LSI's Management Presents at 2013 Citi Global Technology Conference (Transcript)

Sep. 4.13 | About: LSI Corp. (LSI)

LSI Corporation (NASDAQ:LSI)

2013 Citi Global Technology Conference Transcript

September 4, 2013 8:15 AM ET

Executives

Jeff Richardson - Chief Operating Officer

Analysts

Adaline Lee - Citi

Adaline Lee - Citi

… morning session. My name is Adaline Lee, and I work on the U.S. Semiconductor team. Today we are very happy to have Jeff Richardson from LSI, the COO of LSI coming here with -- to talk to us and welcome, Jeff.

Jeff Richardson

Thanks.

Adaline Lee - Citi

He will start with a short introduction 5 to 7 minutes and then we will get right into fireside chat.

Jeff Richardson

Great. Thank you and welcome everybody. So, yeah, my name is Jeff Richardson. I am the Chief Operating Officer at LSI Corporation. I have been with the company little over eight years and have been one of the primary people, sort of working behind the scenes to drive the transformation of LSI.

So for those of you who don’t know LSI? We are a semiconductor company, a pure play semiconductor company focusing on really the storage and networking markets. And in particularly we really centered the company around this secular persistent pattern of data traffic and storage growth within the industry.

So we’ve over the last three years have done quite well in terms of execution. We have grown the revenue on average 17% over the last three years. This last quarter we also had a fairly good quarter as well too.

The -- really the growth part of LSI at this point is focusing on some of our key new businesses, both in the flash area and the networking area and maybe what I’ll do, I’ll spend a couple of minutes and kind of walk through some of our businesses, give you sense of where we are at.

On the flash side of our business, we are pretty unique position. We’ve got really a two to three product lines that we are focusing on. The total available market that we are focusing on in flash today is about $1 billion, but we’ll grow to about $2 billion, $3 billion in 2015.

On the silicon side, we are pretty unique in the sense that we are focusing on both standard flash controllers, as well as custom flash controllers.

On the standard flash controller side, we are just in the process right now sampling our third generation product which is a completely ground up product. We architected to really bring out the performance of PCIe and PCI Express.

So we are very excited about that product and we actually have five customers who are have already committed and are designing it into their products, but many more engagements are actually start to pick up here as we speak.

So pretty excited about that product sort of take us to the next level and its an architecture that will actually extend into the next two to three years with numerous derivative as well too.

On the flipside actually, we have what a lot of people don’t understand as bunch of custom silicon engagement. So lot of discussion within the industry around verticalization of flash vendors in terms of how they approach and develop their SSDs. Many of them want to actually develop some of their own flash controller technology.

Today LSI is partnering with six different SSD vendors to help them build their own unique flash controllers where we can buy our technology and their technology together sort of to build the better products. So we actually have 17 engagements that are either in production or in development across six vendors, SAS, SATA, PCIe interfaces both client and enterprise.

So when you combined the two businesses together there was actually a trend focus report that came out in middle of this year which had LSI number one share for 2012 and actually close to (inaudible) are sort of nearest competitor there. So we’ve, actually when you look at the business in totality very strong business.

We also have a PCIe flash business called Nytro which is actually ramping significantly this year. And in fact, we’ve got a number of engagements with companies where they are delivering our products, so IBM, Dell, Oracle, Cisco, Intel, Supermicro, EMC, NetApp. And we also are working with some of the big hyper scale data center customers as well too. We talked about the fact that we are really designed in across multiple application as a leading social networking provider and in the process of sort of ramping up our business there to.

So we are pretty excited about this market, of that $3 billion of market opportunity, probably close to two-thirds of that is actually associated with PCIe flash and we think this is a great opportunity for LSI to take advantage of all of our storage expertise and bring that into play. So we are in a position right now in this business where we are the player number two and our goal here is to really capture the growth opportunity over the next couple of years.

And then the other networking is really our other big focus right now from a growth perspective above market growth rates and we -- our networking business is really focused on enterprise switching and mobile infrastructure and our -- really our two product lines that we use to go attack those markets are our Axxia Communication processor and custom silicon. And that’s a pretty unique combination much like in the flash side we are bringing custom silicon to play to actually differentiate ourselves versus our competition.

