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To: Jock Hutchinson who wrote (15718)	10/16/1998 12:07:00 PM
From: Daniel My Brother	Respond to of 25814

Looks like the only thing left to do on this thread for the next 12 months is bitch....it's going to be a long 12 months! Yes...I could sell but not willing to lose everything.....Really stuck! Daniel My Brother

To: Jock Hutchinson who wrote (15718)	10/16/1998 4:49:00 PM
From: patrick tang	Read Replies (3) \| Respond to of 25814

Jock, thanks for giving us the conference call details, really helps. I don't judge Wilf too much on the past. I try to judge what he says to my view of the future. My view of things: 1. Wilf and gang are actively managing the company. They could have sat on the thing, as in not shutting anything down and try to 'upgrade' Colorodo to 0.25um and keep making their $0.15/Q, but they did not. They actively positioned the company for the future at the expanse of having to take a hit now with the shutdowns. 2. It did not take them long to combine Symbios at all. Great job. Also, it did not appear that they went in there like conquerers, which is the usual way people do take overs. And the usual results are they kill the goose. Like their style. As a side note, see how Cyrix went into complete product dis-array the last 9 months after NSM took them over. 3. I like Wilf's thinking on the Far East situation and especially consumer electronics. My thinking on that is along his lines - a. Jap. starting taking stuff inhouse, no surprise. Everybody understands they cannot depend on DRAMs anymore but need to go Intel-like with added value. Look for guys like Toshiba, NEC, Fujitsu and gang to not farm out IP stuff to LSI. So out goes the high end stuff. Wilf is realistic about this. b. BUT, for consumer guys like Sony, Panasonic, Casio, Minolta and the like, I look for them to abandon semis. With no DRAMs, they just can't afford to build multi-$B fabs and keep them stuffed in-house. Not to mention they need IP for products and just won't have time to develop their own IP with shorter and shorter product cycles. These companies will stop go vertical and go Dell, Gateway, MUEI and become really marketeers. The good thing for LSI is a lot of the stuff that they need to outsource, instead of PC type gelly-beans that Taiwan Inc. can do, need a lot of IP, e.g. digicam. LSI can do VERY well if that is the model going forward. Being tapped into the customer now on camera allows them to keep working on newer stuff. LSI seems to want to stake out the high-end consumer of the future. I like that. c. Wilf seems to know that consumer can be really big in China and Far East and am positioning the company for it. Thus I am sure that he knows he needs top grade manufacturing for that to compete against TSMC and UMC. The good part about Far East - things turn on a dime. e.g. HK real estate and stock market down 50% past 9 months. It can just go right back up in the next 9 months. Same for consumer spending. 4. I do not see same bleak economic scenario that you see. AND THIS IS OUR BIGGEST DIFFERENCE IN OPINION. I do not see US slowing down that much. Thanks to the Feds I see consumer and housing starts coming back. I see Far East coming back fast, especially now that Japan seems to be finally getting their house in order. And Japan consumer spending can come back real fast too e.g. PC sales in Japan since Win98 introduction ahd exceeded all expectations and have not slowed even by end of Sept. With Japan coming to the tables for the next round, THAT will be explosive! 5. With overall economic not declining that much or even coming back, I see the newer generation stuff ramping much faster than people anticipates. Take digital camera. So far all that stuff out there IMO have really been toys for technies. This morning I saw advertisement for the new Sonys. Everything get recorded directly on floopies (and not some x MB Flash Card that nobody understands) that can plug right into your PC. Personally, I have resisted this contraption myself because I scared about 'downloading' etc. I expect the consumer stuff like cameras and DVDs to take off from here a lot faster than people anticipates. All that stuff is now done on 0.35um I persume. But to get to mass market, that needs to be driven down to 0.25um and below. 6. Need to start Gresham now - takes time to debug and make it yield. As an example, note the Yahoo chat room post I put up a few posts back. But putting in new equipment and ramping capacity will be much quicker and cheaper than you project - Gresham WILL be the 'existing fab'. 7. Yes, Symbios margins are not as robust as one would hope. But I would not have expected Hyundai to have run a tight ship the American way. But I do expect Wilf and crew to get things in line. Again, I would not have expected Wilf to talk openly and directly about Symbios in this way. Come to think of it, I think Shane reported that Symbios seems to have high inventory. Perhaps they build product that turned into inventory right before the slowdown last Q. But that stuff should be sellable and not decline 60%/yr like RAMs. So we'll probably get that money back. And Xenon is finally moving, that should help. 7. Did not like them dragging Jap plant closing till end of Q1 '99. Would rather see them do it all this Q. But such is the fact of life. 8. Correct me somebody, but the STB business has always been in flux, especially for component suppliers - the box-makers essentially do not have fixed business plans even now. Interactively TV? DVD too? Cable modem or xDSL or simple cable? x86 or RISC? WinCE or proprietory? MPEG with or without? At least until the 'standards' are set, I think the supplier situation will be in flux. Tough to lose it, but in the next round, everybody's on same starting point again. 9. As for R&D, I expect them as hands on managers to understand what is best for the company. (Also as stockholders too, as Wilf bought 100k shares at $25?) 10. Surprised that Sony is back up to 10%. Is that Playstation II or is that digicam? 11. I like the new wireless stuff that apparantly came with Symbios. That's one area that I always wished LSI would get into. But that slowdown in telecom espcially wireless, hit Symbios much harder than LSI - much smaller base with Symbios. Is that one reason for Symbios non-producing in Q3? 12. They are targeting business model for flat sales. So any upside would surprise bottom line. I agree with Wilf, either below 10% or above 20%. Personally I suspect 20%. But even with 10% in '99, '00 will definitely be 20% in my opinion. And LSI is well positioned. 11. I am not too concerned about the next 6 months, but that is personally call. IMO, the thing to watch now is a. things in Far East, especially Japan and b. the Yahoo LSI chat regarding the postings by that guy who works at Gresham to see how the yield ramp is coming c. general US economy especially housing starts and soncumer spendings. 12. Finally, the new company structure will allow not just the company, but also the analysts to judge better how the company is doing. That is essential. patrick

