LSI Beats on Q4 Earnings Estimates

Zacks

LSI Corporation (LSI) reported adjusted earnings per share (excluding amortization, restructuring expenses but including stock-based compensation) of 16 cents in the fourth quarter of 2013, which not only beat the Zacks Consensus Estimate of 13 cents but also increased 21.5% from the year-ago quarter.

The company did not provide any guidance as Avago Technologies (AVGO) has agreed to acquire LSI for approximately $6.6 billion or $11.15 per share. The deal is expected to be completed in the first half of 2014.

Revenues

LSI Corp.’s fourth-quarter revenues of $605.1 million increased 0.8% from the year-ago quarter and came ahead of the Zacks Consensus Estimate of $601 million. Reported revenues were also within management’s guidance range of $580.0 million to $620.0 million.

During the quarter, revenues from storage, networking and IP came in at $482 million, $93 million and $30 million, respectively. Moreover, 80% of the quarter’s revenues were derived from server and storage semiconductors.

Margins

LSI Corp.’s adjusted gross profit (excluding amortization but including stock-based compensation) increased 1.9% on a year-over-year basis to $352.5 million primarily due to a higher revenue base. Margins expanded 62 basis points (bps) during the same period.

Adjusted operating margin (excluding amortization, restructuring expenses but including stock-based compensation) was 19.8%, up from 16.8% in the year-ago quarter, reflecting lower operating expenses. Operating expenses as a percentage of revenues were down from 40.8% in the year-ago quarter to 38.5%.

LSI Corp.’s adjusted net income (excluding amortization, restructuring expenses but including stock-based compensation) came in at $92.1 million or 16 cents compared to $75.6 million or 13 cents reported in the year-ago quarter.

Balance Sheet & Cash Flow

LSI Corp. exited the quarter with cash and short-term investments of $809.8 million compared to $664.6 million in the previous quarter.

Cash from operating activities was $134.2 million compared with $62.9 million in the previous quarter.

The company did not purchase any stock during the quarter but paid dividends of $16.5 million to shareholders. Owing to the acquisition, the company will also not repurchase or pay dividends.

Conclusion

LSI Corp. delivered better-than-expected fourth-quarter results on the heels of its acquisition news. We believe that LSI was a potent acquisition target because of its broad range of products that enables it to serve a diverse clientele in the hard disk drive, server and networking end markets.

Moreover, LSI Corp. is gaining rapid traction in the growing PCIe flash adapter market segment which is a big positive for the company.

LSI’s association with Cisco (CSCO) in the networking space should positively impact the company. Popularity of the company’s flash suites can be gauged from some high-value customer wins, namely Intel Corp. (INTC), International Business Machines Corp. and Oracle, to name a few.

Currently, LSI Corp. carries a Zacks Rank #3 (Hold).

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