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Technology Stocks : LSI Corporation -- Ignore unavailable to you. Want to Upgrade?

To: wolfdog2 who wrote (22429)	7/26/2000 9:46:14 AM
From: wolfdog2	Read Replies (1) \| Respond to of 25814

Stock still hasn't opened on the NYSE. It's currently going for 32 1/4 on the other exchanges. Over 1/2 million shares have changed hands. Last price 32 1/4. What a rout! How dumb!

To: wolfdog2 who wrote (22429)	7/26/2000 10:18:36 AM
From: Charles Tutt	Respond to of 25814

I am pretty relaxed, actually. Bought another 800 at 33. Hopefully they'll be green pretty quickly.

To: wolfdog2 who wrote (22429)	7/26/2000 1:18:52 PM
From: Maverick	Read Replies (2) \| Respond to of 25814

ML:NT/LT BUY,tgt$60 Excerpts fr Merrill Lynch 7/26/00 Investment Highlights: • LSI Logic reported revenue of $644 million, below our $672 million estimate. Earnings per share of $0.29 were in line with our estimate, although non-operating income for the quarter was higher than we had forecast. • We are cutting numbers – 2000 is going from $1.28 to $1.21, and 2001 is going from $1.84 to $1.68. • The difficult quarter notwithstanding, end demand remains solid, and we still like LSI’s positioning. Shifting our stance with the stock trading on 33x earnings makes little sense in our opinion. We are maintaining our intermediate-term and long-term buy ratings – our price target is $60, down from $100. Fundamental Highlights: • A revenue pushout of $20 million was largely responsible for the weak Q2 numbers. • LSI is also pulling in manufacturing ramp plans for the remainder of the year in an effort to keep up with demand – the resultant impact on our gross margin estimate is negative. A disappointing quarter LSI Logic reported revenue growth of 29% YoY to $644, which was $29 million (or 4%) below our estimate. The company indicated that about $20 million of revenues slipped from June into early July due to shortages of parts such as capacitors. Also responsible were errors in ramping a new ERP system, which caused a delay in shipments. We believe that these are one-time events. LSI has also reset its spending and internal manufacturing rampup plans for the next several quarters, with a resultant negative impact on gross margin. In considering whether to remain positive on LSI in light of the unimpressive quarter, several factors some into play. On the positive side, there is no evidence that end demand has weakened – lead times continue to march out. We also continue to be impressed with LSI’s lineup of communications products, especially the move to standard products. Finally, at $40 the stock is trading at 1x growth, making it one of the least expensive names in our universe.[This report was written when LSI is at $40 1/2. At $32 on 7/26/00, LSI traded at PEG=0.8 growth a much more compelling value] On the negative side, the repeated resetting of financial goals combined with the ERP miscues raise questions about the quality of internal planning processes at LSI. Although our talks with management indicate that the company is working to improve its execution, proof is thin at this point. All in all, though, we think it makes little sense to downgrade our rating for a stock that continues to have an interesting demand story, and which has already seen a sharp decline. Although the stock may not show much upside for the near term as investors wait for signs of improving credibility, we think that the growth prospects combined with current valuation make the stock a reasonable buy at $40. We are setting a much more conservative price objective of $60, and maintaining our intermediate-term and long-term buy ratings. An overview . . . Operating EPS came in at $0.29 versus $0.11, in line with our estimate. However, non-interest income of $27 million came in higher than we had been modeling – based on our calculations, this added an estimated $0.02 to EPS relative to our estimate. Gross margin improved by 230 basis points to 42.9%, slightly below our 43.5% estimate. We expect gross margins to continue to expand through 2001, however, more slowly than we originally anticipated. We are now forecasting the company to exit 2001 with gross margins at 50%, down from our original estimate of 50% average for the year. The tight supply situation has forced the company to build more fab capacity, which will result in higher depreciation expenses and higher fixed operating costs. We note that the Gresham fab is now starting 3,000 8-inch wafers / week, and is expected to ramp to 4,500 8- inch wafers / week by the middle of Q101. A significant part of the problem, we believe, stems from the fact that LSI has been relying on increasing supply from foundry partners that have been unwilling to give LSI everything that it needs. The problem is likely to show up at other integrated device manufacturers as well – large foundries struggling with tight supply are clearly now favoring their large fabless customers. Continued strength in communications Despite the challenges in execution, we believe the company continues to meet with success in its communications business. We estimate that communications revenues account for about 47% of total LSI’s revenues, and we expect them to account for over 50% by Q300. We are forecasting communications revenue growth of over 65% YoY for 2000. The numbers . . . The decision to facilitize the Gresham fab still more aggressively than previously planned has pulled our gross margin estimates downwards – we are now looking for 43% in Q3 and 44% in Q4, down significantly from our earlier 47% and 49% estimates. We have metered our revenue estimates back slightly as well, from $730 million to $711 million for Q3 and from $813 million to $799 million for Q4. In an effort to minimize the impact on the bottom line, LSI has throttled back its earlier R&D plans, with the result that our 2000 earnings estimate is only falling from $1.28 to $1.21. For 2001, we have cut our gross margin estimate from 50% to 47%, and have cut our revenue estimate by approximately $200 million to $3.585 billion. Our EPS number falls from $1.84 to $1.68 as a result.