LSI Tops Sales Estimates

The chipmaker's shares rise on better-than-expected results and outlook.
By Alexei Oreskovic ,

Updated from 4:35 p.m. EDT

SAN FRANCISCO --

LSI

(LSI) - Get Report

swung to a loss in the first quarter, but the company's results were better than expected and its outlook surpassed analyst estimates.

The strong results, which sent shares of LSI surging as much as 20% in extended trading Wednesday, are the latest piece of evidence that corporate spending on technology equipment may not be slowing as much as feared amid a souring economic picture.

Last week,

Intel

(INTC) - Get Report

delivered stronger-than-expected financial results and

cited strong sales of server microprocessors, particularly in the U.S.

.

LSI mirrored those results, reporting robust demand for its chips designed for corporate storage network servers and switches.

"People are still building out infrastructure," said CEO Abhi Talwalkar in an interview with

TheStreet.com

. "We haven't seen that softening."

While LSI's storage systems business was down almost 11% sequentially, Talwalkar attributed the slowdown to normal seasonal patterns as well as a particularly strong fourth quarter in which sales were up 26%.

Sales for the three months ended March 30 totaled $661 million, ahead of the company's own guidance as well as the $636 million expected by analysts.

LSI had $465 million in sales at this time last year, although those results did not include contributions from chipmaker

Agere Systems

, which LSI acquired in April 2007.

LSI posted a loss of $14 million, or 2 cents a share, vs. net income of $30 million, or 7 cents a share at this time last year.

The loss included $78 million in acquisition-related charges, restructuring costs and stock compensation expenses. Excluding those items, LSI said it earned 10 cents a share, 3 cents higher than the average analyst expectation.

Since acquiring Agere Systems for $4 billion,

LSI has transformed itself into a business focused squarely on storage and networking

.

Talwalkar said LSI's goal is to be the world's No.1 chip firm for hard-drive chips, a category in which it competes with heavyweights like

Marvell

(MRVL) - Get Report

and

Texas Instruments

(TXN) - Get Report

.

Recently, there have been fears that Marvell may be making inroads at hard drive maker

Seagate

(STX) - Get Report

, one of LSI's key customers, and the issue elicited a slew of questions from analysts during the post-earnings conference call.

Talwalkar said he couldn't comment on rumors about Seagate product plans, but stressed that LSI has recently won deals to provide Seagate with integrated System-on-a-chip products for the next two generations of the company's enterprise hard drives.

And the recently announced deal to acquire

Infineon's

(IFX)

hard drive business -- expected to close by mid-May -- positions LSI to gain more business with hard drive maker

Hitachi

.

The new Infineon business will offset any potential falloff that might occur at Seagate, LSI executives said.

For the current quarter, LSI projected revenue between $650 million and $680 million, with adjusted EPS of 8 cents to 12 cents.

Wall Street was looking for $634.6 million in second-quarter revenue with adjusted EPS of 7 cents.

Shares of LSI were up 18.9% at $5.90 in extended trading Wednesday.

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