So the market opportunity for those networking business roughly $2 billion that we are focusing on and enterprise is about $2 billion on the mobile infrastructure space. And we are in position right now where we have actually won a significant amount of both Axxia Communication processor which is essentially an integration of data and control plan technology with custom baseband at a number of players. And so we will actually grow from roughly 15% share of Axxia or custom silicon -- custom baseband plus communication processor in base stations to over 40% share as the business starts ramping up over the next couple of years.

So pretty excited, a lot of this is tied to LTE and optimize around LTE and 4G, so that lot of as the market shifts quickly into LTE technology that will benefit LSI and we should see that growth pick up even further.

On the server side, very stable business since one of our larger cash generating businesses associated with SAS and RAID technology. We have about 60%, 70% share. We are number one in this marketplace and we are in the process of moving -- help move the industry from 6-gigabit SAS to 12-gigabit SAS which will happen towards the later part of this year.

And through that transition we are adding new capabilities such as storage or data sharing within the server with a product line that we Syncro which is an opportunity for us to sort of have a revenue expansion on top of the share that we already have.

So we do see new product cycles even though we are in the strong position there, given some of the new technologies, that’s a very successful and continues to be a successful business for LSI.

On the HDD side, very stable for us at least at this point from the market perspective, LSI will pretty much focus on what we consider the more resilient parts of the HDD market. So we’ve got a very strong position in enterprise and desktop space, as well as nearline drives and some of the emerging products around a hybrid. At this point, on the enterprise side, Seagate just launched the new product line called Terascale. We are actually design into that enterprise drive, so we’ll see the benefits of that.

On the enterprise side, we actually have a whole suite of 28-nanometer SoCs that will go into production starting next year and actually we’ll -- we should be successful in shipping on sort of every major enterprise player there.

We have very little exposure on the notebook side. I’d say the only exposure we have today is really on the hybrid side. We have all Seagate hybrid SoC business and so as that product line and that category of hard disk drives begin to ramp, we’ll certainly see the benefit of that too.

And then in general on the desktop side, whether it’s for personal storage and everything we actually have a good amount of share across the vendors on that marketplace as well too.

So, I think, just to wrap it up, I mean, from an LSI perspective, financially we’re very much focused on continue driving revenue growth above market growth rates. As a company and a management team are focused on driving towards the business [model 10.38] goal around 20% to 22% operating income and we believe that we can achieve that goal when we get to a run rate of about $700 million of revenue per quarter.

The company is debt free. We’ve got very good cash position. We just initiated a dividend of $0.03 per share and we feel very good about the future in terms of what we are driving at the company.

So, I guess, with that, I’ll turn it back over to you for questions.

Question-and-Answer Session

Adaline Lee - Citi

Sure. And so we’ll start with the big questions that will add as a company at this conference. And the first one is; how to characterize your overall visibility currently versus last quarter versus a year ago? Is it better? Is it worst, is it worse or is it the same?

Jeff Richardson

I think that this is a, I don’t think anybody has a crystal ball right now. I think the visibility is certainly within the next quarter is pretty reasonable at this point. With our product lines especially on some of the long lead time product lines we do have visibility multiple months in advance.

And I would say, in the markets that we serve, I would say, stability is probably in general how I call it. I think, we do have a lot of our business that’s focused on IT spending and infrastructure spending, some of that’s growing, right. If you look at the -- on the infrastructure side around hyper scale data center build out, that’s certainly the fastest growing part of the server market. We still see growth there.

Having said that, we do have exposure in -- limited exposure but certainly exposure in notebook, computers and PCs and I think, we’ve collectively have seen that continue to deteriorate throughout this year.

And then in general I would say, IT spending throughout the rest of this year with enterprise. Nothing is certainly in a hyper growth or high growth mode, but I would say stable but, we continue to sort of keep an eye on in terms of where there is opportunities or where there is risk in terms of those markets.

Adaline Lee - Citi

Okay. That’s actually stability. It’s actually the word used by a lot of companies here. And so the second one would be, how you would characterize your opportunity for productivity gains in the future, is it better or worse..

Jeff Richardson

Productivity gains in terms of how we derive products or how our customers use our products?

