LSI: Fiscal 2Q10 Financial Results

(in US$ millions)	2Q09	2Q10	6 mo. 09	6 mo. 10
Revenues	520.7	639.4	1,003	1,277
*Growth*		23%		*27%*
Net income (loss)	(61.5)	7.4	(165.0)	30.0

(in US$ millions)	2Q09	2Q10	Growth
Semiconductor revenues	343.8	416.7	21%
Storage systems revenues	176.9	222.7	26%
TOTAL	520.7	639.4	23%

LSI Corporation reported results for its second quarter ended July 4, 2010.

Second Quarter 2010 News Release Summary:

Second quarter 2010 revenues of $639 million
Second quarter 2010 GAAP net income of 1 cent per diluted share
Second quarter 2010 non-GAAP net income of 11 cents per diluted share
Second quarter operating cash flows of $68 million

Third Quarter 2010 Business Outlook

Projected revenues of $625 million to $655 million GAAP net (loss)/income in the range of ($0.03) to $0.06 cents per share
Non-GAAP net income in the range of $0.08 to $0.14 cents per share

Second quarter 2010 revenues were $639 million, a 23% increase year-over-year compared to $521 million reported in the second quarter of 2009, and compares to $637 million reported in the first quarter of 2010.

Second quarter 2010 GAAP net income was $7 million or 1 cent per diluted share, compared to second quarter 2009 GAAP net loss of $61 million or 9 cents per share. Second quarter 2010 GAAP results compare to first quarter 2010 GAAP net income of $23 million or 3 cents per diluted share. First quarter GAAP results included a net tax benefit of $19 million. Second quarter 2010 GAAP net income included a net charge of $64 million from special items, consisting primarily of $40 million of amortization of acquisition-related items, $18 million of stock-based compensation expense, and $5 million of net restructuring and other items.

Second quarter 2010 non-GAAP net income was $71 million or 11 cents per diluted share, compared to second quarter 2009 non-GAAP net income of $7 million or 1 cent per diluted share. First quarter 2010 non-GAAP net income was $92 million or 14 cents per diluted share. First quarter non-GAAP results also included the aforementioned net tax benefit of $19 million.

Cash and short-term investments totaled approximately $670 million at quarter end. During the quarter, LSI repaid $350 million of outstanding convertible notes, becoming debt free. The company also completed second-quarter purchases of approximately 10 million shares of its common stock for approximately $55 million under its $250 million share repurchase program.

"Despite some isolated customer inventory adjustments late in the quarter that modestly affected our sequential revenue growth, tight operating expense control and higher gross margins enabled us to deliver a solid bottom-line performance," said Abhi Talwalkar, LSI president and chief executive officer. "While improving end market demand for enterprise IT products continues to bode well for us, our outlook for the third quarter is one of tempered optimism as macro-economic conditions appear to be somewhat fluid at the present time."

Bryon Look, LSI CFO and chief administrative officer, said: "We delivered sound financial results in the second quarter. First-half operating cash flows nearly tripled from the year-ago period while net cash improved by 28% on the same basis. We also repaid all our remaining debt and continued to purchase shares of the company’s common stock through our previously announced share repurchase program."

Capital spending is projected to be around $15 million in the third quarter and approximately $55 million in total for 2010.

Depreciation and software amortization is projected to be around $26 million in the third quarter and approximately $104 million in total for 2010.

Comments

Abstracts of the earnings call transcript:

Abhi Talwalkar, president and CEO:
"In retrospect, our out performance in Q1 was partly driven by our SAN and SAS customers building inventory ahead of technology transitions. This led to unit shipment reductions in SAS and SAN in Q2 and continued weakness in SAN shipments in Q3 to bring supply in line with end demand for those customers.
"While our hard disk drive revenues are primarily from the desktop segment today, our recent SoC wins will expand our OEM base to customers more exposed to the faster growing notebook segment.
"Continuing our successful partnership with IBM, in Q2 we solidified road map commitments to extend LSI solutions into 2011 and beyond.
"Regarding the PCIe flash solution we announced earlier this year, we have over 50 samples in evaluation and validation and more than 20 customers. Testing and feedback has been very positive regarding the product's performance and efficiency in comparison to other PCIe flash solutions in the market. We will be ramping production throughout the second half of 2010.
"With Seagate we have enabled the industry's first hard disk drives with LDPC SoCs in 65 nanometer technology."

Bryon Look, CFO:
"Our storage semiconductor revenues which include hard disk drive silicon, SAS standard components and storage area network ICs were sequentially down $14 million or 5% to $272 million. As noted earlier in the call this decline was primarily driven by inventory builds and customer buying patterns in Q1.
"Storage semiconductors presented 43% of total revenues in the second quarter. Q2 revenues in our networking business were $122 million sequentially up $7 million or 6% and represented 19% of total revenues for the quarter.
"The storage systems segment represented 35% of LSI's total revenues in the second quarter. Moving next to gross margins, LSI consolidated Q2 gross margin excluding special items was 48.4% and sequentially up 70 basis points from Q1.
"Given this we expect storage semiconductors to be sequentially flat to slightly down in Q3. We expect networking semiconductors to be sequentially down, primarily due to declines in legacy product sales. We expect our storage systems business to be sequentially noted."