To: Jock Hutchinson who wrote (15718)	10/17/1998 2:55:00 AM
From: shane forbes	Read Replies (2) \| Respond to of 25814

Hi Jock: Most excellent post! I would just comment: (1) Total Company R&D %ge: Symbios (SYM) R&D %ge is likely around 13% (higher volume fewer product lines etc etc) LSI pre-merger (hereafter referred to "The Confused One" - CON) can say what they want but it will range from 16-18% (remember they are currently expensing things as R&D which will go into COGS eventually I think). Therefore with SYM = 1/3 of business and CON 2/3rs of business, combined R&D WITH NO REDUCTIONS, is 1/313 + 2/317 = 16%. Even if we say CON's R&D is 19% and SYM is 14%, the combined entity is 17%. NOW COMBINE THE COMPANIES AND REDUCE THE STORAGE PIECE R&D FOR TCO since SYM is doing storage R&D. Then even taking CON's 19% I think we can easily reduce it a few points since storage likely was around 1/6th of CON's business. If I took off 1/6th then CON's piece of REDUNDANT R&D is 3%. So merely by combining the 2 companies and eliminating the redundant R&D (say 3% of TCO's) and even using aggressive assumptions (CON's R&D l/t = 19% [incl. storage] + SYM's l/t R&D is 14%) the combined R&D of the company as a percentage of revenue is 15.33333%! Bingo this is the goal - so IMHO the new company's (hereafter referred to as LSI) R&D percentage is 15%. To me there is nothing very ominous going on here. Shane (I think they said R&D 15% not 13% - 13 looks too low)

