Q4 2012 Earnings Call
January 23, 2013 5:00 pm ET
Sujal Shah - Vice President of Investor Relations
Abhijit Y. Talwalkar - Chief Executive Officer, President and Director
Bryon Look - Chief Administrative Officer, Chief Financial Officer, Principal Accounting Officer and Executive Vice President
Vivek Arya - BofA Merrill Lynch, Research Division
Gabriela Borges - Goldman Sachs Group Inc., Research Division
Blayne Curtis - Barclays Capital, Research Division
Steven Chin - UBS Investment Bank, Research Division
Craig Berger - FBR Capital Markets & Co., Research Division
William Harrison - Wunderlich Securities Inc., Research Division
Hans C. Mosesmann - Raymond James & Associates, Inc., Research Division
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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. Ahbi will begin the call with some opening remarks and highlights from our business, and then Bryon will provide results for the fourth quarter and full year 2012 guidance for the first quarter of 2013.
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 the Investor Relations section of our website at www.lsi.com/webcast. At that site, you can also find a copy of the earnings release and a presentation highlighting the key points from today's call and providing additional information about our business.
We have also created an Investor Education Center on this site, which contains video presentations about each of our businesses. This may be particularly useful for new investors.
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 our future results is contained in our Form 10-K for the year ended December 31, 2011, our third quarter 10-Q and today's earnings release.
With that, it is now my pleasure to introduce Abhi Talwalkar.
Abhijit Y. Talwalkar
Thank you, Sujal. Good afternoon, and welcome. While we continue to have uncertainty in the macro environment and softness in some end markets, I'm pleased with our execution and results for the fourth quarter and the significant progress we have made as a company over the past year.
For Q4, revenue was above the midpoint of guidance and non-GAAP EPS exceeded the high end of guidance. We delivered strong gross margin performance along with continued expense control. Year-over-year 2011 to 2012, revenue grew 23%, non-GAAP operating margin expanded 450 basis points to 17.1% and non-GAAP EPS grew from $0.47 per share to $0.75 per share. In fact, over the past 3 years, LSI has delivered an average revenue growth rate of 17% as a pure play semiconductor company.
We also achieved key business milestones during the past year. We successfully integrated SandsForce and established a strong position for flash processors. We've launched and started ramping our family of Nytro PCIe flash adapters at Oracle, IBM, Cisco and others. We achieved the goal of growing our aggregate flash revenues by over 200% year-over-year. We grew our HDD business by nearly 40% while beginning our SoC ramp at our new customer. We grew SAS and ServeRAID more than the server end market due to strong product offerings. We secured major base station wins for Axxia and custom products in our networking business while generating 5% annual growth in networking investment areas through new product cycles. This was especially noteworthy since 2012 had an unfavorable wireless CapEx environment, and many of our networking peers saw revenue declines in 2012. And lastly, we achieved record level design wins, which we expect to fuel future growth.
While 2012 was a strong year for us, we witnessed market-related softness in the second half that is continuing into the first quarter of this year. Our Q1 guidance reflects a cautious outlook due to continued uncertainties in the macro environment, as well as softness in PC and server end markets. While these factors are impacting first quarter demand, we believe that Q1 should be the trough for our revenues, with growth expected as we move forward. Looking beyond Q1 at opportunities ahead of us in 2013, I'm excited about new product cycles that can drive growth in our flash, server and networking businesses, and I will touch on these in a moment.
Beyond these growth rates, there have been many questions about the softening in the PC market and the outlook for our HDD business. We have effectively seen multiple quarters of softness that include reductions in desktop and notebook SoC shipments. Provided that HDD TAM remains stable or improves, we would expect to grow from these levels as we benefit from increased shipments in the desktop, enterprise, nearline and hybrid platforms while now having limited exposure to traditional 2.5-inch notebook SoCs. Keep in mind that, overall, LSI is centered in applications benefiting from strong secular growth in data and traffic. We're effectively positioned and focused on large and exciting market segments, including flash, data center, cloud and mobile networks.