LSI Corporation Tops in Q2

LSI Corporation ( LSI - Analyst Report ) posted a net income per share (excluding one-time items but including stock-based compensation) of 15 cents in the second quarter of 2012, easily beating the Zacks Consensus Estimate of13 cents.

Net income from continuing operations came in at $58.7 million or 10 cents per diluted share compared with a net income of $75.2 million or 13 cents per diluted share and a net income of $28.4 million or 5 cents per diluted share in the year-ago quarter.

The company generated revenues of $660 million in the second quarter of 2012, up 31.7% year over year and 6.0% sequentially, surpassing management’s guidance range of $630 million and $670 million.

The growth in revenues was driven by an increase in HDD business and better-than-expected growth from the company’s newly acquired SandForce flash business. The newly acquired business would enable the company to benefit from the growing adoption of solid-state drives and flash storage solutions.

SandForce is a leading provider of flash storage processors for enterprise and client flash solutions and solid state drives (SSDs).

Server and storage semiconductor revenues (accounting for 81% of total revenue), which include products from ServeRAID adapter and software, Flash, SAS, SAN and HDD businesses, were sequentially up 9% to $535 million. The growth in business was driven by continues strength in HDD along with increased demand of flash products.

Management stated that the demand for flash-related products was driven by rapid adoption across client and datacenter computing, wherein customers are increasingly turning to LSI to accelerate application performance.

Revenues from the networking business (accounting for 15% of total revenue) were down 8% sequentially to $99 million due to declines in legacy products coupled with softness in wireless infrastructure spend. Revenues for the IP business were $26 million.

Margins

Gross margin (excluding special items) came in at 54.0%, up from 52.4% in the previous quarter, driven by continued focus on cost reductions along with the product mix.

Operating margin came in at 18.6%, up from 16.4% in the previous quarter and 12.4% in the year-ago quarter.

Balance Sheet

During the quarter, LSI Corp. generated $117.3 million of cash from operating activities and used $12.6 million in capital expenditures. The company repurchased 18 million shares for approximately $138 million in the second quarter under its $750 million authorized buy-back program.

LSI Corp. has now repurchased a total of 95 million shares, thereby utilizing approximately $675 of its current $750 million buyback program.
LSI Corp. ended the quarter with cash and short-term investments of $601.1 million, down from $623.1 million at the end of the previous quarter.

Guidance

Going forward, management expects revenues between $620 million and $660 million in the third quarter of 2012. Management continues to be cautious due to the uncertainty in the macro environment and declines in shipments of SoCs and preamps for hard disk drives.

Demand continues to be weak, and hence LSI Corp. expects to see reductions in demand for components in the third quarter as customers adjust inventory to tune in with the decline in demand. Nevertheless, LSI Corp expects to see higher HD related shipments in the fourth quarter assuming the PC market will be back to normal seasonality.

Server and storage semiconductor revenues are projected to be down sequentially in the third quarter. LSI Corp continues to expect HDD declines in the quarter due to inventory adjustments, which should be partially offset by growth in flash and server-related products. On a positive note, networking semiconductor revenue is expected to be slightly up.

Gross margin is projected around 53%, (+/-1%). Net income from continuing operations is forecasted to come around $0.02 – $0.11. Excluding one-time items, income from continuing operations came in at$0.14 to 0.20.