LSI Earnings Call INSIGHTS: Networking and Base Stations Goals, Hard Drive Space
On Wednesday, LSI Corporation (NYSE:LSI) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.
Networking and Base Stations Goals
Blayne Curtis – Barclays Capital: Maybe just a little clarity on the hard drive business, I think there was concern for a while that you’re over-shipping your markets. I mean is this more a factor of that the OEMs are adjusting their inventories or is it inventories of your chips and then as you look to Q4 you seem to indicate you thought that came back. Is that really the TAM coming back or is that the share gains that you’re talking about?
Abhi Talwalkar – President and CEO: Blayne, I mean, I think the over shipping our customers, that was back in Q1 and we never believed that to be the case and it certainly wasn’t the case. I think we’re talking about relative to the Q2 to Q3 and adjustment in Q3 and linearity associated with it. It’s just a simple fact that I think we all saw demand erode in the early parts of June and sort of accelerate in erosion through the latter part of June and supply lines just can’t correct that fast, and as a result, we do believe HDD drives were built didn’t all entirely get shipped, and we ended up with a little bit of component inventory out there, in the channels if you will, and that has to get worked up in Q3, we believe it’s a one-quarter adjustment.
Blayne Curtis – Barclays Capital: I think the second part was, into Q4, you seem to indicate you felt like the business would come back with the driver there. Is it just the hard drive market coming back or is it the share gains?
Abhi Talwalkar – President and CEO: I think there’s lots of different moving parts, but certainly there’s – it will come back assuming that the latter part of the year sees the typical or even some level of seasonality which is up relative to PC as well as the other segments going into the holiday season.
Blayne Curtis – Barclays Capital: I think I don’t know if it was last call or the call prior to that, you indicated that your long-term goal in networking and base stations was 50%. It seems like, looking at your slide deck, you feel pretty good about that target. If you could just elaborate as to what you’re seeing as far as design traction?
Abhi Talwalkar – President and CEO: I think if we look at the markets that we’re going after, applications we’re going after in base stations, let’s first take the control plane and data plane which we size roughly to be at $400 million SAM in 2015, based on the design wins that we have achieved and the schedules around those and when they’re going to ramp and so forth, we’re in a position to achieve 50% share of the control plane and data plane in that time period. The other area that we’ve also been focused on has been in baseband which is even a bigger market, roughly $800 million in size, and we believe we’ve secured wins that will help us achieve 40% share out in that timeframe as well.
Hard Drive Space
Jim Schneider – Goldman Sachs: I guess a follow-up maybe longer range on the hard drive space. If you look at your unit share of the overall hard drive TAM today, and you compare that with what you’re expecting maybe say at the end of 2013, what’s your level of confidence that your market share of that TAM is going to be higher than it is today? If you could maybe put any kind of estimate around how much share you could expect to again, that would be helpful?
Abhi Talwalkar – President and CEO: I think, Jim, obviously there’s lots of moving parts, but here’s the way we think about it. At a full year level in 2012 we’ll certainly see a very meaningful growth in our share position from 2011 driven by a number of factors but also very strong products and design wins that we accumulated in prior years. This is a market that really is down to two suppliers on the SoC side, two suppliers on the preamp side. On the preamp side, we’ve gotten to a point of probably nearly 50% share or close to, up from 15% share three plus years ago. That’s proof positive of our ability to grow share in the hard disk drive space and we’ve pretty much doubled our share in SoCs over the last three, four years as well. We are very focused on continuing to grow our share in a market that’s really down to two suppliers. We’ve got great technology and that’s what we’re focused on. In the prepared remarks, I also commented on traction that we’ve made relative to notebook designs as well as positioning ourselves to be heavy player in the 5 millimeter hybrid drive space as well. So, our goal is to keep growing share from the current levels we are at.
Jim Schneider – Goldman Sachs: Then as a follow-up. On the gross margin you seem to be guiding them down, I think it’s about 100 basis points sequentially. I would’ve thought that given hard drives kind of decreasing as a percentage of the mix and server based stuff going up and comp going up that your gross margins might actually improve somewhat. So can you maybe give us some color on what’s going there?
Abhi Talwalkar – President and CEO: Yes. Sure I will take that one. There are many factors that drive the gross margin, yes, the mix is one of those things but it also depends on things like the absolute volume levels. So given the guidance we’re providing we expect that to be one of the factors that has our margins a little softer. But relative to where we are operating compared to year ago we are pleased with the expansion. We have got great opportunities moving forward. We’ve been making progress towards that new business model target of approximately 55% gross margins and our confidence in that remains the same.