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

To: patrick tang who wrote (16704)	1/28/1999 11:46:00 PM
From: Andy M.	Read Replies (1) \| Respond to of 25814

INcrease in revenues might be somewhat misleading because they are now adding Symbios revenues in and calling them LSI revenue. 1997 Q4 revenue for LSI is now being compared to 1998 Q4 Old LSI + Q4 Symbios. So the jump in revenue shouldn't be surprising since it is a combination of two companies. The EPS, though, looks good, because they beat the estimates pretty well. I think that Yahoo .00 eps is wrong. It's contradicted by the line of the release just above it which clearly says .05 cents before those two special things were taken into account. And .05 is what Matley said in the conference call. Andy

To: patrick tang who wrote (16704)	1/29/1999 1:02:00 AM
From: Jock Hutchinson	Read Replies (5) \| Respond to of 25814

Summary of LSI 4th Quarter Conference Call Begins as usual with Diana Matley. Also Wilf , Doug Norby Ellie Anton, John Danhne, et al. Diane starts with the usual go through of the press release. Since you have already have this, there is no reason to rehash this. Wilf: At this point the industry bottomed in Q3, and in Q4 saw a reasonable recovery, and in this new year there is a growing belief of continued growth. Financial model is for improving returns. There is a rapid acceptance of Internet and e-commerce. World is now Internet centric with PC as peripheral. Internet as infrastructure is LSI's greatest strength. All of this results in a 14% increase in revenues which is partly attributable to the first full quarter of revenues with Symbios and growth in all six vertical markets. Gross margin was 35%. This decline is due to Gresham and some inventory adjustments that brought GM down 100 to 150 basis points. (My Comment: The inventory adjustment was very encouraging because it appears to be a one time phenomenon.) Operating expense was even including good will amortization. Otherwise, operating profit was at 5 cents per share. Bookings were strong. North American, Europe up as well as Pan Asia. Still seeing flat bookings in Japan. Improving pace of bookings into January. Should be strongest January ever. Cash grew by 53 million. Inventories down by six million. Capital expenditures were 93 million--which will be the largest quarter in a while thus leading to positive cash flow Depreciation and amortization was up 11 million reflecting first full q of one month with Gresham and all of Symbios. Expects this to be 300 million in '99 Steadily changing business shows double lifetime revenue per design and this year expects this trend to continue. (My comment: This is obviously very positive news.) LSI accelerated to G12 which is .18 micron. (My comment: I am not sure that they are actually putting out any product yet at .18). Completed Symbios. Describes Q 1 as transition with revenues up and gross margins to be 100 to 150 basis points below Q4. Will be shipping product based on Gresham in Q2, which will be much stronger. Expect break even in Q1 with a million charge for a one time accounting change In Q 2 we will see serious move to the black for the rest of '99. (Comment: Only a fool would wait until the second half to move into LSI. By that time the stock will have made its move.) Ellie Antoun with comments on vertical markets Q4 in consumer area of DVD DCAM set top box and video games was strong.Playstation shipments were very strong. Milestones achieved. In Q4 12% of revenue was Sony. Dependence on Playstation will decline It was 21% in'97 Half a dozen DVD in Q4 shipments exceeded expectations,. Weakness in Japan's domestic economy. China too early to tell. Key model is China new year in Feb. China is using chips and LSI's building systems. Think they got 20 % market share in DVD. In the set top they are strong in the front end especially satellite set box in Europe In Japan the design wins but there are doldrums in market Started shipping in volume with European terrestrial digital. In DCAM both Casio and Minolta went into volume. Casio and Minolta and Konica have committed to next generation. Consumer expectations will turn high end models into accepted models. Expect seasonal difference in Q1 though John Dahne. Ongoing push to supply products to deal with growth of Internet. Cisco Nortel etc. Workstations as well as Networks, SCSI, and Fibre Channel. Symbios is complete and storage is growing. Bookings up for computer for computer telecomm networking Storage. Landed two design wins for CDMA and two new laser printers. Also Coreware products new storage and ASIC for computer servers LAN products. Mint provides architecture and design services for high end services defines how chips should be developed and what blocks to use This work independently tripled in '98. Expect more in '99. The second half in '98 saw lifetime revenue double per design. This is directly in line with engaging system on a chip for high rate of return. From a products perspective, the HiFi analog mixed signal tech that enables bandwith expansion has 16 programs. LSI also shipped prototypes for Ethernet and HTLC cores for both LAN and WAN where you can have a single chip router. Also two SCSI cores. LSI has over 75% of PCI SCSI market. Working on complex source components that will support emerging