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Elizabeth Pate of FBR Research wrote a note to clients on LSI Corporation (NASDAQ:LSI) in her latest overview of the semiconductor components sector. Excerpts follow:

LSI Corp: Market Perform, $5.50 Price Target

4Q earnings preview:
We currently forecast 4Q07 revenues and EPS of $720 million (down 1% QOQ) and $0.07, respectively, versus the consensus estimates of $714 million and $0.07. Our channel checks from Asia earlier in December suggested that business momentum at LSI had improved over the prior three months after a very difficult 2Q07 business environment. Reasons for LSI's strengthening business trends include (1) a strong PC supply chain, (2) a return to more-normalized purchasing patterns at its Networking customers, and (3) ramping traction with its new SAS-based low-end Engenio storage servers. To that last point, we seek additional clarity on its SAS-based server offerings, given increasing competition from DotHill and Xyratex in this space and some chatter regarding customers moving to non-LSI based solutions.

1Q guidance expectations:
We currently forecast 1Q08 revenues and EPS of $650 million and $0.03, respectively, worse than the consensus expectations of $649 million and $0.06. We think the firm could guide revenues to a range of $640 million to $660 million.

LSI investment thesis:
Although we believe LSI will successfully grow its storage chip and system businesses, the shares currently offer investors little upside, given the firm's earnings power, in our view, but they do provide some downside protection with the stock at 1.5x EV/S. We think LSI needs to further reduce operating expense spending or grow sales more quickly. Within that context, we prefer other stocks in our universe that are cheaper.

LSI valuation methodology:
LSI's forward P/E multiples are expensive relative to likely revenue growth in coming years (P/E multiples of 21x CY08 and 16x CY09). The firm's EV/S (2008 sales) multiple is now somewhat low at 1.1x. We believe the stock already discounts substantial growth in forward EPS estimates, and we think consensus estimates are too high.

Source: Earnings Preview: LSI