Earnings estimates for
) have been more or less static ahead of the company's fourth
quarter results, expected on January 25, 2012.
Meanwhile, although third quarter results for LSI Corp. beat
expectations, guidance for the fourth quarter was below
expectations due to supply constraints in the Hard Disk Drive (HDD)
business. LSI Corporation expects revenues between $500 million and
$550 million in the fourth quarter of 2011. The guidance assumes
that approximately $35 million - $45 million will be affected by
primarily supply-related constraints, largely affecting the Hard
Disk Drive business.
Due to manufacturing constraints, management estimates that Hard
Disk Drive business will decline over 10% sequentially. LSI Corp
projects that server and storage semiconductor revenues would be
down sequentially in the fourth quarter, driven by HDD
Revenues from the networking semiconductor business will be flat
to down slightly, fueled by last-time purchases of legacy
Gross margin is projected around 51%, +/- 1%. Income from
continuing operations is forecast to come around $0.04-$0.08 per
share. Excluding one-time items and stock-based compensation,
income from continuing operations came in at $0.06-$0.14.
LSI Corporation recently acquired SandForce Inc, for $322
million. The acquisition is expected to strengthen LSI's
strong position in storage technology solutions. We view this
acquisition as positive as it will also use the cash derived from
the divestiture of the external storage systems business
(accounting for roughly 27% of total sales) to NetApp Inc. for $480
million in cash.
The acquisition is also expected to enhance LSI's competitive
position in the fast-growing server and storage PCIe flash adapter
space. Management stated that PCIe flash-based adapters and flash
storage processors will together represent a greater than $2
billion TAM expansion for LSI in the next several years.
Earlier, LSI Corporation divested its lower margin Engenio
storage systems. We believe the divestiture of the storage systems
business will positively impact the margin structure along with
ramp up of higher margin networking and SAS products. We expect
margins to steadily pick up in 2012. The company is also utilizing
idle cash to buy back shares, thereby boosting the bottom line.
Although the supply constraints seem to have eased down of late,
we continue to maintain a Neutral recommendation on LSI
Our Neutral recommendation is supported by Zacks #3 rank, which
translates into a short-term rating of Hold.
LSI CORP (
): Free Stock Analysis Report
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