LSI Promises Better

Blames lower revenues and reduced guidance on softening IT spending

April 26, 2007

2 Min Read
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Newly named LSI Corporation reported first-quarter 2007 revenues slightly below analyst estimates, profit that nearly doubled year-on-year, and guidance below what analysts were expecting.

Execs blamed IT spending, LSI's mergers, and some weakness in LSI's networking business, which is separate from its storage semiconductor and systems business, for a predicted further revenue decline next quarter.

Without considering the former Agere, which merged with LSI April 2, LSI turned in $465 million for the quarter that ended April 1, down slightly compared to $476 million for the first quarter of 2006 and 11 percent below the $524 million for the fourth quarter of 2006. The latest quarterly revenues were at the low end of LSI's guidance, and below analyst consensus of $473.41 million.

LSI's revenue from semiconductors was $272.4 million, compared with $304.1 million last quarter. Sales of storage systems were $193 million, compared with $219.6 million last quarter.

LSI's GAAP net income was $30 million, or 7 cents per diluted share, compared to $13 million, or 3 cents, at the same time last year. But sequentially, that net income was down 49 percent compared to the $59 million GAAP net income, or 14 cents per diluted share, posted in fourth-quarter 2006.Execs said the reduction was owing to softness in IT spending, which is expected to extend through June. In that quarter, the company forecasts that LSI and Agere revenues combined will fall between $715 million and $745 million. Even though this represents a figure roughly 7 percent below what LSI and Agere would have posted together this quarter, execs say expectations are to show growth for the year.

"The mergers combined with [IT spending] softening have put some pressures... that are working themselves through the supply chain," said CEO Abhi Talwalkar. He also said that in the second half of 2007, LSI would look to save $50 million in operating expenses as a result of synergies, increased efficiencies, and a "portfolio rationalization" that will kill off certain products.

Talkwalkar said strong sales of SAS gear and solid sales of enterprise hard disk drives, including a significant win of an Asia-based customer were the good news this quarter.

He also said that with the completion of the Agere merger, LSI is ready to focus on its "top 10" immediate business opportunities, evaluate its portfolio, and get the combined LSI/Agere entity into fighting shape. (See CEO Talks of 'Refounding' LSI.)

Analysts blasted execs with many questions, expressing disappointment in the forecast and even with the company's anticipated savings in second-half operating expenses. Despite the grilling, LSI management continued to emphasize that slowness this quarter and next was expected and that LSI will continue to execute its "acceleration plan" despite challenges.Mary Jander, Site Editor, Byte and Switch

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