LSI Logic ( LSI) will put a chunk of its communications chip business on the auction block, as the company moves forward with a plan to recast itself as more than a supplier of custom-made chips.

The Milpitas, Calif., company announced Monday that it will focus exclusively on the storage and consumer markets, trimming noncore areas through decreased investment or divestiture.

Instead of providing custom chips to various end-markets, LSI will provide a broader range of technology to select markets.

"By focusing our resources on fewer markets, where our deep insight and unique silicon-to-systems capabilities can be fully leveraged, we anticipate delivering greater value to customers," CEO Abhi Talwalkar said in a statement.

Part of that plan involves selling the ZSP unit, which provides licensed application-specific integrated circuit, or ASIC, technology to the broadband and wireless communications markets.

LSI said it was not announcing any time frame for the sale of the unit.

Meanwhile, LSI has pulled the plug on its plan to spin off its storage subsidiary Engenio Information Technologies through an initial public offering.

The company decided to float shares in Engenio several years ago, but postponed the IPO in July 2004 because of unfavorable market conditions.

With the company now increasingly focused on the storage business, LSI said that keeping Engenio in house will allow it to provide a full range of storage solutions.

Sales from the Engenio line totaled $202.9 million in the company's fourth quarter, up 22.6% year over year. LSI posted $1.92 billion in revenue in 2005, with a loss of $6 million.

Monday's announcement is the latest step in the turnaround engineered by former Intel ( INTC) senior executive Talwalkar, who assumed the top post at LSI in May 2005.

One of Talwalkar's first moves was to put LSI's sole chip fabrication facility in Oregon up for sale, moving entirely to a fabless model of using outside chip manufacturers.

During LSI's fourth-quarter conference call in January, Talwalkar hinted that more changes were imminent, as the company continued to sharpen its focus.

The company does not provide financial figures for the ZSP unit, but the broader communications unit, of which it is a part, accounted for 15% of LSI's 2005 revenue.

Some analysts had expected LSI to sell of its entire communications business. An LSI spokesman said that certain parts of the communications division fit into LSI's new plan.

"There are portions that have been classified as communications but that in fact are serving storage markets," said LSI spokesman Mitch Seigle.

Shares of LSI closed down 14 cents at $9.42.

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