Spoke with LSI IR.
Re :Embedded FPGA. Cisco has been talking about it for a long time and they would love to shrink FPGA presence from their motherboard. This is predominantly because of the cost. It's much easier to place FPGA into ASIC than vice versa. Customers are asking for the beta FPGA chips as soon as possible. Currently the focus is on main customers, and the smaller customers will need to go through distribution, so to that extent LSI will not be competing with XLNX and ALTR for every bit of their business. Thus, it's not an issue of LSI trying to get into a market niche to compete, but rather an extension of LSI's product line to current large-scale customers who are primarily in telecomm and networking. The revenue increase essentially works with the same amount of chip volume with a higher price because of a value added FPGA. Having said this, the fact is that the potential for the embedded FPGA market is huge since 75% of ALTR's and XLNX's sales are to high-end communication business, which is precisely LSI's customer base.
There are no problems with ramping up Gresham, and LSI is on target to returning to its margins of 45 percent once Gresham is more fully utilized.
Business is very good, and LSI is expecting 7 to 8 percent growth for the last two quarters this year. Storage and networking are the biggest winners, although all divisions are doing well.
This is just the beginning of the Xmas consumer season, but LSI is doing OK with Sony on DVD and is expecting DVD to double in 2000 as well as DCAM. The problem with STB is that the market is always coming out with new platforms so there is constant change in vendors
I specifically asked about spinning off the Storage Systems Division, and I was told that LSI gets that question all the time. However, LSI truly feels that Systems is providing lots of information in terms of mapping their customers future growth. The efforts to expand internationally have been good. However, because of the Internet expansion, the Storage Systems business has seen its greatest growth in the US.
After many false starts, it appears that the ATM is about to take off. (As previously noted, it was not expected that the capabilities of Ethernet would be expanded as long as they have, which is what forestalled the growth of ATM)
Fibre Channel is still very much a new and developing market. Significantly, though, LSI is beginning to see Fibre Channel pull away from 10-Gigabit Ethernet. LSI feels that it will be just a matter of time that the physical distance advantage of Fibre Channel becomes a huge advantage. Currently, though, the market is still very much SCSI.
Short leather skirts and stiletto heels have been banned at the Colorado Fab
Remaining gate array business will hold steady because the telecomm industry's players such as Alcatel and Nortel are not changing their (non-digital) voice systems
Test sites are being done with the Asian CDMA customers, but LSI cautions that CDMA needs to be done in steps. Accordingly, LSI will not be ready to approach the big boys such as Nokia until the end of the year. An announcement that Nokia had contracted to purchase LSI's CDMA chips would be seen as the biggest news since PSII.
Thus, my overall impression is that the company is focused and clearly does not wish to engage in raising expectations too high for fear of not beating the street. Accordingly, the stock is currently fairly priced.
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