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LSI Reports First Quarter 2007 Results

LSI Corporation (NASDAQ:LSI) today reported first quarter 2007 revenues of $465 million, compared to $476 million in the first quarter of 2006 and $524 million in the fourth quarter of 2006. LSI first quarter results do not include the results of the former Agere Systems, as the merger transaction occurred April 2, after the first quarter’s close. First quarter 2007 GAAP* net income was $30 million or 7 cents per diluted share, compared to first quarter 2006 GAAP net income of $13 million or 3 cents per diluted share. First quarter 2007 GAAP results compare to fourth quarter 2006 GAAP net income of $59 million or 14 cents per diluted share. First quarter 2007 GAAP net income included $11.2 million of stock-based compensation expense, and a net charge of $3.3 million from special items, acquisition-related amortization, restructuring and their related tax effect.

First quarter 2007 non-GAAP** net income was $44.3 million or 11 cents per diluted share, compared to first quarter 2006 non-GAAP net income of $40 million or 10 cents per diluted share. Fourth quarter 2006 non-GAAP net income was $75 million or 18 cents per diluted share.

The consensus estimate called for LSI to report $0.09 per share on $443 million in sales. Guidance for the next quarter, however, was disappointing. The $0.00 - $0.03 per share (excluding the $0.43-$0.49 that the company says are one-time items related to the acquisition of Agere) is well below the $0.10 consensus. The company only expects sales of $715-$745 million, compared to the $836 million consensus target.

When we previewed the earnings report we said “LSI Logic (LSI) - May blame their poor guidance on Agere.” Were we right? On the conference call, management said:

Clearly we are in a challenging demand environment, as evidenced by recent announcements by our customers and peers. We have a significant amount of revenue directly or indirectly tied to IT spending, with half of this tied to US consumption. IT spending was soft in the March quarter and is expected to remain soft through the June quarter.

The June quarter is also expected to remain challenging for hard disk drives, driven by expected declines in desktop and notebook shipments. Market conditions, combined with inventory adjustments and supply-chain changes that are key customers, continue to hamper our business into this quarter. In addition, IP licensing revenues will be lower in the June quarter, due in large part to merger-related issues, including the effects of purchase accounting.

While the merger didn’t take top billing for the poor guidance, it was indeed cited as a reason. We’ll take half credit.

LSI 1-yr chart:

LSI 1-yr chart

Source: LSI's Poor Logic Blamed On Agere, Challenging Demand Environment