Compare XLNX report to this one on LSI to see the major differences in the 2 companies:
Sub-Industry:
Semiconductors
Summary: This company is a leading supplier of complex, high-performance semiconductors and storage systems.
Overview 29-JUL-02
We expect sales to increase 4% in 2002, following a 35% drop during the semiconductor industry downturn in 2001. We forecast a sales advance of nearly 23% in 2003, as the cyclical expansion broadens out. Communications segments are a prime focus at LSI, but consumer end markets, including video games, satellite set-top boxes, and DVD players have held up better since late 2001. On January 16, 2002, LSI announced a workforce reduction of 1,400 jobs (20%). Gross margin is widening, as higher volume production runs foster efficiencies and restructuring savings are realized. Following a 2001 loss per share before goodwill amortization, acquisition and other charges (EBG) of $0.54, we project a loss of $0.16 for 2002, and EPS of $0.45 in 2003. The impact of stock options expense over the past three years as estimated under SFAS rule 123 has averaged $0.37 per year, which detracts from the quality of earnings.
Valuation 29-JUL-02
The shares of this logic chipmaker have fallen along with other technology issues since May 2002. Demand is gradually picking up, and bookings rose 23% sequentially in the second quarter of 2002. However, revenues are rising from modest levels and pro forma profitability is not expected until the fourth quarter. The company has ample capacity to expand production, and has a modest need for capital spending in 2002. Cost-cutting measures have reduced the level of revenue needed to achieve profitability. The shares traded recently at 2.5X tangible book value, a valuation above prior cycle-trough levels near 1.3X. Although the shares' valuation has become more reasonable in recent weeks, and LSI's prospects will likely improve as the industry upturn unfolds, we are neutral given questions about the quality of earnings, in light of considerable compensation through stock options.
Business Summary 29-JUL-02
LSI Logic is best known as a leading supplier of application-specific and standard integrated circuits, although since 1998 it has diversified into storage components. Principal markets served include consumer products, communications, storage components, and storage area network (SAN) systems. Customers are generally electronic original equipment manufacturers (OEMs), and the company is focused on larger companies that make products in high-volume that use LSI's chips and storage system products.
The company operates in two main segments: Semiconductors (representing 88% of 2001 revenues), and SAN Systems (12%).
LSI emphasizes complex system-on-a-chip products that employ its CoreWare design methodology. Using sophisticated electronic design automation tools, customers add unique product features to pre-wired cores of industry-standard architecture protocols and algorithms that are electronically stitched together on a single chip. CoreWare methodology is based on application-specific integrated circuit (ASIC) technology: semiconductors designed to satisfy particular customer requirements. LSI is a top tier player in the global ASIC market, competing against the likes of IBM, Agere Systems, Texas Instruments, Agilent, and Broadcom.
Operations are worldwide. Sales in the U.S. accounted for 49% of the total in 2001, down from 61% in 2000, and 58% in 1999. Most of LSI's wafers are manufactured at its facilities in Gresham, OR; Tsukuba, Japan; and Colorado Springs, CO. In autumn 2001, the Colorado plant and was phased out and process R&D operations were transferred from a Santa Clara, CA, plant to Gresham, effectively consolidating worldwide chip operations to two plants, from four. Taiwan Semiconductor has been a wafer foundry partner since April 2001. SAN Systems manufacturing is based in Wichita, KS.
LSI's semiconductors are used in a wide variety of applications including digital video and audio, DVD players, wireless communications infrastructure, digital set-top boxes, high speed metropolitan and wide area networks, optical networking, wireless local area networks, home networking, residential broadband gateways, and digital subscriber lines. LSI supplies chips for Sony's Playstation II video game console. In 2001, Sony accounted for about 18% of total revenues.
LSI sells its products worldwide primarily through direct sales organizations, and also uses independent distributors. In January 2002, the company announced an alliance with Storage Technology Corp. (StorageTek) that gives LSI access to nearly 1,000 StorageTek sales and service representatives.
The company has grown by acquisition. In May 2001, LSI acquired C-Cube Microsystems for about $894 million. In August 2001, the company acquired the RAID (Redundant Array of Independent Disks) Division of American Megatrends for about $241 million. Notable among six acquisitions in 2000 was Datapath Systems, purchased for $420 million. |