To: Jock Hutchinson who wrote (15718)	10/17/1998 3:12:00 AM
From: shane forbes	Respond to of 25814

continued: (2) SG&A expense as %ge of revenue: For SYM - 15% (aggressive) For old LSI (CON) - 16% (aggressive) Combine without reductions in staffing - 16%. Because of overlapping in sales staff I think it is plausible that this number can be brought down to 13% quite easily. In fact more reasonable estimates would be SYM-13% and CON-14% yielding 14% for the combined company without reductions for overlap. Therefore 13% is a very reasonable and easily attainable goal for LSI. (3) Why does SYM's gross margins matter all that much? Current data shows SYM's GM at 36%. BUT IT IS NOT THIS NUMBER THAT IS CRUCIAL IT IS THE NET MARGIN. If hypothetically SYM were to have CON's R&D of 20% and SG&A of 16% then operating income would be 0. BUT the point is they don't - they are more EFFICIENT users of resources. So their R&D + SG&A is say 27% then NET becomes not 0 but 9%. (CON's numbers would be 45% - 36% = 9% so the same as the NET SYM numbers.) [Catch though is that past the op. margin line we have interest expense that is whacking down the SYM 9%.] Now let's fast forward a bit. I have said here zillions of times that storage is as integral to the Net as networking. Only now are people saying oh yeah it is (dweebs <g>). So I am willing to bet that SYM can up the revenue while maintaining R&D and SG&A constant. This lowers the percentages of R&D and SG&A. My sense is that over time SYM if they were operating alone could have had NET of around 12-15%, which is more than decent. (As far as interest debt goes, it is now a part of LSI and so should come down - before it was part of Hyundai and that's expensive interest.) Shane.

To: Jock Hutchinson who wrote (15718)	10/17/1998 3:57:00 AM
From: shane forbes	Read Replies (1) \| Respond to of 25814

continued: (4) Combined LSI model: Assume SYM's GM goes to 40% (from current weak environment 36% this is not unreasonable and further LSI could lower costs down with their more "efficient" processes) Assume CON's (the old LSI's) GM is around 47% (one might think this is high but std products have higher overall margins than doing everything from scratch products. If this sounds goofy it isn't. It boils down to better fab utilization). Then combined GM is 45%. (Again I think 40 and 47 are low numbers - esp. CON's 47 <g>). Combined R&D from 2 posts ago is fine at 15% and combined SG&A from one post ago is fine at 13% Operating margins therefore 17%. Interest expense - (revenues 1.8 billion, cash 0.23B, LTD 0.6B, assume 5% interest rate l/t, 3% s/t ) = -ve 1% Income before taxes - 16% Taxes (current 25% assume future 28%) - 4.5% Net Income after Taxes - 11.5 - say 12%, which actually is ok and not great by any means but it is a reasonable base. 12% on 1.8 billion in sales on 140 million shares is a baseline EPS of $1.54 per share in 1998. (5) Rate of Revenue growth: SYM - 20% easily attainable CON - let's be very conservative and assume l/t IC average of 17% (this is actually to take into account Gresham start up costs etc) Combined LSI - 18% revenue growth rate (using 1998 as base) Hence baseline EPS goes to $2.53 in 2001. P/E flat = 18. Risk factor = 30%. P/E adjusted = 13. Minimum share price (under ludicrously weak assumptions) in 2001 = 33. Minimum share price assuming that P/E adjusted = P/E flat = 18 in 2001 is 46 Minimum share price assuming LSI does do things properly over the next few years and the synergies are there: P/E adjusted = 23 which gives 58 in 2001. Minimum share price assuming semis go moderately ballistic over the next few years considering severe shortage of capacity and NET explosion - up revenue growth rate for SYM to 23%, up CON growth rate to 25%, for combined revenue growth rate of 24%, P/E flat of 24%, risk factor premium 25%, P/E adjusted of 30 and earnings of $2.91 in 2001, share price of LSI is $87. Assuming things go hog wild over the next 3 years for LSI, $100. Adjust by probabilities of distribution: crap average good-times Price first - 15% 10% 0% 33 second - 25% 20% 10% 46 third - 35% 25% 20% 58 fourth - 20% 30% 40% 87 fifth - 5% 15% 30% 100 exp.price $59 $68 $81 [add later: Big OOPS! Forgot to adjust for share dilution! Maybe 20%. BUT this might be OK since I just upped earnings by the revenue growth rate (for conservative numbers). As every one knows earnings go up faster than the revenue growth rate for semis. (Of course we are in the corollary of this fact these days - earnings get hammered much faster than the slowdown in the revenue growth rate. So my sense is that the numbers above even accounting for dilution are on the low end and that is the way this boy likes to make up guesstimates!] Really I don't think the above table makes sense for the crap and good-times columns since these are reflected in the scenarios themselves. So just take the 2nd and you get $68 as a reasonable guess. True this is not 100 but 100 is the best of all possible worlds scenario and that can still happen. $68 is a baseline. For me with an average cost basis of 24 and an average holding period of 5 months (so average buying time was 5/1/98) if LSI were to hit $68 in 7/1/2001 that would give an average return of 39% for the entire period. Put some margin in there and I'm golden <g>. Shane. average

