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LSI Corporation (LSI)
Q2 2009 Earnings Call
July 29, 2009 5:00 pm ET
Sujal Shaw – Vice President of Investor Relations
Abhijit Y. Talwalkar – President, Chief Executive Officer & Director
Byron Look – Chief Financial Officer, Executive Vice President & Chief Administrative Officer
Hans Mossesmann – Raymond James
Kaushik Roy – Wedbush Morgan Securities, Inc.
James Schneider – Goldman Sachs
Romit Shah – Barclays Capital
Daniel Amir – Lazard Capital Markets
Christian Schwab – Craig-Hallum Capital
Craig Berger – FBR Capital Markets
Sumit Dhanda – Bank of America Merrill Lynch
Shawn Webster – JP Morgan
Blayne Curtis – Jefferies & Co.
Suji De Silva – Kaufman Brothers
Previous Statements by LSI
» LSI Corporation Q3 2009 Earnings Call Transcript
» LSI Corporation Q1 2009 Earnings Call Transcript
» LSI Corporation Q4 2008 Earnings Call Transcript
With me today are Abhijit Talwalkar, President and Chief Executive Officer and Bryon Look, Executive Vice President and Chief Financial Officer. Abhi will begin the call with some opening remarks and highlights from our business and then Bryon will provide second quarter 2009 financial results and guidance for the third quarter of 2009.
During this call we will be mentioning non-GAAP financial measures which we may refer to as results excluding special items. Today’s earnings release describes the differences between our non-GAAP and GAAP reporting. You can find reconciliations of our non-GAAP financial measures to corresponding GAAP amounts on our website at www.LSI.com/webcasts. At that site you can also find a copy of the earnings release and a presentation which highlights the key points from today’s call and provides an overview of our business. This may be particularly useful to new investors.
I also want to remind you that today’s remarks will include forward-looking statements. Our actual results could differ materially from those suggest by the statements made today. Information about factor that could affect our future results as contained in our quarterly report on Form 10Q for the quarter ended April 5, 2009 and our annual report on Form 10K for the year ended December 31, 2008.
With that, it is now my pleasure to introduce Abhi Talwalkar.
Abhijit Y. Talwalkar
I continue to be pleased with our execution, the solid results we are delivering and the focus our employees are demonstrating in taking our business forward in a challenging environment. For Q2 our revenues exceeded the midpoint of our guidance range with strong sequential growth in storage systems and storage semis. We continue to maintain tight controls on our spending with non-GAAP operating expenses decreasing sequentially and coming in below the low end of our guidance.
We also continue to carefully manage our balance sheet and generated positive operating cash flow of $69 million in a difficult environment. In addition, we redeemed over $240 million of short term convertible debt during the quarter saving interest expense and benefitting our bottom line. While it is difficult to know if the economy is on a sustainable path to recovery, all of our businesses serving PCs, external storage systems, servers and networking showed sequential growth in Q2.
Before I talk about our businesses, here are the key takeaways that I would like you to get from this call: first, we delivered solid results in Q2 and are guiding to further growth in Q3; secondly, over the past several years we’ve made substantial changes in our structure and strategy and are at the front edge of seeing tangible results; and lastly, we are positioned to grow at above market rates across most of our product categories and are far from saturated in the markets we serve.
While financial results are visible to the investment community there have been significant company level changes and product line improvements that have been taking place below the surface transforming LSI in to a company that is positioned to grow faster than many of the markets that we serve. On prior calls we have discussed some changes that have been implemented including significant operating expense reductions, full restoration of the competitiveness of our HDD and networking businesses, divestitures of volatile businesses and the outsourcing of manufacturing operations.
We are now in the front edge of seeing tangible results from our transformation. Accumulation of design wins over the past two years which has led to stronger core businesses in storage and networking. Bottom line, over the past several years, LSI has become a stronger, better positioned and more competitive company. We have strengthened an already successful storage systems business expanding our product line and customer base and making acquisitions which have expanded our TAM. In storage semis we have established share leadership in SAS and SAN silicon and secured new design wins with the leaders in the industry.
In HDD we have technology leadership and are well positioned to gain share at existing and new customers. In networking, we have spent the last three years restructuring and refocusing that business and while strategy transformation can take time and be difficult to measure, we believe that we are at the edge of seeing the benefits of the changes we have driven. Our design win conversion rate which measures the amount of design wins that we expect to reach production and materialize in the revenue is currently running at 90% for networking design wins accumulated over the past two years.
This is considerably higher than the substandard levels several years ago. These significantly higher conversion rates are a direct result of our shift in product strategy and associated focus on industry leaders such as CISCO, Ericsson, Intel and [Waway] serving established multibillion dollar system segments. Even with the progress we have made in storage and networking, we are far from saturated in the markets we serve with approximately 20% aggregate share. This leaves significant room for growth and expansion.