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

To: hb who wrote (11456)	4/5/1998 1:35:00 PM
From: Jock Hutchinson	Read Replies (1) \| Respond to of 25814

The overall effect of business in Japan really is an issue of their primary Japanese customer--Sony. The negative part of this relationship is that the value of the yen has declined to historic lows versus the dollar. LSI has acknowledged in its 10-K that they hedge against this prospect, but that they are not fully hedged. Thus there is currently an overall decline in earnings because of currency valuations. However, this is partially offset by a number of positive factors. LSI has manufacturing and design facilities in Japan. As far as these areas are concerned, the dollar now has more bang for its buck. Moreover, Sony exports much of its product to the US market. Thus, the yen based component of that product (e.g. labor) is now cheaper in the US market. It is possible that the Sony products are actually cheaper. Additionally, there is an even greater perception in the eyes of the US consumer that Sony products now offer real values. In that sense the Japan issue is a positive. Overall though, the Japan issue is really a new product issue, and is a huge plus. The second generation DVD that Sony is marketing will add substantially to LSI's top and bottom line regardless of the currency problems. As previously posted, the Japan problem is also a tremendous plus for LSI because as of April 1st, individual Japanese families are free to invest in American equities. Sony products are a tremendous source of pride in Japan, and many Japanese know of LSI. If earnings momentum comes to LSI the Japanese will be among the players. And if you want to talk about herd mentality, ask any player in the real estate market in the eighties about Japanese herd mentality. But my analysis is simple and flawed. For example, networking is "safe" right now because most of the growth is in the US. But certainly we would hope to significantly export our networking capabilities to Japan and all of SEA. This point applies to the entire plethora of products which are supported by LSI technology. My point is that SEA isn't as dirty a word as people might think, and that LSI's problems with SEA may come from the products that it indirectly exports to SEA through its American customers (e.g. high end computers). LSI has begun to make serious incursions into SEA, and they are rightly holding the line. Thus, the return of strong economic growth in SEA will benefit companies such as LSI whose cup is half full rather than half empty simply because it will experience significant near term growth without the benefit of SEA. My understanding is that Gresham will open in the third quarter. Gresham is a tremendous location with a great labor pool. Over the next decade, LSI expects to significantly expand its physical facility there. I spoke with IR about a month ago, and I was told it would be needed. Currently LSI operates slightly above 80 percent capacity, but that can be somewhat misleading, since they have never been at one hundred percent and don't want to be. The only time they were at 90 percent was in the glory days of '95. Therefore, I don't think profitabilty is really the issue as much as need. I think that the exact date of Gresham profitabilty is a blip on the screen.