) posted a net income per share (excluding one-time items but
including stock-based compensation) of 13 cents in the third
quarter of 2012, in line with the Zacks Consensus Estimate.
Net income from continuing operations came in at $39.6 million
or 7 cents per share versus a net income of $58.7 million or 10
cents per diluted share in the second quarter of 2012 and a net
income of $29.3 million or 5 cents per diluted share in the
The company generated revenues of $624 million in the third
quarter of 2012, up 14.1% year over year but down 6.0%
sequentially. Reported revenues came in toward the lower end of
management's guidance range of $620 million and $660 million.
The year-over-year increase in revenues was driven by growth
from new products, including SandForce FSPs, Nytro PCIe flash
adapters and Axxia multi-core communications processors.
The sequential decrease was due to a weak PC market leading to
declines in the company's hard disk drive (HDD) business. The HDD
business posted a 20% sequential decline due to lower PC sales
affecting ACD demand and resulting inventory adjustments by key
Networking business, accounting for 17% of total revenue,
reported revenue of $106 million; down 10% on a year-over-year
basis but up 7% sequentially. Server and storage
semiconductor business revenue (consists of ServeRAID adapter and
software, flash, SAS, SAN and HDD businesses), accounted for 79%
of total revenue, was up 22% on a year-over-year basis but down
8% sequentially to $493 million.
The sequential decrease was primarily driven by a reduction in
demand for HDD products, partially offset by increased demand for
Revenues for the IP business were approximately $25
Gross margin (excluding special items) came in at 53.9%, flat
with the previous quarter.
Operating margin came in at 17.7%, down from 18.6% in the
previous quarter but up from 15.2% in the year-ago quarter.
During the quarter, LSI Corp generated $112 million of cash
from operating activities and incurred $26 million in capital
expenditures. The company repurchased 7 million shares for
approximately $50 million in the second quarter under its $750
million share repurchase program.
LSI Corp. has repurchased a total of 102 million shares,
thereby utilizing approximately $725 of its current $750 million
authorization. In addition, the company's board authorized a new
$500 million stock repurchase program in August.
LSI Corp. ended the quarter with cash and short-term
investments of $643 million, up from $601.1 million at the end of
the previous quarter.
Going forward, management expects revenues between $570
million and $610 million in the fourth quarter of 2012.
Management continues to be cautious due to the uncertainty in the
macro environment and weak PC demand.
Demand continues to be weak, and hence LSI Corp. expects to
see lower demand for components in the fourth quarter, resulting
from the ongoing softness in the PC end market. LSI expects both
custom and standard product along with flash storage processors
to decline due to the ongoing weakness in the PC market, elevated
shipments in the third quarter in support of new product
launches, and SSD PC enabled rollouts being lower than previous
In the long run, management expects LSI to continue to benefit
from strong, secular growth in data and traffic, from the rapid
adoption of flash-based products and the penetration of the
company's products into large web and cloud data centers.
LSI Corp expects to benefit from new product cycle ramps,
including PCIe flash adapters at
International Business Machines Corporation
) and a new win at a leading social networking company. Moreover,
the company expects Axxia revenues to grow as it continues to
ramp up at the leading base station OEM.
Server and storage semiconductor revenues are projected to be
down sequentially in the fourth quarter. Networking semiconductor
revenue is also expected to decline.
Gross margin is projected around 53%, (+/-1%). Net income from
continuing operations is forecasted to come in the range of a
loss of 2 cents to profit of 7 cents. Excluding one-time items,
income from continuing operations is estimated to come at at
$0.11 to 0.17.
The results drove a 1.91% increase in the company's share
price in after hours trading to close at $6.41.
We maintain a Neutral recommendation on LSI Corporation in the
long run. However, the near-term weakness forces us to confer a
Zacks #4 Rank on the stock, which translates into a short-term
rating of Sell on the stock.
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