LSI Puts New Look to the Test

LSI also is looking at inorganic ways of gaining market share, such as its recent purchase of Infineon's(IFX - Cramer's Take - Stockpickr) hard-drive chip business, which will deliver hard-drive maker Hitachi Global Storage Technologies as a customer.

And CEO Talwalkar says the company is evaluating new markets like flash memory-based solid state hard drives (see video).

Wall Street is currently taking a wait-and-see attitude about LSI's turnaround -- 8 of the 15 analysts covering the company rate it a neutral.

One cause for concern is LSI's networking business -- a large chunk of that product line is considered long in the tooth. And at 14.5 times estimated 2008 earnings, the stock is cheap, but not dirt cheap.

"It's a wash for me," says Friedman's Berger, who rates Marvell a neutral.

Like any tech company these days, LSI is facing a bumpy road ahead as a slowing U.S. economy threatens sales of computers, software and other digital goods. Analysts expect spending on technology -- from consumer purchases of gadgets to corporate expenditures on capital equipment -- to slow in 2008.

But with about 80% of its revenue tied to storage, LSI may enjoy some stability in a bad economy. While flat screen TVs, smartphones and MP3 players are all purchases that consumers can hold off on when money is tight, email and Internet-based content continues to shape modern society -- the need to store data, particularly among corporations, isn't going away.

That said, a recent survey by Goldman Sachs found that enterprise hardware -- a category that includes PCs, servers and storage -- was the top pick of corporate information technology managers looking for ways to cut costs in the next 12 months.

"No segment is totally recession-proof from a tech standpoint, but I would argue that storage ... is going to continuously require upgrades," says Talwalkar.

LSI has undergone its own upgrade under Talwalkar. Now investors will get a chance to judge the improvement.