Adaline Lee - Citi

Productivity gains in terms of how it impacts your, for example per employee …

Jeff Richardson

Yeah.

Adaline Lee - Citi

Contribution.

Jeff Richardson

Yeah.

Adaline Lee - Citi

And in say 12 to 18 months versus last quarter versus last year.

Jeff Richardson

Yeah. There has been a big focus at LSI, I mean, part of the transformation the company was really taking a semiconductor company which is very focused, which is very broad in its focus, in terms of many different markets and focusing on really a few key markets and going deeper.

So we’ve built a technology platform which is very scalable and very efficient. We and as result, our strategy has been around how do we continue to contain OpEx to very, of course grow OpEx as slow as possible. Yet deliver more and more products per dollar in each year. We’ve been very successful in doing that.

So if you look at our OpEx over the last two to three years, we’ve actually in general try to keep it somewhat at low growth rate, but we’ve in general doubled the number over the last three years, doubled the number of tape out, the number of chips that we develop in any one year over that same time period.

So in many ways, we’ve actually doubled the productivity coming out of the company to that timeframe and that’s really because we’ve consolidated a lot of the development around the IP, the technology platform. We’ve consolidated number of process technology that we use and in general have been very intelligent in terms of where we invest our money.

So we -- that’s been our rentless focus. You never done and that’s something that we will continue to do as we go into next year. So our -- really our goal is to drive revenue growth and certainly, O/I at a much, much faster rate than any type of OpEx growth.

Adaline Lee - Citi

Sounds good. The third question is, how would you rank your intended use of cash between acquisitions, buybacks, dividends or is it the same?

Jeff Richardson

Actually its really balanced right now, like we said we just recently announced the initiation of a dividend. With that dividend we still have a buyback program in place. I think the dividend gives us much more deterministic capital reallocation plan that investors can sort of play around.

And we’ve done acquisitions -- a number of acquisitions in the past where we feel like we can gain access to a technology or capability that would help us drive growth rates at a much faster pace then sort of what we are right now. The example there would have been SandForce was an acquisition we made two -- year and a half ago.

So we’re always looking out but I’d say it’s probably fairly balance, if not, probably weighted more towards reallocation around shareholder return, right around both dividend and buyback at this point.

Adaline Lee - Citi

In your history of acquisitions, are they mostly for smaller companies or IP related acquisitions or…

Jeff Richardson

I think in general it’s been mostly focused on gaining access to our product line or an IP which basically fit well into the portfolio of LSI. I’d say with one exception is when we merge or acquire to gear back in 2007, which was a very significant transformational move that we made to gain access to a lot of different technologies at one point in time.

Adaline Lee - Citi

Great. So we can move onto company specific questions now. So just obviously, HDD is the largest segment of your business and with Citi cutting our PC forecast just two days ago and our internal TAM estimate being flat year-over-year and maybe up 2% second half over first half of this year. What do you think about what’s your view on industry TAM?

Jeff Richardson

I think we’ve actually been typically for our planning purposes have always been somewhat conservative on TAM estimates. So this year we projected flat actually to slightly down TAM versus last year sort of planned around that. I think looking into Q3, I think Seagate was out there with a forecast of 135 million to 140 million units for Q3. I think in general, we feel like that’s probably the right region.

I think the visibility beyond that in terms of what’s happening with HDD relative to PCs over the course next one to two years is still TBD. It’s still very large market. And I think for LSI, I go back to the point I made were, the composition of TAM is also very important factor as well too because there are non-PC centric elements to that TAM and that is where actually LSI has been focused and where most of our exposure is.

So whether it’s personal storage, whether its cloud computing or nearline drives, enterprise drives, those types of things that were -- as we’re predominantly we’re exposed versus on the notebook side, which is I think where we’re seeing a lot of pressure in terms of HDD as it relates to PC consumption.

Adaline Lee - Citi

That’s great. Maybe you want to talk about some of these non-PC applications in storage -- in HDD storage and give us a sense of where do you see the most opportunity. Also you can -- if you can describe in terms of segments perhaps gaming and applications, gaming, servers, nearlines?

