LSI: Fiscal 3Q12 Financial Results

(in US$ million)	3Q11	3Q12	9 mo. 11	9 mo. 12
Revenues	546.9	624.0	1,521	1,906
*Growth*		14%		*25%*
Net income (loss)	29.3	39.7	333.3	173.6

LSI Corporation reported results for its third quarter ended September 30, 2012.

Third Quarter 2012 Highlights

Third quarter 2012 revenues from continuing operations of $624 million, up 14% year-over-year
Third quarter 2012 GAAP income from continuing operations of $0.07 per diluted share
Third quarter 2012 non-GAAP income from continuing operations of $0.17 per diluted share
Third quarter 2012 operating cash flows of $112 million

Fourth Quarter 2012 Business Outlook

Projected revenues from continuing operations of $570 million to $610 million
GAAP income from continuing operations in the range of ($0.02) to $0.07 per share
Non-GAAP income from continuing operations in the range of $0.11 to $0.17 per share

On May 6, 2011, LSI completed the sale of its external storage systems business. The financial results of the external storage systems business have been classified as discontinued operations in LSI’s financial statements. Our ongoing business is referred to as "continuing operations."

"In the third quarter we delivered strong year-over-year growth in an environment with considerable macroeconomic uncertainty and with softness in several key markets. We are managing the elements within our control, and are pleased with the significant improvement in margin and earnings over last year," said Abhi Talwalkar, LSI’s president and CEO. "Looking forward, our design win performance is ahead of expectations and we are benefiting from the rapid adoption of LSI’s exciting new flash-based products and the penetration of LSI products into large web and cloud datacenters."

Third quarter 2012 revenues from continuing operations were $624 million, in line with guidance, compared to $547 million generated from continuing operations in the third quarter of 2011, and compared to $660 million generated from continuing operations in the second quarter of 2012.

Third quarter 2012 GAAP income from continuing operations was $40 million or $0.07 per diluted share, compared to third quarter 2011 GAAP income from continuing operations of $29 million or $0.05 per diluted share. Second quarter 2012 GAAP income from continuing operations was $59 million or $0.10 per diluted share. Third quarter 2012 GAAP income from continuing operations included a net charge of $59 million from special items, consisting primarily of approximately $28 million of stock-based compensation expense, $30 million of amortization of acquisition-related items, $4 million of net restructuring and other items, and $3 million of gain on the sale of investments.

Third quarter 2012 non-GAAP income from continuing operations was $99 million or $0.17 per diluted share, compared to third quarter 2011 non-GAAP income from continuing operations of $83 million or $0.14 per diluted share. Second quarter 2012 non-GAAP income from continuing operations was $121 million or $0.21 per diluted share.

Cash and short-term investments totaled approximately $643 million at quarter end. The company completed third-quarter purchases of approximately 7 million shares of its common stock for approximately $50 million. On a cumulative basis, LSI has repurchased a total of 102 million shares and utilized approximately $725 million of the $750 million stock repurchase program the board authorized last year. In addition, in August the board authorized a new $500 million stock repurchase program.

"LSI continued to demonstrate solid cash generation with cash flow from operations in the quarter exceeding $110 million," said Bryon Look, LSI’s CFO and chief administrative officer. "Together with a debt-free balance sheet and exciting long-term growth opportunities, we are well-positioned to deliver strong operating profits while also continuing to return capital to shareholders."

Capital spending is projected to be around $27 million in the fourth quarter and approximately $130 million in total for 2012.

Depreciation and software amortization is projected to be around $15 million in the fourth quarter and approximately $60 million in total for 2012.

Comments

Abstracts of the earnings call transcript:

Abhijit Talwalkar, president and CEO:
"For Q3, revenue was within our guidance range but below our midpoint, driven largely by a weak PC market leading to declines in our HDD business.
"Going forward, our guidance for Q4 reflects a cautious outlook due to uncertainties in the macro environment and softness in PC demand. While we did see reductions in our HDD business in Q3, we expect further reductions in component shipments in Q4 tied to ongoing softness in the PC end market. We also expect reductions in both our custom and standard product, flash storage processors in Q4.
"We believe we have the broadest and most competitive lineup of flash-based solutions and expect to have a #1 share in flash storage processors this year, emerging as the #2 player in merchant PCIe flash adapters. We continue to expect our total flash revenues to grow over 200% year-over-year in 2012, well ahead of market growth rates.
"Even with the revenue softness in the second half, we expect to grow over 20% year-over-year in 2012 while the semiconductor market and many peers are expected to decline.
"As we look ahead, we expect to benefit from new product cycle ramps, including PCIe flash adapters at Oracle, Cisco, IBM and a new win at a leading social networking company.
"In Q3, we also saw our growth in custom and standard FSPs targeted to enterprise applications with shipments to Intel, SanDisk, Kingston, SMART Modular and Toshiba.
"With Oracle and other key wins, we believe LSI is emerging as the #2 provider of merchant PCIe flash solutions worldwide, behind Fusion I/O.
"We also expect to release Nytro solutions in the production for IBM and Cisco.
In hard disk drives, we saw declines of over 20% sequentially driven by lower PC sales affecting ACD demand and resulting inventory adjustments by key customers. We expect demand to remain soft due to weakness in the PC market segment resulting in lower component shipments in Q4 and this is reflected on our guidance."

Bryon Look, chief administrative officer and CFO:
"Revenues for server and storage semiconductors were $493 million, up 22% on a year-over-year basis, and down 8% sequentially. The sequential decrease was primarily driven by a reduction in demand for our HDD products, partially offset by increased demand for our flash products. Revenues from server and storage semiconductors represented 79% of total revenues in the third quarter. Revenues for the IP business were approximately $25 million.
"We expect our server and storage semiconductor revenues to be down sequentially in Q4. We expect declines in our flash and HDD businesses and a slight growth in our server-related products. We expect the declines in our flash and HDD businesses are tied to soft PC market conditions."