LSI Tops Expectations, Shares Up

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LSI Corporation (LSI) generated revenues of $622 million in the first quarter of 2012, up 30.0% year over year and up 19.0% sequentially and surpassed management’s revised guidance of $585 million and $685 million.

The growth in revenues was driven by a snapback in HDD business, better-than-expected strength in its newly acquired SandForce flash business and growth in networking investment areas.

On May 6, 2011, LSI completed the sale of its external storage systems business to NetApp (NTAP). The financial results of the external systems business have been classified as discontinued operations.

With the divestiture of storage systems business, LSI has transformed itself into a pure play storage and networking semiconductor company. 

The company recently acquired SandForce, which should enable the company to benefit from the growing adoption of solid-state drives and flash storage solutions.

SandForce is a leading provider of flash storage processors for enterprise and client flash solutions and solid state drives (SSDs).

Server and storage semiconductor revenues (accounting for 78% of total revenue), which include products from ServeRAID adapter and software, Flash, SAS, SAN and HDD businesses, were sequentially up 26% to $488 million.

Revenues from the networking business (accounting for 17% of total revenue) were flat sequentially at $107 million due to declines in legacy products.

Revenues for the IP business were $27 million.

Margins:

Gross margin (excluding special items) came in at 52.4%, up from 49.5% in the previous quarter primarily due to the recovery from the floods in Thailand, which impacted results in the last quarter along with improved absorption of fixed costs. 

Operating margin came in at 16.4%, up from 10.7% in the previous quarter.

Net income from continuing operations came in at $75.2 million or $0.13 per diluted share compared to a net income of $11.4 million or $0.02 per diluted share in the previous quarter compared to a net income of $18.6 million or $0.03 per diluted share in the year-ago quarter.  

Excluding one-time items but including stock-based compensation, net income per share came in at $0.15, easily beating the Zacks Consensus Estimate of $0.11.

Balance Sheet:

During the quarter, LSI Corp. generated $50.2 million of cash from operating activities and used $64.9 million in capital expenditures. The company repurchased 5 million shares for approximately $38 million in the first quarter under its $750 million authorized buy-back program. The company still has approximately $213 million remaining in its authorized buy-back program.

LSI Corp. ended the quarter with cash and short-term investments of $623.1 million, down from $935.5 million at the end of the previous quarter primarily due to the SandForce acquisition.

Guidance:

Going forward, management expects revenues between $630 million and $670 million in the second quarter of 2012.

LSI Corp expects server and storage semiconductor revenues to be sequentially up while networking semiconductor revenues is expected to be roughly flat.

Gross margin is projected around 53%, (+/-1%). Operating margin is expected at 17.5%, above the company’s prior business model of 17% and towards the long-term target of 20% – 22%. Net income from continuing operations is forecasted to come around $0.03 – $0.13. Excluding one-time items, income from continuing operations came in at $0.15 to 0.21.

The better-than-expected results and upbeat guidance drove a 4.51% increase in the share price in after-market trading to close at $8.81. The stock earlier gained 4.98% to close at $8.43 in regular trading.

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