LSI Shares Tumble as 2nd-Qtr Profit, Sales Fall Short
Milpitas, California, July 26 (Bloomberg) -- LSI Logic Corp. shares tumbled as much as 36 percent
after the world's biggest maker of custom semiconductors yesterday reported second-quarter
sales and profit that missed the highest forecasts.
LSI fell 8 13/16 to 31 5/8 in midafternoon trading on the New York Stock Exchange after earlier
touching 31. Trading of 39.2 million shares made it the second-most active U.S. stock. Before today's
drop, the stock gained 65 percent this year.
Sales missed estimates by about $20 million because of a shortage of parts used in its
computer-storage products and shipment delays caused by a new software tracking system. Some
analysts were expecting LSI's revenue and profit to exceed forecasts as customers such as Cisco
Systems Inc. and Sony Corp. bought more LSI chips.
``There's some disappointment that the company wasn't able to telegraph this a little earlier,'' said
Josephthal & Co. analyst Larry Borgman, who rates LSI a ``trading buy.''
LSI also isn't getting as many silicon wafers from contract manufacturers as it needs. It's speeding up a
capacity upgrade to a wafer foundry in Oregon to fill the gap, Borgman said. That will cut profit this
year and next, he said.
Parts Shortages
The Milpitas, California-based company said the $20 million will be booked in the third quarter, and the
component shortages are expected to abate.
LSI makes standard and custom integrated circuits for the telecommunications and computer network
markets. It also provides servers and storage management software and counts Sun Microsystems Inc.
as one of its biggest customers.
In facing shortages, LSI isn't alone. Companies from Motorola Inc. to International Business Machines
Corp. recently have warned that sales are being hurt because they can't secure enough basic
components, including liquid crystal displays, semiconductors, resistors and flash memory. Demand
for cell phones, electronic organizers and digital cameras has outstripped supply, parts makers say.
In addition, some parts makers are boosting prices. Two of the biggest makers of resistors and
capacitors, Vishay Intertechnology Inc. and Kemet Corp., said they are raising prices.
LSI, which about a year ago turned to contract manufacturers to make the silicon wafers for its chips, is
being hurt because it doesn't have the long-term relationships with them that others such as Xilinx Inc.
and Altera Corp. do. Those relationships are key to securing parts during a shortage, said Prudential
Securities analyst Hans Mosesmann.
No Track Record
``LSI isn't getting all the wafers they want because they don't have relationships with the foundries,''
said Mosesmann, who downgraded his rating on the company to an ``accumulate'' from a
``strong buy.'' ``The allocation process is based on loyalty
and consistency, and LSI doesn't have that track record.''
LSI chips perform the functions of various semiconductors, saving time, money and space for
customers such as Cisco, the No. 1 maker of Internet equipment; Nokia Oyj, the top cell-phone maker;
and Sony, which uses LSI's products in its PlayStation video- game console.
Net income in the second quarter rose more than sevenfold to $71 million, or 21 cents a share.
Revenue rose 29 percent to $644.3 million from $501 million.
Excluding acquisition-related costs, the company said it would have earned $98.2 million, or 29 cents a
share. That matched the average estimate of analysts surveyed by First Call/Thomson Financial,
though it missed some estimates on the Internet that were as high as 48 cents a share.
Analyst Clark Westmont at Salomon Smith Barney cut his rating on LSI shares to a ``neutral'' from a
``buy'' and reduced his target for the shares to $40 from $70.
Charles Boucher, an analyst at Bear Stearns Cos., downgraded the stock to an ``attractive'' from a
``buy.''
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