Jeff Richardson

Yeah. I think I’ll just start with enterprise in general. Obviously, with the buildout of a lot of these big large datacenters, there is a huge amount of storage that is getting deployed at the same time. And depending on which tier of that the hierarchy if you will, that datacenter you will find a sizable amount of very resilient hard disk drives based on SAS technology. And then there is tiers of those datacenters that are using very high capacity SATA base drives as well too.

And so we classify that as our enterprise but the highest growth, the largest growth happening within the server market today isn’t HyperScale Data Center place and that’s where we’re seeing a lot of those drives. So whether it’s nearline storage, in the enterprise or in these datacenters or I’d say workload database centric hard disk drive which are tend to be more SAS and enterprise-oriented even SSDs as well. LSI has a lot of participation in those sides.

On the flip side, we see certainly personal storage whether it’s external hard disk drive whether it’s USB or whatever types of technologies, certainly gaming. There is just an incredible amount of content in different types of applications that are not really PC related or that -- we're also participating. And when I talk about desktop drives, that’s really a proxy for a lot of these non-PC applications as well.

So our technologies tend to get used to desktop drives. We have a fairly significant share in that part of the market today and we’re seeing the benefit of that as well as those things grows.

Adaline Lee - Citi

You have a fairly large and -- competitor in this space and they talk about their gaming share and just curious, how do you view your chances of gaming share in each of these segments?

Jeff Richardson

So I think, once again you have to go back to the composition of the market or the composition of the TAM. And I think traditionally LSI has had a predominant share on the desktop side or competitor has their share in the notebook side. And then I think historically we’ve sort of traded share on the enterprise side. I think -- and so -- at any given point in time, somebody probably is gaining share but if you just zoom out at a 100 feet to your point, there is just two really -- there is just two suppliers in this market today. And we’re clearly one of them.

In aggregate, we probably have mid 30s to high 30% share. And so as we continue to sort of deliver on some new product cycles, some of the new products, we believe we can continue to gain share even in a market that’s flat. So we believe that opportunity for us is to continue to gain share as we sort of drive new programs.

One thing I did mention is we’re not shipping SSDs across all HDD vendors and the newest one which is one of the larger vendor is actually start to ship in volume today. So as that ramps over the next 12 to 18 months, we’ll see the benefits of that new customer as well in terms of our share gains.

Adaline Lee - Citi

Where do you think you can get to because it is a flat market and do you have two players and you are in a sort of this mid 30s to 40s market share and they have about 60, let say high 50s to 60s, you are gaining share at each others expense and where do you think the industry will eventually balance?

Jeff Richardson

I mean, it’s really hard to say because it comes down to a decision that vendors will make but our focus has been on how do we deliver the best-in-class technology for us to get the point where we’re at right now. We’re really the new comer in this market. We must have done something right in terms of our technology for customers to chose LSI and use us as a primary SoC vendors.

So our focus is really driving time-to-market technology whether its our reaching of technology or time-to-market in terms of next process technology nurse so you get better areal density, better power, better performance to go sort of help, put us in a lead for gaining more share.

So really our goal is to go, get designed in across our platforms and then have the technology leadership play the role in terms of how much share a particular vendor gives us on any given point in time whether its cost leadership or technology leadership. So we feel very good about that. But I said our predominant focus has really been on the enterprise and the desktop side up until now. And I think we’ve benefited from being in those resilient markets.

Adaline Lee - Citi

So you spoke about the hybrid market before and also you are doing really well in SSD market but with the price of SSD going down, NAND flash going down quite a bit. Do you see a scenario where if the hybrid market doesn’t take off at some point in the near future, let’s say, it will be equipped by the SSD market?

Jeff Richardson

Hybrids will be equipped by the SSD market?

Adaline Lee - Citi

Yeah. Because hybrids give you -- as I -- hybrid gives you some incremental cost and a better drive versus traditional HDD but SSD is faster. So if, let’s say, SSD, NAND pricing will continue to decline at the current rate, is there a point where you may not need hybrid?

Jeff Richardson

I think the answer -- I don’t think I have the answer. I don’t have a crystal ball in this one. I think the answer really lies in the usage model of PCs and usage model of PCs is really changing a lot right now. And as there is yet to be a lot of change that will need to happen before that settles out.

