Hey OSO some info. from IBD article. It discusses some of the bad stuff the evil one has been talking about - everyone and his mother getting into the ASIC business with IBM Microelectronics going gangbusters, LSI's concentrated customer base (10 account for 50%), high R&D that is not doing much since the end-markets are sucking and the key point that the company has to pick the right sectors of the market to concentrate in or else they'll be toast when the sectors bomb, the high end is not translating much into sales etc etc. There is some good forecasts as well.
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LSI Logic Corp., the semiconductor industry's foremost supplier of custom chips, is struggling to grow sales. It says revenue should pick up next year, but chip industry analysts are getting antsy.
LSI makes complex chips called application- specific integrated circuits, or ASICs. These multifunction devices are designed for specific customers. Most often the chips target emerging markets or new applications.
One problem for LSI of Milpitas, Calif., is that new rivals are churning out these advanced chips, analysts say.
Another snag is that high-volume business has yet to materialize in key markets. ''It's pretty clear they're struggling to get growth out of some their important business areas,'' said Clark Westmont, a financial analyst with Montgomery Securities Inc. in San Francisco. ''It's unclear when that growth will kick in.''
Like many chipmakers, LSI is trying to rebound from a lackluster '96. Sales dipped 2% last year to $1.24 billion, from a record $1.27 billion in '95.
LSI garnered $327 million in sales the quarter ended Sept. 30, down 2% from the second quarter but up from $300 million in last year's third quarter. The company earned 33 cents a share, before acquisition charges, compared to 21 cents in last year's third quarter.
The company has warned analysts that its fourth-quarter sales will be flat. But LSI expects to rebound next year, says Wilfred Corrigan, chairman and CEO.
''We've told (analysts) that we think 20% sales growth in '98 is probable,'' said Corrigan.
Still, there's a growing sense of skepticism among analysts.
''(LSI) is reevaluating its plans right now for '98,'' said Scott Nirembirski, a financial analyst at Deutsche Morgan Grenfell Inc. in San Francisco. ''They're trying to figure out where they need to be and how aggressive they should be in some markets.''
Corrigan founded the chipmaker in '81. A senior executive, Brian Halla, left LSI last year to become CEO of National Semiconductor Corp. of Sunnyvale, Calif.
In late October, LSI shifted its management team. It named John Daane as executive vice president. He will oversee LSI's computer and communications business lines. Moshe Gavrielov, an executive vice president since last year, will now head LSI's consumer electronics business.
One reason Corrigan is upbeat about '98 is that market researcher Dataquest Inc. of San Jose, Calif., expects the worldwide chip market to grow 16.7% to $175 million.
Aiding LSI's comeback, Corrigan says, will be stronger sales of digital- video-disc players. DVDs are next-generation CD-ROMs that store two-hour movies or several gigabytes of data.
The DVD market has been stalled for two years. But Corrigan says it will finally take off in '98.
Corrigan also says LSI will get more business from makers of hard-disk drives, such as Seagate Technology Inc. and Quantum Corp. Still, LSI faces a challenge, analysts say.
Its traditional foe, VLSI Technology Inc. of San Jose, Calif., is grabbing many customers in the booming wireless communications market. VLSI sales climbed to $181.2 million in the quarter ended Sept. 26, up from $170.4 million a year ago.
New rivals also are making LSI fight harder for customers, analysts say.
Computer giant International Business Machines Corp. has quickly emerged as a supplier of ASICs. Murray Hill, N.J.-based Lucent Technologies Inc.'s sales of ASICs also are growing.
Other rivals include NEC Corp. and Toshiba Corp. in Japan as well as Dallas-based Texas Instruments Inc. ''What's happened is that there's just a lot more competition out there,'' said Jerry Worchel, an analyst at market research firm In-Stat Inc. in Scottsdale, Ariz.
Still, LSI holds an edge in high-end chips. LSI markets itself as ''the system-on-a-chip company.'' These devices stitch together functions - such as video compression and modem communications - normally done by separate chips.
But most big chipmakers also are trying to be players in system-on-a-chip devices. So LSI is under the gun to outperform them.
One of LSI's biggest clients is Japan's Sony Corp. An LSI system-on-a-chip device is built into Sony's PlayStation game machine. Sony accounted for about 18% to 20% of LSI's sales in the last quarter. Sony also is building LSI's chips into new DVD players.
To stay a leader in the ASIC market, LSI has invested heavily in manufacturing technology. Its research-and-development expenses rose 49% in '96 to $184.4 million.
The company operates two advanced factories in Japan; it's also constructing a new plant in Gresham, Ore. Analysts expect LSI's margins to be impacted next year by start-up costs in ramping up the Gresham plant. It's scheduled to be operational in the summer of '98.
LSI's customers make computers, consumer electronics products and communications gear.
Analysts say chip sales to computer makers, such as vendors of Unix-based workstations, are sagging. But Corrigan expects the chipmaker's computer-related sales to regain momentum in '98.
And LSI is getting new orders from networking vendors such as Cisco Systems Inc. They're using LSI's chips for new Ethernet gear that transmits data at one gigabit per second. Ethernet is the leading local-area-networking technology.
The rub, though, is that some markets may take off slower than expected. DVD players are a case in point.
Another factor is LSI's customer base. By LSI's own choice, its customer base is concentrated. Its top 10 customers account for more than 50% of sales, analysts say.
The bottom line, analysts say, is that LSI needs some of its customers to score big hits.
''Your success in the ASIC business is almost the luck of the draw,'' said Westmont at Montgomery Securities. ''You're basically choosing opportunities very carefully based on what may be successful two or three years out.''
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Copyright (c) 1997 Investors Business Daily, All rights reserved.
Investor's Business Daily - Computers & Technology (11/04/97)
LSI's Sales Short-Circuit As Chip War Gets Hotter
By Reinhardt Krause
Transmitted: 11/05/97 00:06 (p2absde0)
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(last point: Wilf said 10% growth this year - did not materialize. Next year with GSM and hopefully faster networking maybe they have as shot. Of course if DVD and esp. DVD on the PC takeoff LSI could have picked the "right sector" - only time will tell. The prudent thing then is to balance this risk by buying dirt cheap LSI stock.)
!ELO |
