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Shane: Another problem facing LSI is that LSI is dependent upon Cadence and others for providing the software for the design tools that LSI needs for its future deep sub-micron products. Without the software, a lot of potential products cannot be developed. As of yet, Cadence hasn't developed much of the needed "next generation" software. In essence, this means that LSI could eventually become a commodity player in a different sort of chip market--i.e. a "better" class of commodity chip, but still commodity nevertheless. Why? Because the ability to go to the next level of sub-micron will become meaningless without the needed design tools. The other scenario is if Cadence does develop the needed software. Then the entire "fabless" chip industry is able to compete with LSI. Certainly, the control of one's own software is what has allowed companies such as ALTR and XLNX to flourish (at least relative to LSI). Thus, it would seem that the future looks even bleaker for LSI. However, much of this will be mitigated by the next upturn in the semi cycle. Long-term, vertical integration is imperative--particularly with the ongoing disinvestment in chip making equipment. Whatever short-term pain is being felt by Gresham will be a wash and then some with the ongoing lack of capital investment. Gresham is not limited by the lack of design tools. Thus, LSI promises to become an outright cash cow during the next upcycle. LSI's Symbios purchase at the peak of the next cycle could easily present a company with a book value of $20.00 a share with the portion of its intellectual capital significantly undervalued. What does LSI need to do? It needs to seek out a partner such as Cadence to achieve true intellectual property status. That's the sort of intellectual property cachet that will give it significant intellectual property status and stamina. Indeed, over time, it may make sense for Cadence to purchase LSI given LSI's lead as an independent maker of standard cells. Your thoughts? |
