LSI: Fiscal 3Q13 Financial Results

(in US$ million)	3Q12	3Q13	9 mo. 12	9 mo. 13
Revenues	624.0	607.0	1,906	1,765
*Growth*		-3%		*-7%*
Net income (loss)	39.7	36.6	173.6	79.6

LSI Corporation reported results for its third quarter ended September 29, 2013.

Third Quarter 2013 Highlights

revenues of $607 million
GAAP net income of $0.06 per diluted share
non-GAAP net income of $0.17 per diluted share
operating cash flows of $63 million

Fourth Quarter 2013 Business Outlook
Projected revenues of $580 million to $620 million

GAAP net income in the range of $0.01 to $0.11 per share
Non-GAAP net income in the range of $0.13 to $0.19 per share
company to limit operating expenses until business model is attained

“In a challenging macroeconomic environment we delivered solid third quarter results, with revenues growing sequentially from products for flash and networking as well as HDD drives,” said Abhi Talwalkar, LSI’s president and CEO. “While our end markets are mixed, with near-term growth below earlier expectations, our outlook for future growth driven by the massive expansion in data and traffic in datacenters and mobile networks remains intact and we are well positioned to see growth as these markets improve.”

Third quarter 2013 revenues were $607 million, in line with guidance, compared to $624 million in the third quarter of 2012, and compared to $590 million in the second quarter of 2013.

Third quarter 2013 GAAP net income was $37 million or $0.06 per diluted share, compared to third quarter 2012 GAAP net income of $40 million or $0.07 per diluted share. Second quarter 2013 GAAP net income was $25 million or $0.04 per diluted share. Third quarter 2013 GAAP net income included a net charge of $57 million from special items, consisting primarily of approximately $30 million of amortization of acquisition-related items, $20 million of stock-based compensation expense and $7 million of net restructuring and other items.

Third quarter 2013 non-GAAP net income was $93 million or $0.17 per diluted share, compared to third quarter 2012 non-GAAP net income of $99 million or $0.17 per diluted share. Second quarter 2013 non-GAAP net income was $84 million or $0.15 per diluted share.

Cash and short-term investments totaled approximately $665 million at quarter end. The company completed third-quarter purchases of approximately 5 million shares of its common stock for approximately $41 million.

“In the third quarter we expanded operating margins quarter over quarter and continued to generate strong cash flow,” said Bryon Look, LSI’s CFO. “Going forward we expect to hold non-GAAP operating expenses flat as we drive to achieve our business model targets.”

The company also announced it has declared a quarterly cash dividend of $0.03 per share. This dividend will be paid on December 20, 2013, to stockholders of record as of December 6, 2013.

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

Depreciation and software amortization is projected to be around $16 million in the fourth quarter and approximately $62 million in total for 2013.

Comments

Abstracts the earnings call transcript: Abhijit Talwalkar, CEO and president: "Three, in Q3, our PCIe flash-based microproducts grew 55% year-over-year, and our networking investment area products grew 10% year-over-year. We expect solid year-over-year, again, growth in fourth quarter. "To further our penetration at end customers (in PCIe flash), we recently announced a partnership with VMware and are working with Cisco to deliver solutions for big data in Hadoop environments. Our customer base includes Oracle, JPMC, Intel, Dell, IBM and a leading social networking company, and we expect to add even more customers in Q4. As a proof point of our progress, we saw our revenues grew 37% quarter-to-quarter and 55% year-over-year. "We will soon benefit from a new product cycle based on our third-generation SandForce flash controller. Numerous major NAND and SSD vendors have active development programs underway. "We estimate that nearly 50% of our revenues come from data center IT spending, with over 10% of the company's total revenue influenced by the top hyperscale web companies. Mobile networks and flash now each make up double-digit percentages of the total company's revenues. "We expect our enterprise HDD share to increase in 2014 as we ramp 28-nanometer SoCs at 3 out of 4 HDD OEMs. "In the enterprise space, we have begun initial production shipments of 28-nanometer SoCs to 3 of 4 HDD OEMs, and a new 40-nanometer SoC to the fourth HDD enterprise OEM. We are also ramping into Seagate's 500-gig and 1 terabyte hybrid drives where LSI is currently sole sourced as the SoC provider. "LSI 12-gig SAS storage solutions will power more than 100 new server models based on Intel Xeon Processor, including those from Tier 1 OEMs, ASUSTeK, Fujitsu, Gigabyte, Huawei, Intel, Quanta, Supermicro and many others. We have also talked about expanding beyond our traditional SAS and RAID business with our Syncro product family, with Dell launching their VRTX platform in Q3 based on this solution." Bryon Look, CFO: "Our server and storage semiconductor revenues, which include products from our server rate adapter and software, flash, SAS, SAN and HDD businesses, were $470 million, up 3% sequentially and down 5% on a year-over-year basis. We saw sequential growth from all our server and storage businesses in Q3. Server and storage semiconductors represented 77% total revenues in the third quarter."