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From the Survey: LSI Corporation
LSI Corporation (LSI) designs, develops, and markets complex, high-performance storage and networking semiconductors. It offers a broad portfolio of capabilities including custom and standard product integrated circuits that are used in hard disk drives, solid state drives, high-speed communications systems, computer servers, storage systems, and personal computers. The company delivers its products to customers as stand-alone integrated circuits, as well as incorporated onto circuit boards that offer additional functionality. In addition, the business licenses other entities to its intellectual property.
Integrated circuits, also called semiconductors or chips, are made using semiconductor wafers imprinted with a network of electronic components. They are designed to perform various functions, such as processing electronic signals, controlling electronic system functions, and processing and storing data. LSI provides products for leading original equipment manufacturers, or OEMs, as well as companies in the server, storage, and networking industries. Too, it sells some of its products through a network of resellers and distributors.
The company’s operations can be broken down into two distinct units, namely Semiconductor and Storage Systems, with roughly two-thirds of sales stemming from the former. Taking it one step further, its lines of business exist across three different market segments; Storage, Networking, and IP Licensing.
Storage products enable secure movement of digital data to and from host machines, such as servers, personal computers, and storage systems to the underlying storage devices, such as hard disk and tape drives, as well as flash solutions. Its storage components can be embedded in storage devices, host computers or adapters, and in switches, which move data on a storage area network, or SAN.
LSI also provides Networking and IP (Internet Protocol) products that target the wireless infrastructure, enterprise, and data center markets. The applications allow service providers and enterprises to accelerate and deliver differentiated communications services over mobile broadband and packet-based networks. Its networking solutions are designed to enable wireless and IP networks to provide reliability similar to that of traditional circuit-based networks by incorporating quality-of-service features that enable data intensive applications, such as streaming video.
The networking portfolio includes solutions for multi-service wired and wireless access systems found in carrier networks, as well as solutions typically used in small office, home office, and small-to-medium sized business applications. It also designs and sells enterprise-networking devices for applications, such as Ethernet switches and routers. Moreover, networking products include communication processors, network processors, media processors, content-inspection processors and physical layer devices, as well as software tools and segment specific applications, evaluation systems and reference designs.
The semiconductor industry is intensely competitive and characterized by continuing technological change, rapid product obsolescence, evolving industry standards, and price erosion. Some of LSI’s competitors are larger, more diversified companies with substantially greater financial resources. A number of its competitors are also customers who have internal semiconductor design capacity and must choose whether to develop products internally or obtain them from other companies. LSI also competes with smaller and emerging companies that sell products into specialized markets or provide only a portion of the range of products and services that it offers.
Primary competition includes Marvell Technology Group, Ltd. (MRVL), PMC-Sierra, Inc. (PMCS), and Texas Instruments, Inc. (TXN) with respect to both storage and networking products. Additional competitors for its storage products include Fusion-io, Inc. (FIO), Promise Technology Inc., STEC, Inc., (STEC), and STMicroelectronics N.V. (STM). The company also faces formidable challengers in its Networking and IP space, going up against tech giants including Avago Technologies Limited (AVGO), Broadcom Corporation (BRCM), Cavium Networks, Inc., Freescale, Inc., and International Business Machines Corporation (IBM - Free IBM Stock Report).
While LSI Corp. has been successful squaring off against the aforementioned industry players, its competitors may be able to compete more favorably on the basis of price and at times, may have the resources to bring fresh products to market more quickly. In addition, incumbent suppliers tend to have an advantage when competing for designs, which can make it difficult for it to win designs at new customers, even if LSI competes favorably on the factors identified above.
Shares of LSI Corp. have bounced around some since the 2007-2009 recession, between a little more than $2 a share to just over $10, but have not gotten back to anywhere near their pre-recession highs of more than $20 a share.
Still, investors should note the company’s operating performance has been better this year. Sales and share earnings have recorded notable year-over-year advances thus far. A snapback in its HDD business, strength at the newly acquired SandForce flash unit, and growth in network investment areas have driven results. These trends ought to remain in place for some time, which augurs well for LSI Corp.
What’s more, technological shifts should bring forth plenty of opportunity and growth avenues for the company. Indeed, rapidly expanding segments, such as data clouds, mobile networks, and flash storage systems have been outpacing current IT infrastructures. Therefore, its applications and solutions could be called upon to answer the problems arising from increased digital data speed and traffic. Moreover, social networking smartphones and tablets, Internet video, and real-time information analysis will require advanced integrated technology, opening more doors for LSI Corp.
For a more detailed look at LSI Corporation’s prospects and the investment merits of the stock, subscribers should study our full-page report in The Value Line Investment Survey.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.