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LSI Storage Swims Against Tide: Page 4 of 5

LSI Logic Storage Systems may be facing new challengers vying for OEM accounts. Dot Hill Systems Corp. (NYSE: HIL) has ratcheted up sales dramatically, thanks to its OEM partnership with Sun (see Dot Hill Boosts Sales 88% Q/Q). And last month, Adaptec Inc. (Nasdaq: ADPT), one of LSI's competitors in the RAID controller business, acquired Eurologic Systems for $30 million. That deal lets Adaptec position itself directly against LSI's storage systems division. IDC says in 2001 LSI had $168 million in OEM disk systems sales and Eurologic $130 million (see Adaptec Adopts Eurologic).

Nevertheless, Seigle claims no other competitor offers the full spectrum of storage offerings that LSI does: "We have the ability to go from silicon to systems and go from desktop to data center. Companies are choosing to do business with fewer vendors in order to survive."

Duplessie agrees that the breadth of LSI's portfolio is a huge asset: "In the IT world, the trend has been less vendors are better than more -- that's also true on the manufacturing side."

The longer-term challenge for LSI is to win a broader base of OEMs, says McArthur. "Hewlett-Packard Co. and Sun might buy some of their technology from LSI, but they're not buying complete storage solutions from them," he says. "And winning Dell would be important." Dell Computer Corp. (Nasdaq: DELL) is currently in the second year of its five-year agreement to resell EMC Corp. (NYSE: EMC) Clariion systems (see EMC, Dell Keep Dancing).

Another important technology trend LSI is poised to ride is iSCSI, says Duplessie. LSI recently introduced single- and dual-channel iSCSI RAID controllers that support Serial ATA and SCSI (see LSI Lines Up iSCSI Mates and LSI Logic Demos iSCSI RAID).