To: Jock Hutchinson who wrote (15718)	10/17/1998 4:21:00 AM
From: shane forbes	Respond to of 25814

continued: 6. What's there to like? (a)More Sales per share. More Debt. => Higher earnings, Higher returns on Equity. (b)We have had something like 14 straight quarters with revenues between 300 mil. and 349 mil (really only one q was 349m. - can really change this to about 332 mil). Now we are at 390 mil (really run-rate is 425 mil) - that's a BIG CHANGE with remember just a little share dilution to boot. (c) In the context of the messy semicycle this would really be very good performance. Except that expenses have ballooned and though there is a lag time between R&D expense and incorporation into the customer's product "where is the beef" is a very fair question. Well with greater sales automatically our expenses just went down <g>. (d) Sentiment - CON has been plagued by this greatest thing in the world syndrome - the 2nd coming of the Messiah thing. Well now we are in the reverse situation where thanks to the asset writedowns and the good times elsewhere in the industry people are in a new phase of the we hate LSI mood. This is a good thing. (e) Std. cells - SYM has a lot, CON has a lot (remember that CON's new G12 and maybe even G11 are all std. cell designs). (f) IP - duh! (h) Bigger company - duh! (i) More Sales per share (j) More Sales per share (k) More Sales per share (l) There is nothing evil about doing std. products that did not include mucho design time. STM, ADI are 2 companies that I can think of straight off the bat that have a combination very high volume cash cow (std products - things like SLICs) + some non-std. products. Both ought to be successful. LSI is too big to be doing all IP high design intensive low volume products. If theirs was a 100 million in sales company sure it would work. 200,300,400 million even. But not 1.3 billion and owning one's own factories. The biggest expense in this industry is depreciation on the fabs. If the fabs are idle you are literally burning money. Std. products mitigate this considerably. (m) more sales. (n) more sales. (o) more sales. Shane.

To: Jock Hutchinson who wrote (15718)	10/17/1998 4:27:00 AM
From: shane forbes	Read Replies (1) \| Respond to of 25814

continued: 7. What's there not to like? (a) Recessions (b) Weakened Balance Sheet (c) Uncertainties involved in the new LSI. (d) Big concern - loss of parts of STB business (e) Bigger concern - why the heck did consumer go down to under 20% from better than 30% before - (d) is partial cause but there is more likely. (f) Institutional Schpeak - the company is very good at making sure their clients are protected even if this means schrewing all shareholders and others who need to know what's happening. So it is the Staggered Pricing (huh?), convenient details left out of c.calls only to be released a few qtrs. later etc. I actually realized this early on since they do some very high end stuff and there is no way their customers would want this information on new product lines released to their competitors ahead of time (since LSI would design it a time X, produce it at time X+3months, customer would come out with new product maybe at X+6months - all low guesses) through LSI's conference calls. More importantly if there were changes in product lines and this were reflected in LSI's numbers (say the Sony Playstation) then it really puts the customers in a bind. So LSI hides stuff. Won't change anytime soon. (h) Intel & Gang coming? - but Bigger Size is Better Defence. Shane.