LSI Life Storage Inc

LSI Corporation (LSI) generated revenues of $547 million in the third quarter of 2011, up 20.7% year over year and 9.2% sequentially and surpassed management’s expectations of revenues between $535 million and $565 million.

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.

The company saw weakness in demand environment, particularly in the Hard Disk Drive and wireless markets.

Server and storage semiconductor revenues (accounting for 74% of total revenues), which include ServeRAID adapter and software, flash, SAS, SAN and HDD businesses, grew 12% sequentially to $403 million.

Revenues from the networking business (accounting for 21% of total revenues) were flat sequentially to $117 million. Revenues from the IT business were up 12.5% sequentially to $27 million.

Gross margin (excluding special items) came in at 52.2% up from 51.9% in the previous quarter due to higher revenues and improved product mix, but was partially offset by higher commodity costs. Operating margin came in at 15.2%, up from 12.4% in the previous quarter.

Net income from continuing operations came in at $31.6 million or $0.05 per diluted share compared to a net income of $28.4 million or $0.05 in the previous quarter and a net income of $293.8 million or $0.49 per diluted share in the year-ago quarter.  

Excluding one-time items, net income per share came in at $0.14, easily beating the Zacks Consensus Estimate of $0.12.

During the quarter, LSI Corp generated $38.3 million of cash from operating activities and used $15.7 million in capital expenditures. The company repurchased 11 million shares for approximately $75 million in the third quarter.

Year-to-date, LSI repurchased 68 million shares for approximately $472 million under its $750 million authorized buy-back program. The company still has $278 million remaining in its authorized buy-back program.

LSI Corp ended the September quarter with cash and short-term investments of $878.9 million, down from $906.5 million at the end of the previous quarter. 

Meanwhile, the company also signed a definitive agreement to acquire SandForce, Inc. for $322 million. LSI will assume approximately $48 million of unvested stock options and restricted shares held by SandForce employees. SandForce is a leading provider of flash storage processors for enterprise and client flash solutions and solid state drives (SSDs).

Going forward, management expects revenues between $500 million and $550 million in the fourth quarter of 2011. The guidance assumes that approximately $35 million – $45 million will be affected by primarily supply-related constraints, primarily affecting the Hard Disk Drive business.

Due to manufacturing constraints, management estimates that HDD business will decline over 10% sequentially. LSI Corp projects server and storage semiconductor revenues to be down sequentially in the fourth quarter driven by HDD declines.   

Revenues from the networking semiconductor business will be flat to down slightly, fueled by last-time purchases of legacy products.

Gross margin is projected around 51%, +/- 1%. Income from continuing operations is forecasted to come around $0.04–$0.08 per share.  Excluding one-time items and stock-based compensation, income from continuing operations came in at $0.06–$0.14.

The results did not impress investors. The stock lost 2.02% in after-hours trading to close at $5.81. In regular trading, the stock gained 2.42% to close at $5.93.

 
LSI CORP (LSI): Free Stock Analysis Report
 
NETAPP INC (NTAP): Free Stock Analysis Report
 
Zacks Investment Research