LSI: Fiscal 4Q08 Financial Results

(in US$ millions)	4Q07	4Q08	FY07	FY08
Revenues	740.9	610.0	2,604	2,677
*Growth*		-18%		+3%
Net income (loss)	(1,998)	606.3	(2,487)	(622)

LSI Corporation reported results for its fourth quarter and full year ended December 31, 2008.

Fourth Quarter and Full-Year 2008 News Release Summary

Fourth quarter 2008 revenues of $610 million
Fourth quarter 2008 GAAP net loss of 94 cents per share, including goodwill and other intangible asset impairment charges of 84 cents per share
Fourth quarter 2008 non-GAAP net income of 6 cents per diluted share
Fourth quarter operating cash flows of $98 millionFull-year 2008 revenues of $2.7 billion
Cash and short-term investments of $1.1 billion

First Quarter 2009 Business Outlook

Projected revenues of $440 million to $500 million
GAAP net loss in the range of 10 to 20 cents per share
Non-GAAP net loss in the range of breakeven to 7 cents per diluted share

Fourth quarter 2008 revenues were $610 million, an 18% decrease year-over-year compared to $741 million reported in the fourth quarter of 2007, and down 15% sequentially compared to $714 million reported in the third quarter of 2008.

Fourth quarter 2008 GAAP net loss was $606 million or 94 cents per share, compared to fourth quarter 2007 GAAP net loss of $2.0 billion or $2.87 per share. Fourth quarter 2008 GAAP results compare to third quarter 2008 GAAP net income of $11 million or 2 cents per diluted share. Fourth quarter 2008 GAAP net loss included a net charge of $648 million from special items, including a $542 million non-cash charge for impairment of goodwill and other intangible assets, $61.1 million of amortization of acquisition-related items, $18 million of stock-based compensation expense, $16.8 million in net restructuring and other items, and $10.8 million in write-down of investments.

Fourth quarter 2008 non-GAAP net income was $41 million or 6 cents per diluted share, compared to fourth quarter 2007 non-GAAP net income of $94 million or 13 cents per diluted share. Third quarter 2008 non-GAAP net income was $94 million or 14 cents per diluted share.

Cash and short-term investments totaled approximately $1.1 billion at quarter end.

"Fourth quarter revenues were within our revised guidance range, with weakening demand for our semiconductor products partially offset by seasonally higher sales of storage systems," said Abhi Talwalkar, LSI president and chief executive officer. "While we continue to execute well, we have taken aggressive steps to lower our operating expenses in light of the current business climate.

"Going forward, we intend to play offense by seeking to extend our competitive lead in key areas, increasing our design win momentum, and managing our cash well to position ourselves as a stronger player when economic conditions improve."

LSI recorded full-year 2008 revenues of $2.68 billion, a 3% increase compared to $2.60 billion in 2007. The company reported 2008 GAAP net loss of $622 million or 96 cents per share. Full-year 2008 GAAP net loss included a net charge of $905 million from special items, including a $542 million non-cash charge for impairment of goodwill and other intangible assets, $236 million in the amortization of acquisition-related items, $44 million of restructuring costs, and $72 million of stock-based compensation expense. Full-year 2008 GAAP results compare to full-year 2007 GAAP net loss of $2.49 billion or $3.87 per share.

Non-GAAP net income for 2008 was $283 million or 44 cents per diluted share compared to 2007 non-GAAP net income of $168 million or 26 cents per diluted share.

Bryon Look, LSI CFO and chief administrative officer, said: "Despite challenging conditions in the fourth quarter, we delivered a 68% improvement in non-GAAP net income in 2008 compared to 2007 and generated strong positive operating cash flows. We ended the year with more than $1.1 billion in cash, and repurchased approximately $119 million of debt during the quarter."

LSI First Quarter 2009 Business Outlook

GAAP revenue of $440 million to $500 million
Net (Loss)/Income per share: ($0.20) to ($0.10)
Capital spending is projected to be around $13 million in the first quarter and approximately $50 million in total for 2009.
Depreciation and software amortization is projected to be around $20 million in the first quarter and approximately $85 million in total for 2009.

Comments

Here are some abstracts of the conference call transcript.

Abhi Talwalkar, President and CEO:
"We will work with HP and our other OEMs to aggressively ramp LSI's storage and virtualization technology to address today's growing end-user needs to reduce total cost of ownership. In SAS, we are accelerating our roadmap with our next generation SAS ROC chip which will deliver superior performance, and leadership data management capabilities.
"In HDD, we expect to secure key design wins at existing and new customers that will enable share growth in 2010 and beyond. In 6-gig SAS, we expect to supply to all top10 server OEMs and extend our leadership position. In SAN, we expect to gain share in fiber channel at Emulex, Brocade and QLogic.
"Our systems business showed strong momentum and resiliency as we grew 10% sequentially in the December quarter in a very challenging demand environment. The ramp of our flagship XBB2 mid-range platform continued during the quarter. This solution began shipping in the second quarter of 2008 into the high performance computing space through Silicon Graphics and Cray and was released by IBM in the general computing space under the DS5000 product line in September of 2008. In the next month, we expect to begin ramping the XBB2 platform at another major OEM customer further accelerating its growth.
"In the very near future, we expect to release further enhancements to our mid-range system offering including negative 8-gig Fibre Channel and 10-gig iSCSI interfaces, innovative storage security solutions featuring Full Disk Encryption technology and a new high density enclosure that will have a 60 disk drives in a 4U rack optimized form factor providing customers with industry leading storage density.

"In the fourth quarter of 2008, the HP began shipping LSI's storage virtualization manager software under their storage works SAN Virtualization Services Platform. This will enable delivery of SAN Virtualization and advanced data management functionality for their mid-range EVA product line. We also continue to experience significant growth in our entry level products with our revenues nearly doubling year-over-year in this category.
"I'll now turn to storage semiconductors which includes SAS, SAN and HDD. In SAS standard components, we grew 16% year-over-year in 2008, as LSI Storage controller ICs and software continue to be the solutions of choice among many of the industries leading server and external storage OEMs. Last quarter we announced that LSI had extended its 6-gig SAS leadership with Dell, Fujitsu Siemens, IBM, Intel, NEC, and Sun Microsystems, who will all bring LSI solutions to market in their 2009 server offerings.
"We also recently announced, Supermicro, a volume leader in the white-box server market has chosen LSI's 6-gig SAS ROC and MegaRAID solutions for their next generation servers. With our performance and power advantage and roadmap acceleration, we expect to provide 6-gig SAS solutions to all top 10 server OEMs, firmly maintaining LSI's leadership in SAS.
"In SAN, we grew over 28% year-over-year in 2008, as we continued to see healthy growth in Fibre Channel custom silicon shipments and expanded our position. All of our 8-gig Fibre Channel HBA and switch silicon components are now in production, and we expect to maintain our leadership position in this space.
"Tuning to hard disk drive, in 2008 we delivered leading edge technology, expanded our relationship with Seagate, established a solid positions across all segments of Hitachi, and grew our preamps share. With Seagate, we secured two generation of SoC for enterprise drives, and were also solely awarded multiple mainstream desktop and notebook hard disk drive SoC design wins for platforms expected to ship in 2010 and 2011 timeframes.
"In addition, we also secured our first SoC design for solid state drives. We believe that these awards are clear proofpoint of our strategic relationship with Seagate and reinforce our expectation of future success."