LSI Corporation Presents At Barclays Capital Global Technology, Media And Telecommunications Conference, May-22-2012 11:15 AM

LSI Corporation (LSI)

May 22, 2012 11:15 am ET

Executives

D. Jeffrey Richardson - Chief Operating Officer and Executive Vice President

Analysts

Blayne Curtis - Barclays Capital, Research Division

Presentation

Blayne Curtis - Barclays Capital, Research Division

All right, we'll go ahead and get started. I'm Blayne Curtis, one of the semi analysts here at Barclays. Very happy to have LSI with us. We're going to do a more informal fireside. From the company, we have Jeff Richardson, the Chief Operating Officer; also, mosino [ph] Sujal Shah from Investor Relations.

And maybe let's talk about -- but maybe just start off with just a brief overview and kind of -- some people who may have -- haven't heard your story in a bit, Jeff and then we'll dive into the questions.

D. Jeffrey Richardson

Okay. Great. Thanks, Blayne, there. So obviously, many of you follow LSI but maybe many of you are new. We've really undergone quite a transformation at the company over the last 5 years. And really, really refocused the company in a couple of key areas. Certainly, storage and networking technologies is really where we're focusing and, essentially, a strategy for the company has been focusing on what we call the data deluge gap, right? And if you think about all of the information that we as consumers or corporations are creating every day and the demand that's putting on infrastructure, there's a pretty significant gap in terms of the 30% to 50% CAGR of network traffic that's certainly increasing every year, the amount of storage capacity that's being used every year. A gap between that and the actual underlying infrastructure, to build the infrastructure to keep up with that.

So LSI, quite simply, is focusing on helping close that gap and we are a company that develops numerous processing capabilities that are very much focused on unique aspects of the storage and networking industries. So we feel very good about the market trends and the market drivers associated with our business.

We've been in a big investment cycle in the last 3 to 4 years and really have just started coming out of that investment cycle over the last 12 months or so. And I think the neat thing about it is we're actually starting to see the results of those investments show up in our numbers, right? In Q1, we grew 19% sequentially, 30% year-over-year from a revenue perspective and that's coming off of a 9% growth in 2011 and, actually, 16% growth in the second half of 2011. So there's some momentum that certainly is being built underneath the business. And I'll just point out, not all of that is driven by sort of HDD snapback. There's really a momentum being built in all aspects of our business in terms of the products and share gains.

So the results really haven't, I'd say -- well, actually one more thing I'd like to say is we've obviously been focusing on operating margin expansion as well, too. So we really grew our operating margin to 16.4% of revenue in Q1. If you look at our outlook for Q2 and just look at the midpoint that has us – it's around 17.5% operating income. And at our Analyst Day, we basically recommitted a new target for the company with 20% to 22% operating margin range for the company. So a big focus for the management team and, certainly, our path to achieve that is really revenue growth and driving higher mix to higher ASP products along the way as well.

If you look at the product line, they'd say, boy, it's exciting, I have 4 or 5 product lines. We haven't been in a position we've been in ever as a company in terms of leadership of product lines. And so on the HDD side, we've got preamps and SoCs. In general, we feel very good about the competitiveness of those products and that competitiveness along with the desire of each of the HDD vendors to have multiple source of technology has really led us to create some momentum in that business and we grew share from the low 20s a year or so ago to the 30-plus percent range. And we expect to continue to grow share as we ramp new products and add some new customers later this year.

On the flash side, very exciting business for us. We acquired SandForce in January. So if you take SandForce's business and flash storage processors, combine it with the efforts that we have at LSI from a custom flash storage processors as well as our PCIe flash efforts, that aggregate business will grow 100%, 150% this year off a base of roughly $70 million, $70-plus million dollars the last year. So a lot of momentum in those businesses and, really, the combination of all those things has really catapulted us into a leadership position in this pretty exciting flash market. And I'm sure there will be some questions on that here in a second.

On our Server business, doing a great job in terms of maintaining our share but adding share on the Romley transition from an Intel perspective. We've -- adding more software values so there's ASP uplift as well as, we've got actually new products, right? Whether it's our PCIe flash products getting validated along with the Romley transition, we're adding a product, a custom Gigabit Ethernet Mac/PHY combination that is part of the Intel platform as well. So our content in the Romley platform is actually going up from a previous generation.

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