LSI Corp. Escalates Outlook


Recently announced, LSI Corporation (LSI) upgraded its guidance for its upcoming first quarter of 2012. Management stated that the company has been experiencing steady sales in its flash-based products and also witnessing a strong and fast convalescing hard disk drive business.

LSI Corp. now expects revenues to fall between $585 million and $615 million, from its previous guidance of $550 million and $590 million. The company reported revenues of $523 million in the last quarter, which was grossly affected by the floods in Thailand. It is praiseworthy that the company is showing signs of steady recovery so soon in its first quarter of 2012.

The company’s employees have been able to regain productivity levels efficiently of late. This has induced management to escalate its GAAP income from continuing operations to 6 cents per share – 10 cents per share, rising from its previous expectation of a loss of 7 cents per share – earnings of 3 cents per share. Excluding one-time items and stock-based compensation, Non-GAAP income from continuing operations is now perceived to fall between 12 cents per share – 16 cents per share, elevating from 9 cents per share – 15 cents per share.

It is to be noted that the net income revision has come forth after an increase in the dilutive share count of LSI from 575 million shares to 590 million shares. Apart from operational excellence, a one-time tax benefit of $41.7 million accruing from the SandForce acquisition can be ascribed to the appreciation of net income that management now forecasts for its first quarter of 2012.

LSI Corp. has reinstated its guidance on margins for first quarter 2012. In this regard it remains perspicacious about GAAP gross margin to fall at around 45% which is towards the higher end of previously expected ranges of 42% - 46%. After accounting for special items of about $40 million, the non-GAAP gross margin expectation comes in at around 52% for the coming quarter.

While the company seems to maintain a formidable stature to fend off competition, it should remain wary of a few big players which are treading a similar path of advances. MEMSIC, Inc. (MEMS) recently reported record revenues of $21.5 million, rising around 89% year over year and also projected an annual revenue increase of 39% - 46% in its upcoming quarter. Other competitors posing serious threat to LSI Corp. are Cabot Microelectronics Corp. (CCMP) and Silicon Motion Technology Corp. (SIMO).

We continue to maintain a Neutral recommendation on LSI Corp. Our view is supported with a Zacks #3 Rank on the stock which translates into a short-term rating of Hold.

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