Comments from Value Line
LSI Logic's earnings will likely continue to slow in the near term. Excluding the Symbios acquisition, sales declined about 8% in September quarter. And since orders slowed substantially in August, we expect a worse comparison for the December period. A modest acceleration of bookings in the past six weeks, though, suggests that 1999 could see an improving sales picture. New orders for the telecoms and PC markets appear to be relatively good, especially, and the disk drive market, which has had a very poor year, also is showing signs of greater strength. Based on current trends, we think orders will continue to improve going forward.
Cost cutting initiatives should help the bottom line next year. Over the course of the next 12 months, LSI plans to eliminate about 1200 jobs-a 17% reduction-and close two of its older manufacturing facilities. The Gresham plant, a more efficient operation that is being brought on line this quarter, will take on the additional load. Also, the company will close down several design centers, sales offices, and administrative functions, mostly because of redundancy related to the Symbios acquisition. These steps should bring LSI closer to its targeted business model by the second half of 1999, and, together with the fully operational Gresham plant, help support better earnings growth through next year.
Over the long term, LSI should benefit from high-growth areas, such as telecommunications ... This segment has substantial long-term potential for expansion, especially for ATM, Ethernet, frame relay, remote access and wireless applications. ... computer markets ... Demand for workstation, storage-device, and server products should grow significantly, primarily due to the rapid expansion of the Internet. ... and consumer goods. Its profitable association with Sony suggests LSI will forge relationships with other consumer businesses.
Although significant risk exists, LSI stock has substantial recovery potential through 2001A2003. Near-term uncertainty remains, however. We expect the stock (ranked 4 for Timeliness) will underperform the market averages in the next six to 12 months.
Warren Thorpe October 23, 1998 |
