LSI Corporation (LSI)

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LSI (LSI)

Q1 2011 Earnings Call

April 27, 2011 5:00 pm ET

Executives

Abhi Talwalkar - Chief Executive Officer, President and Director

Sujal Shah - Director of Investor Relations

Bryon Look - Chief Administrative Officer, Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Craig Berger - FBR Capital Markets & Co.

Lauren Stoller - Lazard Capital Markets

Sujeeva De Silva - ThinkEquity LLC

Parag Agarwal - UBS Investment Bank

Kaushik Roy - Wedbush Securities Inc.

Gabriela Borges - Goldman Sachs Group Inc.

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the LSI Corporation Investor Relations Conference Call. [Operator Instructions] 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 results for the first quarter and guidance for the second quarter of 2011.

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/webcast.

At that site, you will also find a copy of the earnings release and a presentation highlighting the key points from today's call and providing an overview of our business. This may be particularly useful to investors who are new to LSI.

We expect to complete the sale of our External Storage Systems business in the next few weeks. Because of our decision to exit the Storage Systems business, we are reflecting that business as a discontinued operation in our financial statements.

To facilitate your modeling, we have included on our website historical revenue information for continuing operations by quarter for the years 2008 through 2010.

I 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 our future results is contained in our Form 10-K for the year ended December 31, 2010, and today's earnings release.

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

Abhi Talwalkar

Good afternoon, and welcome. I'm pleased with how our team executed in Q1, delivering revenue and non-GAAP EPS effectively at the high end of guidance, while continuing to drive solid gross margin performance and operating expense control.

We were very active in buying back stock during the quarter, repurchasing 15 million shares. So far, we have utilized only $100 million of our new $750 million buyback authorization and expect to be aggressive with share repurchases as we move through the year.

Last month, we announced an agreement to sell our External Storage Systems business to NetApp, and we expect the transaction to close in the next few weeks. The sale marks a significant milestone in our evolution, enabling LSI to transition to a pure play semiconductor company with higher revenue growth, margins and earnings growth potential.

We are excited by the growth opportunities we have been pursuing in our semi-conductor business and are still only the front edge of new design win ramps that we expect to contribute to our top line growth.

Going forward, we believe we can accelerate the achievement of our current business model, establish a new richer business model target later in the year and deliver greater long-term shareholder value.

I'd like to spend a few minutes talking about how investors should think about LSI going forward. We're well positioned in large growing markets, with solid fundamentals and high exposure to increases in business IT spending. Growth in social networking, private and public cloud build outs, the expansion of the mobile Internet and related smartphone tablet services, the rise in video traffic and continued Web commerce growth in emerging markets are some of the major trends filling growth of servers, storage and networking infrastructure.

LSI plays a critical role in providing leading products and solutions for the storage protection and delivery of digital information and content within this infrastructure.

Over the last several years, we have been investing ahead of revenue and strengthening our core businesses. We're now emerging from this deep investment cycle with leadership positions and expected growth well above end-market rates in our served markets.

We are #1 in Server and Storage SAS components, #1 in direct attached storage RAID adapters and software, #1 in SAN custom solutions, #2 in HDD, and #2 in networking processors, and an emerging leader in flash-oriented solutions for enterprise applications.

In our served markets, we have established deep incumbency by providing trusted silicon and software solutions that have been hardened over many generations.

We are positioned for solid operating leverage as revenues grow through share gains and new product cycles. We are committed to achieving our current business model target at 17% non-GAAP operating margins by the end of this year, and expect to communicate a higher, long-term target business model as we move forward.

In addition, we have a solid balance sheet with no debt and have consistently returned capital to shareholders by buying back stock. We have reduced our outstanding share count by 20% over the past several years and expect to continue to be aggressive in using our current repurchase authorization.

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