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Technology Stocks : LSI Corporation
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To: Jock Hutchinson who wrote (15718)10/17/1998 2:55:00 AM
From: shane forbes  Read Replies (2) of 25814
 
Hi Jock:

Most excellent post!

I would just comment:

(1) Total Company R&D %ge:

Symbios (SYM) R&D %ge is likely around 13% (higher volume fewer product lines etc etc)
LSI pre-merger (hereafter referred to "The Confused One" - CON) can say what they want but it will range from 16-18% (remember they are currently expensing things as R&D which will go into COGS eventually I think).

Therefore with SYM = 1/3 of business and CON 2/3rs of business, combined R&D WITH NO REDUCTIONS, is 1/3*13 + 2/3*17 = 16%. Even if we say CON's R&D is 19% and SYM is 14%, the combined entity is 17%.

NOW COMBINE THE COMPANIES AND REDUCE THE STORAGE PIECE R&D FOR TCO since SYM is doing storage R&D. Then even taking CON's 19% I think we can easily reduce it a few points since storage likely was around 1/6th of CON's business. If I took off 1/6th then CON's piece of REDUNDANT R&D is 3%.

So merely by combining the 2 companies and eliminating the redundant R&D (say 3% of TCO's) and even using aggressive assumptions (CON's R&D l/t = 19% [incl. storage] + SYM's l/t R&D is 14%) the combined R&D of the company as a percentage of revenue is 15.33333%! Bingo this is the goal - so IMHO the new company's (hereafter referred to as LSI) R&D percentage is 15%. To me there is nothing very ominous going on here.

Shane (I think they said R&D 15% not 13% - 13 looks too low)
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