LSI: Fiscal 1Q13 Financial Results

(in US$ million)	1Q12	1Q13
Revenues	622.4	568.6
*Growth*		-9%
Net income (loss)	75.2	18.4

LSI Corporation reported results for its first quarter ended March 31, 2013.

First Quarter 2013 Highlights

revenues of $569 million
GAAP net income of $0.03 per diluted share
non-GAAP net income of $0.17 per diluted share
operating cash flows of $63 million

Second Quarter 2013 Business Outlook

Projected revenues of $560 million to $600 million
GAAP net income in the range of ($0.02) to $0.07 per share
Non-GAAP net income in the range of $0.10 to $0.16 per share

"LSI achieved strong results and better than expected revenues in the first quarter, despite a challenging environment for PCs and mobile infrastructure investment," said Abhi Talwalkar, LSI’s president and CEO. "Looking forward, we are very excited about the flash application acceleration market and our Nytro flash adapter solutions continue to gain strong acceptance with customers looking to accelerate VDI, Hadoop and other big data applications, as well as with leading cloud based services."

First quarter 2013 revenues were $569 million, in line with guidance, compared to $622 million in the first quarter of 2012, and compared to $600 million in the fourth quarter of 2012.

First quarter 2013 GAAP net income was $18 million or $0.03 per diluted share, compared to first quarter 2012 GAAP net income of $75 million or $0.13 per diluted share. Fourth quarter 2012 GAAP net income was $23 million or $0.04 per diluted share. First quarter 2013 GAAP net income included a net charge of $76 million from special items, consisting primarily of approximately $30 million of amortization of acquisition-related items, $26 million of stock-based compensation expense and $20 million of net restructuring and other items.

First quarter 2013 non-GAAP net income was $94 million or $0.17 per diluted share, compared to first quarter 2012 non-GAAP net income of $117 million or $0.20 per diluted share. Fourth quarter 2012 non-GAAP net income was $101 million or $0.18 per diluted share.

Cash and short-term investments totaled approximately $659 million at quarter end. The company completed first-quarter purchases of approximately 9 million shares of its common stock for approximately $61 million.

"We delivered solid earnings per share, while investing for growth in current and future product areas," said Bryon Look, LSI’s CFO. "We also generated strong gross margins in Q1, and continue to use our healthy cash position to pursue our stock buyback program."

LSI 2Q13 Business Outlook (GAAP)

Revenue: $560 million to $600 million
Gross Margin: 48% to 52%
Operating Expenses: $260 million to $280 million
Net Other Income: $2 million
Tax: Approximately $8 million
Net (Loss)/Income Per Share: ($0.02) to $0.07
Diluted Share Count: 565 million

Capital spending is projected to be around $20 million in the second quarter and approximately $85 million in total for 2013.

Depreciation and software amortization is projected to be around $15 million in the second quarter and approximately $60 million in total for 2013.

Comments

Abstracts of the earnings call transcript:

Abhijit Talwalkar, president and CEO:
"During the quarter, we saw higher-than-expected revenues in IP licensing, and revenues in our HDD business also were higher than expected as customers increased orders for both SoCs and preamps.
"Looking into Q2, our guidance reflects a cautious environment and roughly 2% sequential revenue growth at mid-point. We anticipate mid-single-digit percentage growth in product revenues, including growth in flash, networking and server products, offset by declines in IP licensing as that business returns to a more typical level of quarterly revenue.
"In HDD, we have won 100% of the hybrid drive platforms at Seagate, including 500GB drives.
"I am pleased to announce that through our customers, LSI-based SSDs are now shipping or will soon ship into 8 of the top 10 mega data centers companies worldwide.
"This quarter, we expect to tape out our third-generation flash storage processor and are excited about the differentiated features incorporated into this new architecture. In addition to 6Gb SATA, the 3000 series will support native PCIe with ahci and MVME interfaces. We expect to sample the product to our customers next quarter, and a number of major SSD companies have already committed to this next-generation product.
"In addition to standard product FSPs, we continue to gain traction with custom FSPs, securing wins with 3 of the top 6 flash OEMs by combining the customers' controller technology with LSI building blocks to provide a complete solution. Overall, LSI now has 17 different custom FSP products that are either in production or in development across 6 different SSD providers. These custom products are a combination of client and enterprise FSPs supporting either SATA, SAS or PCIe interfaces.
"Intel recently announced solutions leveraging LSI Nytro MegaRAID technology, and IBM is now offering LSI Nytro WarpDrive technology with their System x servers to help clients speed big data analytics. In total, we now have IBM, Intel, Oracle, Cisco, NetApp, Supermicro, EMC and Dell offering our Nytro flash solutions to their customers.
"Beyond our traditional SAS business, this quarter we expect to release our Syncro product family, which provides a new storage architecture that enables sharing and scaling of storage across multiple servers.
"In hard disk drives, LSI is well positioned in the most resilient segments of the storage market. In Q2, we expect over 95% of our SoC revenue to be driven by shipments in the desktop, enterprise and nearline drives, which are collectively expected to be a driver of storage capacity for cloud and mega data center build-outs.
"In the enterprise space, LSI has reinforced its leadership by securing design awards at all enterprise HDD OEMs in 28nm technology with the first platforms launching in early 2014. This will enable future share growth for LSI in enterprise SoCs."

Bryon Look, CFO:
"Our server and storage semiconductor revenues, which include products from our ServeRAID adapter and software, flash, SAS, SAN and HDD businesses, were $438 million, down 9% sequentially and down 10% on a year-over-year basis. Sequential reductions were primarily due to seasonal declines in key end markets such as servers and PCs. Server and storage semiconductors represented 77% of total revenues in the first quarter.
"Next is a discussion of our guidance for Q2 2013. (...) We expect our server and storage semiconductor revenues to be sequentially up in Q2 with growth coming from our flash businesses as well as our server and storage connectivity businesses. We expect our HDD business to be roughly flat, and we expect our networking semiconductor revenues to be slightly up."