K.C. Swanson
Elaborating on the trend in a Wednesday morning note, Fulcrum's Clark Fuhs noted that shipments of storage components were down 6% sequentially in the second quarter, as customers began trying to pare down excess inventory. "This inventory correction also impacts the third quarter," he noted. "Customers that started correcting inventory early in the second quarter are already starting to increase order rates again, according to the company, but many others have not."
LSI management expects the inventory correction to be resolved during the third quarter and is expecting storage silicon to grow again in the fourth quarter, however. Fuhs, who like many other analysts lowered his estimates on the stock, has a neutral rating on LSI. "While the company is in a position to have levered earnings, the sub par top-line growth prospects and the implications of spinning a high-growth business in storage systems pushes us to prefer the higher-growth names with earnings leverage on our buy list," he wrote. Fulcrum has buy ratings on Maxim(MXIM Quote - Cramer on MXIM - Stock Picks), Micrel(MCRL Quote - Cramer on MCRL - Stock Picks), National Semi(NSM Quote - Cramer on NSM - Stock Picks), Texas Instruments(TXN Quote - Cramer on TXN - Stock Picks) and Intel(INTC Quote - Cramer on INTC - Stock Picks).
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