LSI Corp. Beats Estimates - Analyst Blog

California-based semiconductor Company LSI Corp. (LSI) reported revenues of $664 million in the fourth quarter of 2010, up 4% year over year and 5.5% sequentially and beat management's guidance of $635 – $655 million. The results beat the Zacks Consensus Estimate of $649 million.

LSI Corp. reports revenues in two segments – Semiconductors and Storage Systems.

Semiconductor revenues for the second quarter were $393 million, up 1% sequentially and up 3% year over year. Within the semiconductor segment, storage semiconductor revenues (which include hard disk drive silicon, SAS standard components and storage area network ICs) accounted for 37% of total revenues and were up 3% sequentially to $248 million driven by strength in HDD and SAS.

Networking revenue came in at $119 million, flat sequentially and accounted for 18% of total revenues in the quarter. Revenues for the IP business were up in the first quarter to $25 million.

Storage systems business (includes both external storage systems and server RAID adapters and software) generated revenues of $272 million, up 14% sequentially and up 6% year over year. This segment accounted for 41% of total revenues in the quarter.

The company saw growth across midrange and entry-level platforms, with sequential growth at International Business Machines (IBM), Oracle (ORCL) and Dell (DELL).

Margins

Gross margin (excluding special items) was 48.0%, down 130 basis points sequentially and 60 basis points year over year due to a higher concentration of systems revenues as a percentage of total, along with lower IP revenues and mix within semiconductor products.

Gross margin from the semiconductor segment decreased 120 basis points sequentially to 53.5% primarily due to lower IP revenues and mix. Storage Systems gross margins for the fourth quarter excluding special items improved 50 basis points sequentially to 40.0%.

The special items for the quarter included primarily $48 million of restructuring expenses, $40 million of amortization of acquisition-related items, and $15 million of stock-based compensation expense.

Net loss came in at $13 million or 2 cents per share compared to a net income of $23.4 million or 4 cents per share in the year-ago quarter and a net income of $23.4 million or 4 cents per share in the previous quarter. Excluding one-time items, but including stock-based compensation expense, net income came in at 12 cents per share, beating the Zacks Consensus Estimate of 10 cents.

During the quarter, the company generated $112 million of cash from operating activities. LSI Corp. used $32 million of cash for share repurchases in the third quarter. LSI Corp. ended the quarter with cash and investments of $676.6 million, up from $600.8 million at the end of the previous quarter. The company also repaid all of its debt earlier in the year and currently has no debt on its balance sheet.

Guidance

LSI Corp. projects revenues between $605 million and $635 million in the first quarter of 2011, down from $664 million reported in the fourth quarter and in line with the Zacks Consensus Estimate of $617 million. Networking, semiconductor and storage system businesses are expected to be down sequentially while storage semiconductor business would be roughly flat.

Gross margin is projected between 46.5% and 48.5%. LSI Corp. expects to report second quarter EPS in a range of a loss of 3 cents to a profit of 7 cents. EPS excluding special items is forecasted at 7 cents – 13 cents.

LSI Corp. is currently focusing on fewer and larger end-markets. It aims to focus on established and growing applications and narrow its focus to market-leading customers.

The end-demand environment continues to be uncertain but management remains confident that new product cycles will contribute to revenues in 2011. In hard disk drives, LSI Corp. has begun ramping enterprise SoCs at Seagate and will expand to additional enterprise platforms as it moves through 2011.

 
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