LSI Corporation Earnings Call Nuggets: Networking, Competitive Environment

On Wednesday, LSI Corporation (NYSE:LSI) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite revealed.

Networking

Daniel Amir – Lazard Capital: Congrats on a great quarter and guidance. A couple of questions here, first of all on the networking segment, seems like you had a solid Q1, you’re guiding for flattish Q2, but then it looks like there are some big opportunities here in the wireless base station side and on the enterprise side as well. So, can you give us a little more visibility about the trends and what’s going on in the networking segment, and then I have one follow-up?

Abhi Talwalkar – President and CEO: On the networking side, tactically speaking, relative to the quarter, I think everyone’s been watching the inventory burn that’s been taking place over the last two, three quarters in wireless infrastructure in particular, less so in enterprise. I think people are starting to call the bottom at this point in time. If we look at our networking investment areas, we expect that to grow in Q2, kind of consistent with what some of our peers are also saying. At the same time, we’ve got some legacy declines. Longer-term, we’re very excited about our networking strategy and the success that we’ve had with Axxia, also combined with our custom silicon capability, not only in wireless infrastructure, as we alluded to at our Analyst Day, where we’ve got some very significant wins that will enable us to have 50% share and control on data plan and even 40% share in baseband functions with next-generation systems which have just now started beginning in the development phase. As we also discussed in prepared remarks, we’re starting to now take Axxia and expand that into enterprise, in particular datacenter switching that can really leverage the architecture’s benefits.

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Daniel Amir – Lazard Capital: The follow-up on the SSD side, there’s been some commentary from other companies that this quarter, that there was a build up a bit post Thailand flood to the SSD market, and then towards the end of Q1, there has been some inventory decline a bit after basically building up of inventory in the SSD market. So, what are you seeing a bit on the client SSD side? I mean are you seeing that trend or are you bucking the trend because you’re gaining share? I mean how would you look at that business?

Abhi Talwalkar – President and CEO: A., we’re definitely gaining share. We’ve displaced a number of competitors and we’ve been working with a number of our customers over the last three to six months, and a lot of those products are now coming to market. They were introduced in February, March and more will be introduced here in Q2, so we definitely are benefiting from share gains. I don’t know if we have completely experienced what you have described, there certainly have been some discussion around inventory, but I think that’s more on consumer NAND versus really SSD, which we expect to continue to grow at the exciting growth rates we projected coming into year.

Daniel Amir – Lazard Capital: Would this business be up in Q2?

Abhi Talwalkar – President and CEO: It should be contributing to our growth.

Competitive Environment

Gabriela Borges – Goldman Sachs: This is Gabriela Borges on behalf of Jim. I’d like to follow-up on your comment on heaving leading share in the flash control market. Could you talk a little bit more about the competitive environment here and perhaps quantify roughly how much they have told?

Abhi Talwalkar – President and CEO: Our comment around leading share is really tied to 2012. Although we do believe we were probably tied for number one or an incredibly close number two in 2011, but in terms of 2012, just based on our tops down, bottoms up analysis of looking at all the design wins that we have had and where we’ve displaced some of our competitors, we feel pretty good about our ability to achieve a number one unit share in 2012. That’s obviously a result of a broadening of the customer base, but also a superior product performance, a firmware stack that is heavily tested and productized more so then what some of our competitors are offering as well. I think the combination of LSI and SandForce has also driven lot of synergies as all of the sudden now this great technology is supported by the wherewithal of LSI.

Gabriela Borges – Goldman Sachs: As a follow-up if I may, following the snapback in Q1 with HDD revenues, what’s your sense of how your HDD customers are progressing with their recovery post Thailand? For example, when we look to 2Q, do you think customer (indiscernible) levels will be back at pre-flood levels?

Abhi Talwalkar – President and CEO: I think in terms of what’s out there and we would agree with some of the numbers that are out there. Obviously, some of our biggest customers, but also analysts are projecting a TAM of about 160 million units in Q2, that’s up from about 143 to 144 in Q1. That still is not back up to probably full natural demand, but I think we agree with some of the comments that have been made, notebook is pretty much all caught up, enterprises is almost caught up, desktop or 3.5 inch drives are not completely caught up, likely will catch up in Q3. We don’t anticipate any inventory replenishment in Q2 either as output is still probably lagging demand, in particular in the areas that I discusses, but recovery has been certainly good and at a faster pace than anticipated coming into the year.

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