I'm reading the Montgomery report, and they have lots of good reasons why LSI is going nowhere in the near future. One of the few positive things they say is LSI has a reasonable valuation. Looks like they are concerned with over capacity, business conditions not stabilizing, the large fixed cost with Gresham will be a drag on margins, with Gresham the Yen will become a problem (20% of sales are to Japan), the Sony playstation is 17% of revenues and that is a product that is on the downhill side of its life cycle with little future growth ahead.
Earnings will at best meet street consensus of .23 cents and most likely will be a penny or two shy.
Here is a couple of sentences for you guys that hate how LSI communicates with the Street. -
"Although the Symbios acquistion may prove to be a masterstroke two years hence, the increased exposure dilutes LSI's communications sales mix and increases cyclical volatility in the near term. Other than to say that the deal is expected to be accretive to earnings next year, the company has declined to discuss the financial impact of buying Synbios until the conference call later this week. We believe this implies that it will be dilutive this year, although likely write-offs and one time charges will obscure this year's earnings picture in any case."
Lets see what else, design win momentum in the intermediate term is slowing.
The stock is trading near cyclical lows, but we believe it will likely remain in a depressed trading range until some of the incremental capacity is absorbed, the financial impact of the Symbios acquistion is fully comprehended, and industry conditions improve. We will re-visit our rating as these factors change. |
