LSI Corporation (LSI)

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LSI (LSI)

Q4 2011 Earnings Call

January 25, 2012 5:00 pm ET

Executives

Sujal Shah -

Sujal Shah - Vice President of Investor Relations

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

Abhijit Y. Talwalkar - Chief Executive Officer, President and Director

Analysts

Srini Pajjuri - CLSA Asia-Pacific Markets, Research Division

Craig Berger - FBR Capital Markets & Co., Research Division

Patrick McCartney

Srini Pajjuri - Credit Agricole Securities (USA) Inc., Research Division

Sanjay Devgan - Morgan Stanley, Research Division

Betsy Van Hees - Wedbush Securities Inc., Research Division

Parag Agarwal - UBS Investment Bank, Research Division

Sujeeva De Silva - ThinkEquity LLC, Research Division

Hans C. Mosesmann - Raymond James & Associates, Inc., Research Division

Gabriela Borges - Goldman Sachs Group Inc., Research Division

Blayne Curtis - Barclays Capital, Research Division

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 call 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 fourth quarter and full-year 2011 and guidance for the first quarter of 2012.

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 the Investor 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 an overview of our business.

On January 3, we closed the SandForce acquisition, and our Q1 guidance will include this business. I would also like to remind you that LSI will be hosting an analyst day in New York City on March 14, and details and registration information are also posted on the website.

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 on our Form 10-K for the year ended December 31, 2010, our third quarter 10-Q and today's earnings release. With that, it is now my pleasure to introduce Abhi Talwalkar.

Abhijit Y. Talwalkar

Thanks, Sujal. Good afternoon and welcome. I would like to begin by providing some highlights for 2011, a year in which we endured a turbulent microenvironment, but made significant progress as a company. Early in the year, we completed the transformation of LSI with the transition to a pure play storage and networking semiconductor company with the divestiture of our storage systems business. We ended the year with an announcement to acquire SandForce, positioning LSI to benefit from the growing adoption of solid-state drives and flash storage solutions. Throughout the year, we were successful in increasing design win momentum with industry leaders such as Seagate, Ericsson, Cisco, IBM, HP, Dell and many others. Our revenues grew 9% year-over-year and 16% from the second half of 2010 through the second half of 2011 ,illustrating acceleration of revenue growth driven by the share gains and [indiscernible] cycles. This is still the only first of several expected stages of new product ramps from design wins accumulated over the past 3 years. For the full year, we generated double-digit revenue growth in HDD/SSDs, ServeRAID and networking investment areas. Our growth, which significantly outpaced our end markets in many of our peers, would have been even higher, particularly in hard disk drives, were it not for the impact of the unfortunate flooding in Thailand which affected our fourth quarter 2011 revenues. Specifically for the fourth quarter, our revenues of $523 million were in line with the midpoint of guidance, and I credit our team for their efforts in assessing market dynamics and flood-related constraints to enable us to correctly call the quarter back in October. We saw roughly $40 million of revenue impact in Q4 from Thailand flood-related issues. Our operations team has done an excellent job on recovery, including the qualification of new suppliers, and we expect to have the capability to meet all customer demand in Q1. As we look forward to 2012, we are excited by the new product cycle ramps, accumulated share gains and new opportunities we have ahead of us in the areas such as SandForce flash storage processors, PCIe flash adapters, HDD/SSDs, SAS for Romley and multicore processors and custom products for networking. The midpoint of our guidance for Q1 reflects 20% year-over-year growth and is composed of 16% growth in our organic business, plus the addition of SandForce revenues. In Q1, we're seeing outperformance driven by a snapback of HDD/SSD and preamp shipments, new product ramps and the addition of SandForce revenues. We're excited to have closed the SandForce acquisition and have the team integrated into LSI as a new business unit. The acquisition greatly enhances LSI's competitive position in the fast-growing PCIe flash adapter market segment and it catapults LSI into an industry-leading position for the rapidly growing high-volume flash storage processor market for Ultrabooks, notebooks and enterprise SSD and flash solutions. We estimate that LSI's available market for PCIe flash-based adapters and flash storage processors is growing at an annual CAGR of nearly 40% over time and will represent a greater than $2 billion TAM expansion for LSI in the next several years.

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