LSI Corp. (LSI) yesterday reported revenues of $578 million in the third quarter, down 19% year over year but up 11% sequentially.
The sequential improvement in revenues was driven by increased shipments of mid range storage systems and server rated solutions. IT spending showed clear signs of improvement in the quarter as data centers needed to add storage capacity to meet demand for data storage in management while also taking advantage of newer server technology.
Semiconductor revenues came in at $371.6 million, up 8% sequentially but down 25.7% year over year. Storage Systems revenues came in at $206.6 million, up 16.8% sequentially but down 3.4% year over year.
Gross margins came in at 45.5%, an increase of 340 basis points from the previous quarter and exceeded management’s guidance range by 50 basis points.
Net income jumped to $119 million from a net income of $7 million in the previous quarter and a net income of $94 million in the year-ago quarter. Earnings per share came in at 18 cents. Operating cash flow came in at $69 million.
Going forward, management is encouraged by early signs of economy reviving as businesses resume spending in information technology. Demand for storage and servers have started to improve being driven by the need to upgrade infrastructure and also by new product cycles such as Intel’s Nehalem server platform. The company expects increased deployment in cloud computing environments by large companies like Amazon (AMZN) and Microsoft (MSFT).
The company expects revenues of $605 million and $645 million for the fourth quarter of 2009. Gross margin is expected around 45.5% – 47.5%. EPS is estimated between 7 cents and 13 cents.
Although the demand environment and near-term visibility remain challenging, LSI’s core storage semiconductor and systems ramps and market positions remain relatively intact, leading to healthier growth in late-2009. It is expected that LSI’s modest exposure to the PC/server market may lead to better flexibility compared to its competitors, Adaptec Inc. (ADPT) and Applied Micro Circuits Corp. (AMCC), which are experiencing some softness in end-market demand for PCs and servers and related storage products.
LSI’s continuing adoption of newer storage protocols such as SAS and ramp in new entry-level storage systems may steadily improve its position in the hard drive market. LSI’s cost-control efforts have also been quite impressive. Given the gradual improvement in the demand environment following a soft spending phase in the first half of 2009, we maintain our Neutral rating on shares of LSI.
Headquartered in California, LSI designs, develops and markets complex high-performance semiconductors and storage systems.
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