LSI Earnings Call Insights: Hard Disk Drive Business and Component SSD and HDs

LSI Corporation (NYSE:LSI) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Hard Disk Drive Business

Vivek Arya – Bank of America: Abhi, if you look at the December quarter, can you give us a sense of what your share was in hard disk drive SoCs and how you see that changing in 2013? I think there was some expectation that you would start shipping into Western Digital last quarter. And if you did, is there a specific product that you were shipping into?

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Abhi Talwalkar – President and CEO: Well relative to share in the fourth quarter, we don’t break our share out on a quarterly basis. I’ll just go back to some of the prepared commentary relative to our hard disk drive business. In general our hard disk drive business in Q4 behaved as expected. However, we did see strength in our enterprise and our desktop SoC shipments in the fourth quarter as we sort of exited the fourth quarter. And I also said that as we look at our overall mix exiting the fourth quarter, 90% or more of our HDD shipments were enterprise or desktop. We do believe that the Q1 quarter is our trough quarter as we go forward relative to the HDD marketplace. And assuming the HDD TAM is flat to up from flat, we should benefit from that.

Vivek Arya – Bank of America: And then the competitive position and consumer flash controller, your flash processors, I think over the last year the competitive landscape has expanded. I mean you had traditional companies like Marvell but now there are also several large OEMs and even the NAND vendors themselves who have spoken about in-house solutions. Can you give us a sense for how that market is evolving from a competitive perspective?

Abhi Talwalkar – President and CEO: Vivek, are you talking about PCIe flash adapters for server and storage environments, are you talking about flash storage processors?

Vivek Arya – Bank of America: So, first the flash storage processors and then on the PCIe flash, but I think you started your sales in the September quarter. So, two separate parts to that question.

Abhi Talwalkar – President and CEO: I think clearly it’s a fast growing market, it’s going to become a big market, so we certainly anticipate and we take every competitive very seriously but we feel very good about our competitive position. I think we have the broadest offering out there when it comes to flash storage processors from a standard products with our SandForce family that we believe are incredibly competitive in the next generation product. We believe is debt on in terms of customer requirements and the feedback has been very strong. We also have a line of custom flash processors that has also been unique in the marketplace. And then relative to PCIe flash adapters we clearly as I noted in the prepared remarks, we are merging as really the second player here and the alternative to the number one player that’s in the marketplace and that is because of not only a robust offering of three major product lines in that nitro family but also our extensive history in SaaS and RAID technology as well which are incorporated into our product strategy.

Vivek Arya – Bank of America: And one last for Bryon, if I may. How should we think about the OpEx trajectory for this year? I think if you look from when your sales peaked last year, sales are down, but OpEx are – so sales are down about 16% from the June quarter last year, but OpEx is down about 1%. I understand there were a couple of very strong quarters back in the year, but how should we think about the OpEx trajectory this year?

Bryon Look – EVP, CFO and CAO: Well, I can show you that we have been managing our OpEx very carefully and we will continue to do so going forward. We’re confident relative to the growth prospects that we have and continue to investments in the growth areas such as flash. You’ve seen in terms of recent quarters, our ability to manage OpEx pretty tightly here. We are seeing typical softness in the Q1 and another – of other factors as well that are affecting revenue, but these are near-term softness areas versus positive year in terms of the long-term. So, our goal is continuing to be able to grow relative to operating performance as we get through the uncertainties of the short-term and I’ll remind you our business model continues to be one where we would grow gross margins to the mid-50s and we’re already essentially in that territory and grow the bottom line to business model target roughly 20% to 22%.

Abhi Talwalkar – President and CEO: Hey, Vivek, I forgot to answer to one of your questions relative to a certain ACD OEM. I can’t say that we are shipping production SSEs to all OEMs now.

Component SSD and HDs

Gabriela Borges – Goldman Sachs: This is Gabriela Borges on behalf of Jim Schneider. I had a question on the component SSD and HDs that you talked about last quarter. Based on your commentary, it sounds like this is now largely behind us. Is that the right takeaway or are there still some reductions in inventory, either in SoCs or in HDDs as we go into 1Q?

Abhi Talwalkar – President and CEO: No, I think that’s the right takeaway Gabriela.

Gabriela Borges – Goldman Sachs: And then just as a follow-up if I may. Understand that you don’t break out share on quarterly basis, but perhaps you could give us an estimate on what your (share tradeoff) was in standard flash processors and custom flash processors? And maybe then my last questions are for 2013?

Abhi Talwalkar – President and CEO: I think in general we grew share across flash segments, all segments that we participate in; client, enterprise as well as PCIe flash and as I said in also prepared remarks, our objective is certainly to grow our aggregate flash revenues in excess of what market is projected to be which is 40%.