But if the usage model of PC evolves to a point where it’s more tablet like meaning -- I'm not storing a 100% of the data sitting on the PC itself and then I’m leveraging some sort of cord like capability over the network. The network suggests that the amount of capacity of leading the PC would be somewhat lower than what traditionally maybe we’ve had.

But if we all feel the need and usage model continues to evolve where we need to have a terabyte drive or something larger sitting on our PCs and it’d be much more economical for a hard drive hybrid. So I think the usage model will depend on that. If usage model is, we can live with 120, 128 gig drive, then I think you will see SSD attach rates go up with PCs even as the price points and putting this pressure on price points on PCs as we go through time as well.

So I think it all depends on that usage model. At the end of the day for us, it does matter because we have exposure, hybrid, SSD and actually HDD, we have exposure as well as too. So I think we benefit from which way it goes.

Adaline Lee - Citi

Okay. So let’s go into SSDs a little bit. SSD, you have shown tremendous growth but it is a smaller market. I’d say -- I think you were -- slide show that probably 15. HDDs are 15 times the size of the SSD market. So when do you think that SSDs will go to a significant size within LSI. And what would drive that?

Jeff Richardson

So I think, from a market perspective, the markets, HDD market versus SSD, there are order of magnitude almost, right. I mean, SSD market this year is somewhere in 55, 57 depending on who you ask million units whereas HDD is 550 million units. So it’s going to be a long time before SSDs are at the same level if at all ever, right, as HDD is just given the size of those market.

But as I mentioned before, flash and flash controllers represent huge opportunity even at those levels. So I think we will see growth rates at a double digits for the foreseeable future in the SSD market. The fact that LSI is participating in a number of different ways both with our standard products, turnkey solutions as well as custom controllers that gives us access to every SSD vendor out there. And the fact that it was then developing on top of that enterprise acceleration technologies on PCIe flash that allows us to drive even more ASP and more margin on top of our silicon and deliver that at the enterprise markets.

So as I mentioned in my opening comments, I think conservatively we feel like it’s a $3 billion revenue opportunity for LSI in 2015 on a base that today is growing very fast but obviously quite small, just given the market just starting and LSI as a company, we’re just starting to participate here.

Adaline Lee - Citi

There is an interesting point that you brought out before. It’s that, you guys have been holistically of looking at the SSD market. You are a merchant supplier and you are also working with the NAND flash vendors to develop custom solutions. Do you think -- how do you think of your merchants chips versus your custom chips because do you think that as time goes on the NAND vendors will want to develop their own to compete with your product or do you think there is a sort of level of technical stuff sophistication and it requires for the merchant chips suppliers that the NAND flash guys can achieve?

Jeff Richardson

I think it’s TBD on whether this sophistication is there or not and in some ways, our goal on our standard products is to continue to stay ahead as much as possible. I mean the good thing in all of this is that as the geometries of NAND flash continue to go down or become finer, the NAND itself becomes more and more unreliable, right. Meaning the number of right and race or read and race cycles goes down and so it’s a lot harder to build a hard disk drive out of that on reliable flash which means that the demands and capabilities in a flash controller have to go up.

So that’s a good thing for us, right because that’s where we drive value and our goal obviously with our standard products is to allow, enable us to basically deliver to have anybody deliver and develop an SSD and I think what’s key across any type of flash, right. So that’s a unique capability.

Now as flash vendors increase their sophistication, there is an opportunity for us to basically collaborate with them because we do have a lot of capabilities on the storage side with us on the host side but also even unique technology in terms of how we do compression, some of the security features, those type of things we can collaborate a custom solutions.

So, that’s why I think LSI overall, it’s an approach we have taken not just on the storage side but also in the networking side where we go off and understand each of these workloads whether it’s basic -- a workload associated creating an SSD or workload associated with LTE, an efficient LTE transmission within the wireless infrastructure space and we back up and go understand what is -- how can silicon play a role there and what technologies do we need.

We need, -- we need to have really good compression technologies. We need to have a signal processing technologies that are geared in a certain way. On the networking side, we need to have great traffic management packet processing capabilities.

