Wedbush Morgan: LSI Logic Becoming 'Leaner, More Nimble, More Focused' (LSI)

Mar. 8.06 | About: LSI Corp. (LSI)

Wedbush Morgan analysts Craig Berger and James Schneider sent a note to clients yesterday reiterating their 'buy' rating on LSI Logic (NASDAQ:LSI) and noting progress in the company's restructuring. Key points from the note:

* LSI Logic announced the next phase of its cost cutting and business realignment actions in a move that sharpens the firm's focus on its core enterprise storage and consumer markets, a positive move that we believe will make the firm leaner, more nimble and more focused on fulfilling its customers needs.

* Management expects the firm will lower annual SG&A spending by $15 million as it reduces overhead spending for Engenio Systems and its communication chip business, a positive $0.04 annual EPS benefit that we are now including in our 2007 estimates.

* About $30 million of annual R&D spending will be re-directed from efforts including development of communications, ZSP and RapidChip products to core focus markets in storage and consumer, a positive for 2008 revenue growth opportunities.

* We believe gross margins have upside driven by reduced depreciation associated with the discontinued status of LSI's Gresham fabrication facility as LSI goes fabless.

* Raising 2007 EPS estimate from $0.75 to $0.78, and price target from $12 to $13; reiterate BUY rating as we believe the firm's new management team will drive EPS higher via cost cutting activities, a move to fabless manufacturing and enhanced cross-selling opportunities between its storage systems and component businesses.

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