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Technology Stocks : LSI Corporation
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To: Tony Viola who wrote (18542)5/28/1999 1:03:00 AM
From: shane forbes  Read Replies (1) of 25814
 
Tony:

I like the PlayStation II set up as it is. Let Toshiba do the hard stuff. LSI is doing a nifty chip that should mean a nice stream of cash over the next few years. Sure the Toshiba chip would have meant (much) more but it would also have meant that LSI may have had to forgo other research and development the last 2 years (the opp. cost thing) and that in turn would have placed LSI in a precarious position if they failed (the don't bet on one horse thing). Also the investment of 1 billion is huge - even if Sony ponied up some of the cash LSI would have had to divy up some dough too and I'm not sure LSI needs more debt at this point.

As an aside note that 1 billion is a HUGE number. Even if Sony is not interested in making money on the hardware the size of the investment is indicative of the future revenue stream to the players here. In a word: HUGE. LSI got just enough to chew on and not so much that they could have choked themselves on. A win-win.

Note that in the final analysis financial management is made up of 2 distinct stages:
- INVESTMENT NOW
- CASH FLOW LATER

This is why the analysts are so gung-ho over the Playstation. If they can assign those cash flows now, the risk in owning LSI goes down, the valuation goes up. Conversely, when LSI was subject to those rumors of the impending Sony Playstation loss those so many times in the last 2 years (all idiots and morons and dimwits I say), the stock got hammered relentlessly. The tables have now turned and the cash flow is now a floor of support. Exactly where I don't know.
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