double speed Fibre Channel market where LSI is still at 80 to 85 % of market. Overall there was a 45% increase in transistors with designs going from 2.2 million transistors to 3.5 million transistors per chip. LSI went from gate counts to transistors including memand analog structures which are not made up of gates, so it's a better way. Booked a computer design with over 17 million transistors. (Comment: Wow!) Questions from Analysts. (Please note that this time, I am not giving the names of the analysts for the sake of brevity. However, I will note, that the analysts such as Erika Clauer and Tom Kurlak who made wrong calls on LSI were replaced by their colleagues at this CC.) Could you break out revenue between Symbios and traditional LSI? Wilf: Fibre Channel from Computer is now Storage, so a breakout is not meaningful.. How about an application revenue mix for the quarter? John Dahne: Each runs between 10 to 20 percent of revenues. We haven't broke n out for call.. Are you backlogged? Wilf: Absolutely. Which division was strongest? Wilf: Consumer was down from a booking standpoint. The other five were very good. Every division in Q3 was week. Q4 was strong on booking. John Dahne: All divisions except consumer had at least a 1:1 book to bill How will orders be translated to revenues? Wilf: Our whole world is a different model. How do you work with no backlog? We have a much higher instance of turns. This is the Dell Model. Turns have increased significantly. There are no orders six months out. Percentage that is turnable has increased. But we are seeing orders for Q2. Lots of orders are on fast turns as well. Purchasing agents are concerned. Where are lead times and what is the trend like and what are the lifetime revenues per design as well as design cycle time? Wilf: Lead times are shortening. We have a customer in Finland who wants 48 hours lead times. This is a general trend. Custom parts take 4 to 6 weeks. Demand lead times of less than two weeks. Major customers you can anticipate. Lead times go down but we might be going the other way. Revenue per design is dramatically increasing over the lifetime and it meets or exceeds the corporate goals. What about Cycle time per design? John Dahne: Industry custom is that customers are trying to reduce inventory. Want to be first to market. Most of profit is first part of market. It differs by a particular industry. Some industries take six months. Some industries are in the year and a half range. LSI thinks that this is great advantage of developing cores. Wilf adds that there are two design cycles in the concept of a customer base. One is what the customer wants to convert to silicon. This is shorter. The other cycle involves LSI's Mint division which gets customer before he gets into the ASIC base, and this shortens the design cycle. This is architecture and design stage where you are working with 10 to 15 million transistors/ On consumer side will the book to bill be above one with Sony out of equation? What will things be like in DVD DCAM and where will it be next year? What about Fab utilization and pricing and demand? Ellie: On consumer side in Sony without Playstation it was higher than one. Going forward expect rapid growth in each market. Set top was at expectations. DCAM and DVD were PC markets but are now more of a consumer markets. No longer just a PC phenomenon. So they will see solid growth. DVD is growing along with content. Expect to see big volumes in second half. Hard to say where it will be in next year. 2.5 million in '98. DVD was above expectations in '98 despite shortfall in Japan market. Wilf expects 5 million DVD units in '99 Anticipate 25 % of that to go to LSI—by contrast the replacement market for VCR is 40 million per year in a saturated replacement market, so there is tremendous room to grow. Will have slight seasonality but secular growth is very high. LSI is engaged with the right customers. (Comment: Obviously, this area will see significant growth in the next two to three years,) Fab utilization is not much at Gresham. Rest is at capacity. Billion dollar fab will be huge advantage in '99 Has market turned? John Dahne: Depends on product area. With intellectual property we do not have price pressure. SOC is only LSI. No price pressures. Wilf: Price discussion less vigorous than twelve months ago. Surely no free fall spiral We are not doing gate array products What is story on next generation Playstation? Any customers over 10 percent? Wilf: Sony is the only customer over 10 %. Others over in high single digits. '98 shipped at peak levels. Playstation will go down this year and this is planned for. They are designing something for Sony in that area that is meaningful. Expect units to be down in '99 based on communications with Sony but still solid Terry Ragsdale of JP Morgan: Please give a ball park estimate of sequential growth in each division. Wilf: We are not breaking that out except to say that there was a general recovery Can you say how much of the business was turns? Wilf: It was in the range of twenty percent. And that as high as it has ever been With the higher compliment of turns, they are training selves how to build to customers. So this requires the inventory adjustment. Theme songs from customers who want to substitute information for inventory. And there is a