Updated from 5:14 p.m. EDTSAN FRANCISCO -- LSI ( LSI) swung to a loss in the third quarter on hefty restructuring charges but beat Wall Street expectations, thanks to strong demand for its storage and networking chips. The financial results offered the first signs of progress since LSI completed a
Chief Financial Officer Bryon Look said LSI's focus on improving efficiency within the company and maintaining tight spending controls led to substantial reduction in operating expenses in the third quarter. Semiconductor revenue increased 9.3% sequentially in the third quarter, while storage systems revenue rose 6.6%. LSI said gross margin improved in both business segments, resulting in a total gross margin of 43.4%, excluding special items. That said, LSI's third-quarter revenue was still 17.5% lower than the combined revenue that LSI and Agere each generated at this time a year ago. Since the merger with Agere, LSI has taken a number of steps to reshape the business. LSI
divested itself of its consumer business , which makes chips for DVD recorders and set-top boxes to Magnum Semiconductor in August and sold its chip testing and assembly facility in Thailand. LSI announced Wednesday that it had closed the sale of its cell phone chip business to Infineon Technologies ( IFX) for $450 million. The company projected fourth-quarter sales between $700 million and $730 million. While that forecast looks weak in light of the average analyst expectation of $728.7 million, LSI officials noted that Wall Street estimates included a full quarter's worth of revenue from the cell phone chip business. With the sale to Infineon now closed, LSI will record less than a month's worth of mobility business revenue, equivalent to about $27 million, company officials said.
LSI noted that networking and storage systems sales were expected to grow sequentially in the current quarter, while its storage chip business would remain flat. Adjusted EPS was forecast between 5 cents and 9 cents, vs. the 8 cents expected by analysts.