Just spoke with LSI IR. I obtained the following information:
LSI was preparing the announcement yesterday, so it was not in response to yesterday's drop.
SEC rules forbid a company from looking in detail at a company's books such as pricing and exact technology. There is a team in Colorado that is looking at Symbios right now. SEC rules require that LSI report 3Q results individually and in combination for LSI and Symbios. Thus actual numbers are not there. They will be reported in 3Q CC. As for the Symbios CC-it may be a CC or it may be a meeting at corporate in early October.
I was told that LSI held a Conference Call this morning on the pre-announcement. The number is 1 800 633 8284. The reservation number is 4650254. My notes from the CC are included below in the section titled "Notes from the CC"
IR informed me that the problem was the Secondary Asia Effect mostly from US customers, which was compounded by a seasonally slow quarter, which is backend loaded. Current visibility is 6 to 8 weeks
The most encouraging news is that Coreware is now at 40% and growing. Thus the long-term hypothesis holds. The growing Coreware segment retains customers because of the increased intellectual property.
Gresham will be pushed out until December, which means that there will be some slightly greater capitalization rather than expensing-i.e. slightly better numbers within that context only.
The actual number for the expensing depends on the number of lines you pull up, which is done on a modular basis. As many may recall, I questioned K's figures on the SEC 10Q, which was filed in early August. Obviously K's assertions that a company can costsout using either Capital expenses or R&D is ludicrous. The rules remain hard and fast. The critical question is what other expenses are being incurred for Gresham right now. The answer is cost of sales and cost of current employees at Gresham. The only further cost will be depreciation. Thus K is absolutely wrong in asserting that there will be other hidden costs. The good news is that any further costs incurred at Gresham other than the aforementioned depreciation will be operationally incurred, which means that it will be in the context of product being manufactured.
Robert Sisson also indicated that calls were made to various analysts at 5:00 a.m. Pacific Time, and LSI was not able to get in touch with Tom Kurlak.
Moonray: Mr. Sisson will get back to me on whether LSI chips are in the 7000 Cascio series
I made it very clear to Mr. Sisson my chagrin as an LSI shareholder over the apparent leak as well as Wilf's remarks about the shorts, and he indicated that my (and others) anger will be passed on.
"Notes from the CC"
Present were Mr. Corrigan, Mr. Norby, and Ms. Matley
Ms. Matley read the highlights from the press release. (A copy of which has always been posted on this thread.)
Then Wilf spoke:
After solid bookings in the first half of the year, there were slower bookings in July and August. There are very little turns (the portion of business that comes in that quarter) in this quarter. There are some pushouts into Q4 but no cancellations. Since ASIC is made to order, with 6 weeks gone, the prospect of significant turns showing up this quarter is poor. This is why LSI is able to announce so early.
The primary reason is a major shortfall in US bookings. Europe is fine despite a seasonal slowdown. Japan is up in units but affected by Yen. The problem is not consumer based. The problem is the secondary Asia affect has upon US communications. SEA is growing but is small.
Significantly Corrigan sees minimal inventory. He emphasizes that this is not an inventory correction. It is the longest downturn in semi history. He states that a combination of lower spending and technological obsolescence argue that the upturn in the semi market will occur sooner rather than later.
Although, there will be more detail to come, he states that Symbios will benefit from Oregon and Japan. There will be a both a strong combination of the companies two intellectual property as well as strong storage products that will provide host and target.
Questions from the analysts
Question:
Prudential wanted a sense of utilization and impact with Gresham and Symbios
Answer:
LSI is running at a reasonable utilization based on where expected quarter to be. They are now planning to turn on Gresham in December, which will help in Q4. There is a team in Colorado going through the manufacturing capabilities of Symbios. The forward look is that Symbios will be designed at .35 but LSI is retargeting Symbios products to Gresham.
Question:
Erica Klauer with Alex Brown
Is the problem a specific customer or broad based?
Answer. No one specific customer. The problems is with communications and computers in SEA for their US customers. Their business in Europe is telecommunications and infrastructure with companies such as Siemans and Erricson. There may be some effect of less equipment in this cycle. There also may be some slowing in the US economy.
Question:
Montgomery Securities wanted a weighting of the weakness in US with respect to computing vs. communications.
Answer: No exposure to PC. The strongest was communications in networking but computer non-PC the server side had been quite strong. There is slowing in both of areas. Talking 5 to 10 percent. It is a more pronounced seasonal effect. The business is still going forward-not as strong
Question:
Terry Ragsdale of JP Morgan wanted to know is there was anything at all that is LSI specific?
Answer: It is broad. The consumer is OK with the exception of the deterioration in the Yen, which of course is modified by pricing in the Yen. DVD looks where it should be and DCAM still looks strong. Wilf reiterates that the problem is US related.
Question:
Ragsdale also wanted to know if Wilf expected things to be up in 4Q or could we go flat in 4Q.
Answer: LSI won't know until Sept bookings, but Wilf stressed that his is not an inventory correction. Everybody is moving to Dell model. There is not much inventory left. We are now in a real time connection between assembling boards and time components.
Question:
Ragsdale also wanted to know if "You don't think Asia will go away."
Answer: Wilf stated that after having been in Asia recently, we all conclude that Asia has not yet hit bottom yet, and it will go down at least for a couple of quarters.
End of call.
The broad perspective here is that the Asian flu is about to hit a much broader range of US companies than just the semi conductors. Semis are the lead indicator, and it is safe to assume that the large server companies are just about to take a big hit from SEA as well as networking companies. Rather than moaning about something that is out of one's control, one might want to lessen his holdings in other areas such as networking and communications. If it's a long-term capital gains issue problem one can protect himself by buying puts in related stocks or consulting a tax adviser on the possibility of "shorting the box" without paying capital gains tax.
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