Can LSI Logic Turn Around? (LSI)

Apr.21.06 | About: LSI Corp. (LSI-OLD)

LSI Logic (NYSE:LSI) has been bandied about as the next hardware turnaround. The newly minted CEO has said that the company "plans to focus its business on growth opportunities in the information storage and consumer markets, increasing associated research and development investments, while redirecting R&D from non-core areas and reducing associated selling, general and administrative expenditures". This means that some of the old platforms had to go. So, LSI intends to fund additional R&D investments in its primary markets by redirecting ongoing investments in its RapidChip platform ASIC technology. That means that the RapidChip platform is dead.

Some of the early signs of a change in fortunes for LSI are there. Revenue for Q4 05 rose 21% to $506 million. Net cash form operations nearly tripled for the entire year 2005 to $260 million. The company also reduced its convertible debt during the year from $782 million to $624.

But, guidance for Q1 06, with final numbers to be released shortly, was only in a range of $465 to $490 million. Last year Q1 was $450 million, so that is not much progress.

All this talk and early good results have taken the stock from $5.15 a year ago to $10.20.

The PortalPlayer (NASD:PLAY) hit from Apple (NASD:AAPL) which took PortalPlayer's stock down over 40% in a day has a ripple effect with LSI which is a supplier to PortalPlayer. PortalPlayer's products will not be in the new iPod mid and high-end players.

And, LSI's exit from the communications chip business, so it can focus on information storage markets, is still a largely unproven strategy. Part of this strategy is the winning new customers with chips for set-top boxes, portable music players and new DVD players. The iPod problem makes that road a tougher one to walk.

LSI is still a work in progress and guidance combined with the iPod issues would tend to indicate that the stock has run too far. The ceiling at around $10 may be there for awhile.

LSI 1-yr Chart

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of and Edgar Online. He does not own securities in companies he writes about. He can be reached at