corresponding need for LSI to get more information from their customers. Can you quantify what Gresham effect on GM was? Wilf: Gresham had expected impact which was to lower margins to the 37% region. The difference (whereby the actual number was 35%) was due to heavier inventory reserves than normal to reflect this new level of responsiveness. If you take out inventory and Gresham, GM would have been flat. And that will put it back at 45% at the end of the year. But we are starting up with zero revenue and ramping the plant. Will see substantial improvements in Q3 with Gresham coming on in modular fashion. What are your margin goals? Answer: The same Stanford Bernstein: Are the cost reduction numbers the same? Are you still shutting down the Japan Fab? Wilf : If anything the numbers are higher. Shutdowns are a little bit slower, but certainly Japan will be down by end of June. Net net is a positive. More demand than told a few months ago. Operating expense level will be down sequentially. Expect operating expense will be down. R&D went from 20 to 18%. Expect it be down to 16.5% What is the long term operating model? The'99 Capital Expenditure model ? Is tax rate at 25%? Wilf: With respect to Symbios capital spending, LSI had preinvested in Symbios. Thus, they don't have much capital expenditures, except for software. Doug Norbe: Cap Ex for '99 will be 200 million. Tax rate will be 25 % for '99 In terms of model it's 45 % GM, R&D 12% SGA 13% Operating income at 20% Expect 43% by the end of year so that will be 17%. (Comment: If this scenario holds true, then by 4Q this year, LSI will be making a profit of almost 65 cents, which going forward would make it easily a 50 dollar stock.) On Good Will how much charge? Answer: 9.5 million per quarter. For this year there is a spread for predicted growth in industry. What do you feel? Wilf : The 9 percent of SIA will not happen. It will above or below. Very few years in range of 10 to 20 percent. Virtually no inventory in the food chain. Everybody had done a great job. Any shortage at all will show an immediate effect. Gas lines might form . When is that going to happen? Wilf thinks will happen soon. Many indications show demand is bubbling but the customer is still nervous about commitments. Willf thinks above 9 percent--could be as high as 20. That's realistic. Europe is strong. It's now second largest market. Pan Asia is pretty good for this year. Even a modest recovery in Japan would be helpful Does LSI intend to give revenue split by division? Are you benefiting from end of life in the Japan Fab? Japan's11 year old facility is being closed 2Q and it will have end of life benefits. But end of life is also product specific as well. Could you give some sort of revenue split by division? Each division runs 200 million up to 500 million. Don't want to do that by the quarter. LSI is just getting used to having six rather than three markets. Will break this out once a year. What products are selling in the set top box market? LSI participates in various front end products. This includes Digital terrestrial where you can pick up another ten digital channels This is moving quickly in England and it can use existing analog structure. On the source end supplying Phillips with MPEG and transport chips with embedded microprocessor. Also have MPEG transport high end CPU and multi standard transport What will 2H utilization be? Utilization in 2H will be above 70%. LSI can definitely expand in the modular fashion but will not do that prematurely. As they put on modules, there is little expense. They have digested fundamental capital expenses already The incremental cost of added capacity is much less. My overall analysis is that at these levels, LSI represents an excellent buying opportunity. Yes, looking one quarter ahead, there is little chance for any significant profit because of Gresham becoming fully operational, but with very little incremental expenses, LSI could earn as much as 65 cents for 4 Q, which would make it a fifty-five dollar stock with nine months. The semi market will dictate where LSI is going in the next three months, but within six months, it will fly on its own strength in a semi market that for the first time ever will be a true SOC market that is in an upswing rather than in a drought. It should be very interesting.

To: patrick tang who wrote (16704)	1/29/1999 11:52:00 AM
From: Moonray	Respond to of 25814

U.S. forecasts chip growth EE Times - 01/27/99, 1:32 p.m. EDT WASHINGTON — The U.S. semiconductor industry will grow at a healthy 10.2 percent in 1999, according to a government forecast released Tuesday (Jan. 26). The Commerce Department's annual "U.S. Industry & Trade Outlook '99" forecast that semiconductor manufacturing would contribute to the projected overall growth of the U.S. information technology industry. The IT industry, which is projected to grow by 8 percent this year, is widely credited with sustaining the longest peacetime economic expansion in post-war history. Other IT sectors forecast to expand in 1999 include computers and peripherals (8.7 percent), printed-circuit boards (14 percent), telecommunications equipment (6.9 percent) and consumer electronics (10 percent). Fueling demand for these products, Commerce said, is the "far-reaching relevance" of electronic commerce. o~~~ O