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We maintain a Neutral recommendation on LSI Corporation (LSI - Analyst Report) ahead of third quarter results on October 24, 2012. 
 
Earnings estimates for 2012 remain largely unchanged as the company provided weak guidance for the third quarter of 2012 despite the company surpassing the Zacks Consensus Estimates by 44.44% in the last four quarters. LSI Corporation expects revenues between $620 million and $660 million in the third quarter of 2012. Management continues to be cautious on the back of uncertainty in the macro environment and declines in SoC shipments and ramp up in hard disk drives.
 
Demand continues to be weak, and hence LSI Corp. expects to see reduction in demand for components in the third quarter as customers adjust inventory in accordance to the decline in demand. Nevertheless, LSI Corp expects to see higher HD related shipments in the fourth quarter assuming a recovery in the PC market.
 
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, 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 between 2 cents and 11 cents. Excluding one-time items, income from continuing operations is expected to come in at 14 cents to 20 cents.
 
The company’s second quarter earnings of 15 cents per share were ahead of the Zacks Consensus Estimate by 2 cents.  LSI Corp. 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 of $630 million to $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.
 
We believe that LSI Corp, which competes with other industry players like, Marvell Technology Group Ltd. (MRVL - Snapshot Report) is well positioned to grow its market share based on its new product cycles that will enable it to outgrow its storage and networking markets. 
 
However, the weak guidance forces us to confer a Zacks #4 Rank on the stock, which translates into a short-term rating of Sell on the stock. 

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