LSI Swings to a Loss

The chipmaker beats estimates.
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Updated from 5:14 p.m. EDT

SAN FRANCISCO --

LSI

(LSI) - Get Report

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

$4 billion all-stock merger with

Agere Systems

in April. And company executives stressed that the company would continue to grow its business in the coming quarters, after bottoming out this summer.

"As a more focused company we are now experiencing a significantly higher level of engagement with our customers and substantial increases in design win opportunities," CEO Abhi Talwalkar said in a statement.

Shares of LSI were up roughly 4%, or 28 cents, at $7.37 in extended trading Wednesday.

The Milpitas, Calif.-based company said revenue in the three months ended Sept. 30 totaled $727 million, vs. the $692.5 million expected by analysts polled by Thomson Financial.

LSI posted a loss of $141 million, or 20 cents a share. At this time last year, the company had net income of $43.5 million, or 11 cents a share. The third-quarter loss included $184.7 million in special charges related to restructuring and the spinoff of the company's mobile phone chip business.

Excluding those charges as well as stock compensation expenses, LSI said it earned 6 cents a share, 2 cents better than the average analyst expectation.

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.