Spoke with LSI IR today, and while it is earnings quiet period, I was able to discern some very optimistic news in addition to the previously reported news that the first two months of this quarter were better than the first two months of the prior quarter, which was the best ever. These tidbits are as follows:
Over the short haul, the convertibles will be a positive, simply because the interest rate is almost two points lower. Given that this is $400 million, it equates to about 1.5 cents a share. (Of course the dilution of shares will come later). The reason for this is because the bank loan was arranged hastily to finance the purchase of Symbios, and now that LSI has stabilized, the rates are much better.
The reason the market went into a dive after the sale of the convertibles was announced is because a lot of the would-be institutional purchasers shorted the stock to protect their potential purchase. This is inevitably the case when such an offering is made, and in turn the short-term shorts follow up with more shorting. Then when the potential purchasers are not able to make a purchase, they cover their short along with the short term shorts, and on Wednesday, you also had a major move in the semis as well. As a result, there was a tremendous day for LSI's stock price.
LSI paid an excellent price for SEEK, given the price that Intel paid for Level One. There is no question, that this purchase puts LSI squarely in competition with INTC, however, LSI needed the level one products to complement its level two and level three products that it offers to existing customers.
Currently, LSI has around 15 to 20 percent of its sales in gate array. Some of this is higher than normal because of the plant closing where much of the gate array is made. As a result, there are some additional orders. Moreover, during the slack period of the past three years, LSI has continued to grow its cell based business at the expense of the gate array business, but now because of the lack of gate array, the cell business can only further grow LSI's top line. Thus, it was only a matter of time before LSI grew its top line. And with a strong hint of an upturn coming from many semi companies, it is possible that the glory days are dead ahead.
The component of the Playstation II that LSI is making may be the most complex component of the entire product--it is regulating Input Output, and it is here where the backwards compatibility comes to play. Interesting to note that Sony will begin marketing Playstation I in the Third World for much cheaper prices, once PS II is distributed in the US and other countries. Thus, not only will LSI make more money per "chip" with PS II, but it will continue to see significant revenues for PSI.
The storage business in general is going gangbusters, and LSI is very pleased with its Symbios purchase.
No problems of any major consequence at Gresham, and by the end of the year, Gresham will be contributing significantly to LSI.
The recently announced .18 mixed signal puts LSI directly and indirectly in competition with TI in an area that TI dominates
LSI sees no negative effects from the DEll IBM agreement--even though the two have an agreement to share IBM's advanced technology.
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