LSI Logic Licenses Chip Design In Bid For
Indus Standard
By SCOTT EDEN
NEW YORK -- In a bid to avoid the dinosaur status of such products as
Beta VCRs, LSI Logic Corp. (LSI) began its quest Tuesday to introduce a
microchip design that it hopes will become an industry standard.
The chip is a so-called digital-signal processor, or DSP, a key element of
advanced semiconductors used in everything from cellular phones to
networking gear. A few huge players dominate the DSP market. Texas
Instruments Inc. (TXN), Lucent Technologies Inc. (LU) and Motorola Inc.
(MOT), among others, make these types of processors.
But Tuesday, LSI announced the first of what it hopes will be a series of
licensing agreements with semiconductor manufacturers. Called the ZSP400,
LSI's chip is a high-performance DSP designed specifically for broadband
networking equipment.
LSI said Tuesday that it licensed the ZSP400 blueprint for a combination of
cash and royalties to Broadcom Corp. (BRCM), which in turn will produce
chips based on the design. By the end of the year, LSI hopes to have
between six and 10 licensees under its belt, Chairman and Chief Executive
Wilfred Corrigan told Dow Jones Newswires.
"You're going to see a lot more of these arrangements," he added. "We are in
active negotiations with several players."
The DSP industry is at a point of no return, Corrigan said, with
ever-more-sophisticated devices demanding speedier and more powerful
microchips to govern their complex inner workings. According to Corrigan,
the proprietary DSP architecture currently on the market isn't powerful
enough for the job.
"There is a point of discontinuity" between old and new chip designs, he said.
"There is a chance to establish a new standard."
The nation's biggest DSP producer, Texas Instruments, owns about 47% of
the U.S. market, most of which comes from selling chips based on the
company's proprietary design. According to Leon Adams, TI's director of
DSP marketing, the company has no plans to license LSI's technology.
Not surprisingly, Adams dismissed any challenge LSI's chip design might pose
to Texas Instrument's market-leading position. "From what we've seen of the
(ZSP400), we have higher performance solutions on the market," Adams
said. And because a slew of software has already been written for use with
TI's DSPs, he said, the company's chips are well entrenched with customers,
making them the market "de facto standard." He added, "Getting everybody
convinced they need to change technology is going to be a pretty high hill to
climb."
LSI stock rose sharply Tuesday, reaching a 52-week high, perhaps more on
a recommendation upgrade from investment banking house Merrill Lynch &
Co. than the Broadcom announcement. Licensing fees, after all, will remain a
relatively small portion of LSI's revenue, Corrigan said.
The real money to be made is from LSI's own manufacture and sale of the
ZSP400 chip, which it hopes will take off if the design becomes an industry
standard. LSI thus hopes to sidestep the fate of the Beta VCR format, which
lost the standards grail in the early turf wars among home-video players.
Beta's VHS competitors astutely relinquished their proprietary hold on VCR
design to competing manufacturers, competition that pushed prices down.
Separately, Merrill Lynch analyst Joseph Osha in his Tuesday research note
lauded LSI's widening gross margins, which led him to raise his estimate for
the company's 2000 earnings to $2.32 share from $2.21, well above the
current consensus projection of $2.20 a share.
LSI's NYSE-listed stock traded recently at 80, up 7 1/4, or 10%, surpassing
the previous 52-week high, 74 1/4, set Jan. 14. Volume reached 3.4 million
shares, compared with average daily turnover of 2.2 million. Shares of
Broadcom, meanwhile, also reached a year peak, trading up 9.3%, or 27 1/4,
at 322 1/2. The previous ceiling was 307, hit Jan. 11.
-Scott Eden; Dow Jones Newswires; 201-938-5253 |