And we basically craft those technologies and we then are very collaborative in terms of how we deliver those technologies for our customers. That’s how we differentiate versus our peers or our competitors. We basically have much more collaborative and as a result we can’t focus on 20 million markets. We are not in handsets.

We are not in a lot of other markets. Instead we are very much focused on infrastructure and we go much deeper in terms of our collaboration of our customers and that is why we deliver custom silicon. So, back to your question, that’s what unique about our side. We are actually -- I mentioned 17 different engagements right now on custom alone. We are collaborating with customers. We are sharing our technology with theirs to go craft a solution that’s unique to them.

And I think that model will persist, right. And, these companies can’t do everything themselves. There are just too many markets, too many differences, too many skews they will need to collaborate and help whether it’s leveraging a turnkey solution or doing custom or doing everything on their own, they’ll have a mixture of those depending on who the vendor is. And our goal is to basically maximize the footprint of LSI and will do that through not just standard but also custom engagements.

Adaline Lee - Citi

Just one final question before we move on to networking, what is your -- you just spoke about ASP differences, or margin differences between your different type of SoC controllers?

Jeff Richardson

In the storage space?

Adaline Lee - Citi

Yeah.

Jeff Richardson

We don’t specifically break out the margin profiles, the products I would say, hybrid and standard HDD SoCs are in the same ballpark in terms of margin and today certainly the SSD controllers are higher than those products.

Adaline Lee - Citi

Can I take that SSD is above copper average and it’s the --

Jeff Richardson

Depends on the SoC and HDD but I’d say that it is -- it’s a such large part of business, it’s roughly (inaudible).

Adaline Lee - Citi

Okay. Great. And any question from the audience?

Jeff Richardson

Yeah.

Unidentified Analyst

(Inaudible) what are you doing custom with the NAND controllers. Are you the only outside controller of vendor with those companies or are -- who are you competing against?

Jeff Richardson

I am just try to think across all of the engagements because we have so many, I think, in many ways we are competing against other companies that do ASICs but quite honestly that hasn’t -- because we have 17 engagements we have been so successful that competition hasn’t been very stiff because we are bringing expertise around especially in the enterprise size around SAS connectivity and some reliability, capability security features that honestly we use some of our own standard products on the RAID side as well into these engagements. So it has differentiated us.

Unidentified Analyst

And on the SSD controller, you might be working on a particular product solutions, they also might be (inaudible) between the controller (inaudible) and if they need be working with another vendor or another (inaudible)

Jeff Richardson

Potentially. Potentially. Yeah. Potentially. Yeah, I mean we -- we have a very large SSD vendor right now that and is basically almost a 100% LSI and it’s a mixture of their own -- their own SSD controllers using LSI as an ASIC collaborator and SandForce based products.

Unidentified Analyst

(Inaudible)

Jeff Richardson

We do, but it’s evolving so much and it’s so hard to predict, I think that’s -- that’s the big question. Right, I mean it’s kind of like what’s merchant versus and I think what’s merchant versus sort of captive. And then today if you look at a company like Samsung, what’s their share of the overall SSD market, well it’s quite high. So what is that going to be two years from now or three years from now. So, we have different models. But I’d say it’s hard for me to pin down right now.

Unidentified Analyst

(Inaudible)

Jeff Richardson

In general they are captive solution but as we’ve talked about we actually have a custom engagement with them as well.

Adaline Lee - Citi

And so for the rest of the time we will move on to networking. Citi has a very constructive deal on the China 4G LTE deployment as a driver for the semiconductor industry and I think -- as I -- there is obviously benefit of this within your networking solutions, can you just sort of describe, what’s your view about that deployment and a few companies are, for example, Huawei yesterday said that they are seeing a revenue growth in 4Q and 1Q, how did that deployment, what about LSI and what product platforms are you utilizing to capture that opportunity?

Jeff Richardson

So we are very happy to see the recent announcements on that and yes, I think that’s going to be a -- we’ve been waiting for this. As an industry, we’ve been talking about this now for a while. So, I think at a high level LSI across the five major infrastructure vendors, right.

We have exposure and all of them. Okay. But I’d say the predominant exposure is with both our Axxia and custom solutions. And as I mentioned what we’ve done is we basically have the two of the top three vendors basically have driven the consolidation of multiple sockets on their boards into really two key sockets, really we’ve consolidated the control plan and data plan into our Axxia products.

