Value Line looks at LSI
In this article we examine LSI Logic in detail. The intent of this article is to
understand the overall health of LSI corporation, what it is, what it does, the
markets it supports, and what one group of analysts (Value-Line) have to say
about it. This information has been presented by Value-Line Magazine.
Value-Line is available at the reference desk of your local library.
Value-Line October 23rd, 1998 Page 1060
LSI Logic Corp (NYSE - LSI) Recent price : 12 P/E Ratio : 27.9
Timeliness : 4 (Lowered 9/25/98) (ranking 1=good, 5=bad)
Safety : 4 (Lowered 7/24/98)
Technical: 3 (Lowered 9/4/98)
Year 2001-03 Stock Price Projections
High…….70……(+485%)
Low……..40……(+235%)
Main Chart Value-Line for LSI
……………………………1997…….1998…..1999……2001-2003
Sales per share……………9.21……..10.10…..12.35……..22.65
Earnings per share…………1.14…….0.60…….0.75……….3.00
Book Value Per Share……..11.17….11.45…..12.00………..19.35
Business
LSI Logic Corp is a leader in the design, development, manufacture, and
marketing of value-added custom integrated circuits, typically for the consumer
electronics, communications, and computer markets. LSI uses a product library
of predefined and characterized cells of industry-standard functions, protocols,
and interfaces (CoreWare), to which custom features are added. 1997 results :
computer, 31%; communications, 32%, consumer electronics, 33%; other 4%.
Foreign sales, 50.0% of total. R&D, 18% of total revs. 1997 depreciation rate :
9.6%. Has 4,443 employees. Officer/directors own 6.2% of common (Mr.
Corrigan owns 5.4%). Chairman & C.E.O. : Wilfred Corrigan. Telephone :
800-574-4286. lsilogic.com.
Main Article
LSI Logic's earnings will likely continue to slow in the near term. Excluding
the Symbios acquisition, sales declined about 8% in September quarter. And
since orders slowed substantially in August, we expect a worse comparison for
the December period. A modest acceleration of bookings in the past six weeks,
though, suggests that 1999 could see an improving sales picture. New orders
for the telecommunications and PC markets appear to be relatively good,
especially, and the disk drive market, which has had a very poor year, also is
showing signs of greater strength. Based on current trends, we think orders
will continue to improve going forward.
Cost cutting initiatives should help the bottom line next year. Over
the course of the next 12 months, LSI plans to eliminate about 1200
jobs - a 17% reductions - and close two of its older manufacturing
facilities. The Gresham plant, a more efficient operation that is being
brought on-line this quarter, will take on the additional load. Also,
the company will close down several design centers, sales offices,
and administrative functions, mostly because of redundancy relation
to the Symbios acquisition. These steps should bring LSI closer to
its targeted business model by the second half of 1999, and, together
with the fully operational Gresham plant, help support better
earnings growth through next year.
Over the long term, LSI should benefit from high-growth areas,
such as telecommunications…. This segment has substantial
long-term potential for expansion, especially for ATM, Ethernet,
Frame relay, remote access and wireless applications … computer
markets … Demand for workstation, storage device, and server
products should grow significantly, primarily due to the rapid
expansion of the internet….. and consumer goods.
Its profitable association with Sony suggests LSI will forge
relationships with other consumer businesses. Although significant
risk exists, LSI stock has substantial recovery potential through
2001-2003. Near-term uncertainty remains, however, We expect the
stock (ranked 4 for Timeliness) will under perform the market
averages in the next six to 12 months.
Warren Thorpe (Author - Value-Line) October 23, 1998
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