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LSI Logic Swings to a Profit

The company beats analysts' earnings expectations.

Updated from 4:44 p.m. EST

LSI Logic

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reported a higher-than-expected fourth-quarter profit, as the chipmaker benefited from demand for its storage products.

The Milpitas, Calif., company earned $38 million, or 9 cents a share, in its fourth quarter, compared with a loss of 51 cents a share in the year-ago period. Sales for the quarter rose 21% year-over-year to $506 million, above the company's own guidance and Wall Street expectations.

Analysts polled by Thomson First Call projected that LSI would have $488 million in fourth-quarter sales, near the midpoint of the company's guidance range of $475 million to $500 million. The Street's profit consensus called for 11 cents EPS, excluding a 4-cents-a-share charge related to the company's company's planned sale of its chip manufacturing facility in Gresham, Ore.

Shares of LSI, which finished the day up 3.79% ahead of the earnings release, rose another 3.1% in extended trading to $9.32.

"A strong 2005 performance in our Storage and Consumer businesses was capped off by record fourth-quarter and full-year revenues for our Engenio Storage Group, fueled by the continuing demand for high-performance 4Gb/sec. Fibre Channel systems," said CEO Abhi Talwalkar in a statement accompanying the results.

LSI's storage-driven gains follow strong showings from other storage titans including


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, as corporations continue to spend money backing-up data in accordance with various regulatory mandates.

Revenue from LSI's Engenio line of storage systems increased 22.6% year-over-year to $202.9 million in the fourth quarter.

Semiconductor sales jumped 19% to $303.3 million. The company's consumer chips, which are used in DVD recorders and MP3 players, accounted for $80 million of the division's fourth-quarter sales, down 22% due to seasonality.

Gross margin for the quarter was 43.5%.

LSI is in the midst of a reorganization under the leadership of former


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senior executive Talwalkar, who took the helm of LSI in May. Talwalkar has restructured the company's business segments -- putting less emphasis on communications products -- and put the company's chip manufacturing facility up for sale, in a move to reduce operating costs by transforming LSI into a fabless semiconductor company.

During a conference call with analysts following the release of the results, Talwalkar hinted that a sale of the communications group could be in the works. The division's $76 million in fourth-quarter revenue accounted for 15% of LSI's overall sales, but the business continues to face challenges from key markets such as telecommunications. Without citing the communications group by name, Talwalkar noted that he would be providing clarity in the next few months about LSI's ongoing effort to sharpen its focus on fewer markets, through investments or disinvestments.

Asked by an analyst whether the communications group would be a natural candidate for divestiture, Talwalkar said the company was looking at various segments within the company. "We continue to determine whether we can be successful long term in communications," he noted.

LSI projected first-quarter revenue would come in between $465 million and $490 million, with 10 cents to 12 cents in EPS before charges. The average analyst forecast called for $472 million in sales with 9 cents EPS.

Talwalkar said the company was in good shape going into 2006, as trends in enterprise storage and consumer electronics would help lift sales at the company.

"We're coming into the year with a lot of momentum," said Talwalkar, citing lower prices for DVD recorders and the government-mandated transition to digital television as factors that will benefit LSI in 2006.

For the full 2005 year, LSI generated $1.92 billion in revenue, up 13% from 2004, with a loss of $6 million, or a penny a share.