an industry analyst day in New York City to bring people up to speed on where the company once was, where it is today, and where it is going.

To start with, LSI has gone through a significant transformation over the last several years, dropping Logic from its name as well as its core focus on ASICs. Key to this effort was its merger with a company called Agere, which developed telecommunications components among other things. LSI continued to focus on its strengths in external storage, as well as storage and networking connectivity. It also tightened it focus on the HDD/SSD and networking markets and exited from its mobility and consumer market investments. Please recall that the company's remaining markets are ones in which it sells components. For example, LSI does not make hard disk drives, but it provides the fundamental read channel technology that hard disk drives use.

LSI believes that the IT infrastructures are being increasingly taxed because of the heightened demands being placed upon them. The company has and is continuing to position itself to take advantage of the resulting changes in IT infrastructures, such as those occurring in next-generation data centers.

We hesitate to impose upon readers a discussion of intelligent read channels and preamp recording, needed for hard disk drives. However, even though some LSI products are at this level of component granularity, the company's Semiconductor Solutions Group interest lies in the "converged infrastructure," which LSI believes is not a term owned by HP but rather one that reflects ongoing trends in the industry. One of the group's key focus areas is the next-gen data center.In this area, LSI is emphasizing a number of technologies, including solid-state storage (SSS) solutions using flash memory, such as a PCIe cards with SSS that go into servers. LSI also has a strong presence in SAS storage with both switches and controllers. The company offers a Tarari content processor, which is both application and content aware, enabling the deep inspection of packets as they traverse networks. IT can use this particular technology to detect packets that might pose a security threat or are inappropriate in a corporate network, such as music files.

LSI's Engenio organization focuses on three areas: external storage, external storage software and server RAID. Note that a key market channel for LSI products is through OEMs, including Cisco, Dell, HP, and IBM. LSI has to be very careful that it is complementary to the requirements of its OEMs, and that it does not compete with them. Each OEM takes a different set of LSI component building blocks so that each can have its own differentiating value proposition. Since many of the OEMs compete with one another, LSI also has to set up "Chinese walls" where the intellectual property (IP) of each OEM is protected.

LSI has embraced flexible business models in which the company in effect says to its customers that they can choose the mix of component building blocks that meet their specific needs. Thus it provides a wide range of solutions and technologies, including full external disk systems, with or without drives configured, controllers and drive modules, assembled boards with software licenses, hardware and software royalties and software only.

LSI supports an Open Storage Architecture, which has an Engenio Storage Solutions Stack. This is a very powerful model for organizing the company's product offerings in a coherent manner. At the bottom of the stack are hardware platforms and at the top are application solutions. But the heart of the stack is the Engenio Operating System. At the bottom of the OS is the hardware abstraction layer, which uses a Xen-based hypervisor.

That may seem very technical, but it serves a highly valuable purpose. LSI has and is continuing to integrate a number of software components into its stack, such as those acquired in its StoreAge (a storage virtualization company) and ONStor (a NAS and file services company) purchases. Some software may run in very specialized environments, such as a real-time reduced kernel operating system.To accommodate the different needs of its OEM and end-user base, LSI provides a number of products, including storage solutions from single trays to large systems and storage virtualization and advanced copy services, such as snapshots. LSI noted that its interest, and that of the industry as a whole, in indirect attached storage (DAS) is by no means dead and that its products can be even used in cloud environments. LSI is also working on the ability to share DAS storage among multiple servers without the need for a SAN. This means that the storage of each server is pooled and shared with each of the other servers.

With all the work that LSI has going on, you may see more of the fruits of its labor in your IT infrastructure in the coming years while not being aware that the company was the source of the IP. Developing the proper technologies in the proper order is a challenge for LSI as the company has the dual task of anticipating IT marketplace requirements while also understanding the needs of their OEM partners who utilize those technologies for their clients' benefit.

LSI is no longer a manufacturing company, as value chain considerations indicated that outsourcing those processes to companies, which had manufacturing as their core competency made better sense, but it is still a strong hardware-based company, although with an increasing focus on software. To disabuse any readers who might think that hardware companies are low margin businesses in contrast to software and services companies, LSI has a gross margin in the range of 47 percent.

Bottom line: LSI has a lot of exciting irons in the fire and is one of the key vendors enabling enterprises moving to the converged infrastructure. And that's a good thing not only for its direct OEM customers but also for its indirect customers -- IT organizations --that use LSI solutions whether they know it or not.