Today that’s based on power PCs but that’s moving very rapidly to ARM-based technology. We are actually sampling our 16 core ARM-based Axxia as we speak today. And then we are also collaborating with these customers on the baseband portion of the digital unit, if you will of those base stations. So we are capturing share there as well to.

So and I would say all of that technologies has been geared towards a multi-mode or multi-standard base station with the optimizations being around LTE in terms of performance and power and capacity, okay. So that is certainly one area where we will benefit across multiple vendors as that LTE build out happens in China.

We do have other custom engagements with some of the other vendors as well too on various elements of the base station. So our exposure actually is across all five vendors as that happens. So we are excited to see that and we are definitely ready to ramp that as that happens.

Adaline Lee - Citi

Just one point of clarification, the two vendors that you are speaking with and can you tell us whether by geography where are they located or from -- can you give assumptions there as well?

Jeff Richardson

Two vendors are in Europe.

Adaline Lee - Citi

Okay.

Jeff Richardson

Yeah.

Adaline Lee - Citi

Got it. So it’s not the two vendors.

Jeff Richardson

Yeah. But we have, like I said, engagements with the two Chinese vendors at various stages as well too. So there are footprint in those two vendors is actually growing. It exists today with custom silicon and our goal is to ramp that on standard product and Axxia as we go through time. But that would happen a little bit later in time.

Adaline Lee - Citi

And there is also this sense that as the 4G/LTE deployment matures, they will be thinking about how to cost down from say for example on the PLD side instead of using a pure FPGA, you are using ASIC plus if not FPGA and what about -- what’s your view on that? Does that cost down churn benefit LSI?

Jeff Richardson

Yeah. I mean, I think part of what we have been doing is driving cost and helping these companies drive costs by consolidating multiple sockets into a single SoC. And a lot of the engagement across multiple vendors now is once again leveraging LSI’s Axxia architecture with some of their own custom capabilities whether that is capability in an FPGA they may have or capabilities in their baseband solutions and driving different levels of SoCs for different platforms.

So the way that you may see them drive cost at a system level is they’ll have different base stations at different price points, at different capacity levels down to small cell. And we are working with these vendors to leverage the Axxia architecture to basically scale down into some of those systems.

And you can think about it today there could be an Axxia device and multiple baseband chips on a single base station digital board. We are working to actually integrate the baseband right into the Axxia product, so that they can drive a much more lower cost point.

And today we are actually delivering some of this type of solutions actually in the small cell type deployments. In fact, we I think recently announced that Verizon -- some of Verizon’s small cell deployments later this year will use Axxia technology as part of that. So, we think we are already part of that whole drive with these vendors today versus in the future.

Adaline Lee - Citi

Great. And just one sort of big picture view, we like to know what your thoughts on is, so our view is that, there are going to be 200K base stations, LTE base stations deployed in China this year by the end of this year. Next year could be another 200K in 2014. But the timing of development -- deployment is little bit in question. What is your view? Do you think is all going to use?

Jeff Richardson

Well, that’s the whole point, yeah. I think that is the point. I don’t think we know that yet. I think the good sign is that there is now commitment by the government to go support the standard and they have now started the process of rolling out the forecast in terms of how those things could deploy.

I think over the next quarter we will know a lot more about, are these going to be happening in burst mode or are they going to be happening sort of slowly over time over the next couple of years, right.

But I think the good thing is we now know the starting line, the starting gun has gone off and we know it’s going to happen, which has certainly been a bit confusing over the last year or so.

Adaline Lee - Citi

Kind of agree.

Jeff Richardson

Yeah.

Adaline Lee - Citi

We have maybe one minute left. Is there any question from audience? Okay. So maybe you just want to wrap up, is there any final thought?

Jeff Richardson

Yeah. Just to appreciate the time and the questions and I think we will talk to some of you later. But once again LSI, we are in a great position right now, given the product cycles and the investments we have made in progress in our products, and certainly a great opportunity for investors to participate in the company not just for the next quarter too, but certainly over the next couple of years as well. So thanks for your time.

Adaline Lee - Citi

Thank you. Thank you for coming.

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