Addi: I have given some thought to Ms. Klauer's downgrade, and I must respectfully disagree with her. If you access the following site, you will note a number of year over year comparisons for various semi product categories:
eb-mag.com
Clearly the fastest growing semi category in 1997 was Standard Cell Based, where LSI ranked fourth in the world. LSI's 1997 sales in that category saw an increase in sales of 37.4%. The three competitors to which Ms. Klauer referred were TXN, LU, and IBM. Their Standard Cell Based sales grew 30.6%, 27.4%, and 52.1% respectively. Thus, unless it is a very new phenomenon, it would appear that LSI is growing quite nicely relative to its competitors.
Moreover, this is 36% growth year over year. If that had been LSI's only product category, LSI would have experienced a sensational year. What's holding LSI back of course is the decline in the gate array business, which with the exception of some government contracts, LSI is all but abandoning. This statement comes from Diana Matley. Thus, this year has surely seen further diminishment of LSI's gate array business, which accounted for $566 million in sales in '97.
Therefore, notwithstanding the terrible year semis have seen this year, LSI is still growing its Standard Cell business probably in the neighborhood of 25% this year.
Now the question I posed Kash Johal was how much of LSI's low end Standard Cell Business was vulnerable, and his reply was that his company was actually more of a competitor with the PLD guys and it was indirectly a competitor with LSI since he feels that a lot of LSI's customers are already doing inhouse design. Thus, it remains to be seen if LSI will "abandon" a certain portion of its Standard Cell business, just as it has abandoned much of its gate array business.
Obviously this could lead LSI to being forced into a certain niche. but according to Diana Mately, the Standard Cell Customers are not the same gate array customers that LSI has abandoned. Therefore it is not merely a case of LSI's customers "trading up" to Standard Cell. So my point is that LSI is not merely treading water by substituting one product type for another,but it is actually experiencing a prodigious amount of stealth growth by losing the gate array business, and merely replacing it for the time being with Standard Cell Based business.
Except going forward, this scenario will no longer hold water because there is very little gate array to lose. And from that point on, the Standard Cell Based business will be the only business that will be left to grow--the same Standard Cell Based business that grew by 35% last year and is growing over 25% this year. The same Standrd Cell Based business that constituted a portion of the Symbios purchase. My question is what will happen with Standard Cell Base growth when we see an overall up year of 20% to 25% in the semiconductor business? Sounds to me like a company with explosive growth potential.
Two other thoughts. Ms Klauer noted that LSI has lost some of Sun's high end computer business. Let me think about this. Do people in the industry play games with each other based upon who is partnering up with whom? Well, according to Scott Mc Neeley they do. Did LSI make a nifty little purchase of Symbios? Yup. Does Symbios have a superb position to capitalize on the incredible growth in servers that will come about through NT 5.0 because they are designed into the Xeon chip.? Without a doubt. Now if I were Sun, a long time customer of LSI, I think that I would want to send LSI a message, and I would surely want to do so if I could find an alternate supplier.
One final thought: Shane posted a very bullish report yesterday in the following link:
eb-mag.com
My reply which highlighted my concerns read as follows:
Having looked at the report, I found that
there are a number of expectations for semicustom chips, one
which at first blush seems to be contradictory. Taken as a whole
the market for semi custom chips will see over the next 60 days a
fall in prices (no problem there, since you can always have a fall
in prices with greater revenue), much worse supply that will
prompt PMs to either increase supply or maintain supply but
definitely not reduce supply, and an increase in orders. Yet,
despite all of this bullish news, the lead times are expected to be the same or shorten.Perhaps you can reconcile this last statistics with the other bullish statistics. I understand that as a rule lead
times are being shortened, but I still do not understand how lead
times could be shortened in a market that will see much worse
supply problems.
Having given it some thought, this report reflects the quintessence of what just happened to prompt LSI's recent warning. Despite the fact that there is demand for the high end networking and communication chips, and that there is shortages expected, the purchasing mangers are still working with the Dell Model And this is why you can see shortened expected lead times and still see greater anticipated demand. Therefore, Shane's report precisely reflects the conditions that led to LSI's recent warning
How this plays out in the near term will be different than the long-term. But over time, this sort of ordering pattern promises to reduce inventory corrections as a problem in the semi industry--or at least until the next shortage, which according to some will never happen again, which is sort of like the opposite of early '95 when it was felt that there would never be a surplus of chips.
What does mean for today? Not a damn thing. Currently they hold a white elephant in Gresham, investors are rushing to the stern of the Titanic (Dell and other big caps), nobody knows the writeoff size or forward looking costs of Symbios, and at the very least the leader of the most powerful nation in the world is about to be deeply humiliated. I for one, am seriously thinking about using a large portion of my purchasing power in my untouchable funds to buy more pain in the form of LSI. We shall see. |
