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LSI Corporation (LSI)

Q3 2009 Earnings Call Transcript

October 28, 2009 5:00 pm ET

Executives

Sujal Shah – VP, IR

Abhi Talwalkar – President and CEO

Bryon Look – EVP, CFO and Chief Administrative Officer

Analysts

Romit Shah – Barclays Capital

Sukhi Nagesh – Deutsche Bank

James Schneider – Goldman Sachs

Blayne Curtis – Jefferies

Daniel Amir – Lazard Capital Markets

Suji De Silva – Kaufman Bros

Craig Berger – FBR Markets

Hemant Hebbar – Wedbush

Hans Mosesmann – Raymond James

Sumit Dhanda – Bank of America/Merrill Lynch

Allan Mishan – Brigantine Advisors

Sanjay Devgan – Morgan Stanley

Presentation

Operator

Ladies and gentlemen, welcome to the LSI Corporation Investor Relations conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session. Instructions will be given at that time. As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Sujal Shah, Vice President of Investor Relations at LSI. Please go ahead.

Sujal Shah

Good afternoon and thank you for joining us. With me today are Abhi 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 third quarter 2009 financial results and guidance for the fourth quarter of 2009.

During this call, we'll 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 Web site at www.lsi.com/webcast. 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 suggested by the statements made today. Information about factors that could affect future results is contained in our quarterly report on Form 10-Q for the quarter-ended July 5, 2009 and our annual report on the Form 10-K for the year ended December 31, 2008.

With that it is now my pleasure to introduce Abhi Talwalkar.

Abhi Talwalkar

Thanks, Sujal. Good afternoon and welcome. After weathering the economic storm of the past several quarters I'm encouraged that our end markets seem to be getting healthier and our results reflect the solid execution and commitment of our employees in driving our business forward.

For Q3, revenues exceeded the high-end of our guidance range with sequential growth of 11%. Earnings also exceeded guidance reflecting improved gross margins and continued tight controls on operating expenses.

We also continued to effectively manage our balance sheet and generated positive operating cash flows of $69 million. While there are still some concerns with the economy, our end markers are stabilizing, the demand for information technology is stronger and all indicators point to the fact that the bottom is essentially behind us.

Before I talk about our businesses, here are the key takeaways that I would like you to get from this call. First, our Q3 results and guidance for Q4 are a proof point of the successful transformation of LSI and the execution of our strategy. Secondly, we're at the front edge of seeing tangible results from the changes we have driven over the past several years in our position to grow at above market rates across most of our product categories. Lastly, with over 80% of our revenues tied to business IT spending, LSI represents a differentiated investment opportunity as business spending improves.

On our last earnings call and in various investor forums over the last quarter, we have talked about how LSI is a very different company than it was several years ago when we were spread across many markets, had some product lines that were subscale and were staring at multiple revenue headwinds in our ACD and networking businesses that were multi $100 million in size.

Over the past several years, we have significantly transformed the company and are well-positioned to grow faster than the markets can serve and drive increased earnings growth. The visible changes include significant operating expense reductions, divestitures of volatile businesses where we didn't have scale and outsourcing of manufacturing operations.

Below the surface we've implemented a new strategy and are now seeing the results of successful execution to the strategy. We narrowed our customer focus to established market leaders and large, established and growing applications where LSI can provide differentiated solutions.

We achieved sufficient scale and emerged as a technology leader in our targeted storage and networking product segments with new wins at tier one companies like Cisco, Intel, Dell, HP, Huawei and IBM, to name a few. All these will contribute to revenues in 2010 and 2011.

In addition, I'm pleased to announce that we have secured a new SSC design win with the new leading Asian HD manufacturer further expanding our customer base and we're not stopping here. Because of our focus on market leading customers and established applications, our design win conversion rate, which measures the amount of design wins that we expect to reach production and materialize into revenue, is considerably higher today than it was several years ago. This gives us more confidence in future growth.

Even with the progress we have made in storage and networking, we are far from saturated in the areas we serve with approximately 20% aggregate share. This leaves significant room for growth and expansion with what has been a winning recipe.

Read the rest of this transcript for free on seekingalpha.com