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swung to a profit in the third quarter, as healthy demand for its hard-drive and networking chips and restrained spending boosted the company's bottom line.

Like just about every chipmaker in recent weeks, LSI said sales in the current quarter will decline sequentially.

The company said sales in the fourth quarter will range between $670 million and $710 million, a decline of 0.5% to 6% from the third quarter.

That's below the average analyst expectation of $736 million, although the forecasted decline is relatively moderate compared with the grim guidance delivered by other chip firms.



, which makes power-management chips used in notebook PCs and cell phones, said Wednesday that it expects fourth-quarter sales to decline 20% to 25%. The forecast sent the company's shares down nearly 6% in extended trading.

Shares of LSI were up 2 cents at $3.85, in after-hours trading on Wednesday.

In a post-earnings conference call, LSI executives told a tale that has become familiar to tech investors of late: Orders began weakening in September -- the final month of the third quarter -- and have remained soft in the first weeks of the fourth quarter.

"The less-than-anticipated seasonal growth we're seeing seems to be directly tied to macroeconomic factors affecting our markets and our customers," said CEO Abhi Talwalkar.

He said LSI is well-positioned to weather the downturn thanks to its solid balance sheet and a slew of recent deals with key customers.

On Monday, LSI announced an agreement to be the exclusive chip provider in a handful of



forthcoming PC hard drives, easing concerns that rival chipmakers might be poised to make inroads into LSI's relationship with the hard-drive maker.

LSI also said that new storage chips for corporate servers will be used in upcoming products from major vendors including







Sun Microsystems

( JAVA).

In the three months ended Sept. 28, LSI reported sales of $714 million, down 2% year over year, but slightly ahead of the average analyst expectation of $710.8 million.

LSI said it experienced strong demand for its hard-drive chips and for its networking chips, which are benefiting from continuing wireless infrastructure projects in Asia.

The company also increased its intellectual property revenue to $23 million in the third quarter, from $16 million in the second quarter.

LSI posted a net income of $11.3 million, or 2 cents a share, compared to a loss of $141 million, or 20 cents a share, a year ago when LSI incurred massive charges related to its acquisition of Agere Systems.

Excluding $83 million in special charges and stock compensation expenses, LSI said it earned 14 cents a share in the third quarter. On that basis, analysts were expecting LSI to earn 13 cents a share.

"Significantly higher gross margins and continued focus on cost control contributed to third quarter EPS near the high end of our guidance range," said CFO Bryon Look in a statement.

LSI reported a gross margin of 41.6% in the third quarter, ahead of its own guidance.

The company said that gross margin in the current quarter will range between 38.5% and 41.5%, while adjusted EPS will range between 11 cents and 15 cents a share.

Analysts polled by Thomson Financial were looking for adjusted EPS of 14 cents.