LSI can show you around the circuit. The fabless semiconductor developer provides standard integrated circuits (ICs) and custom-designed application-specific ICs (ASICs), focusing on broadband and wireless communications, data storage, personal computer, and networking markets. LSI (an acronym for large-scale integration) was a pioneer of system-on-a-chip (SoC) devices, which combine elements of an electronic system -- essentially a microprocessor, memory, and logic -- onto a single chip. Top customers include IBM, Seagate, and Hewlett-Packard. LSI also provides hardware and software for storage area networks. Customers located in the Asia/Pacific region account for about two-thirds of the company's sales.
LSI contends with the highly cyclical nature of the semiconductor industry, but the company has narrowed its focus to developing products for either storage or networking devices. (Storage products account for about three-quarters of sales). LSI designs chips that boost storage capabilities in data centers and mobile networks, two areas the company only expects more growth from. The company exited the market for external storage systems in May 2011 when it sold its Engenio business to NetApp in an all-cash transaction valued at around $480 million. Following the divestment, LSI became a pure-play semiconductor company and restated its 2010 revenues from $2.5 billion to $1.8 billion to reflect the change.
With the restated revenues, LSI's overall sales grew 9% to $2 billion in 2011. Most of the sales increase was due to improved demand for chips used in storage products, not networking products, as well as an increase in intellectual property (IP) licensing revenues. Sales in North America were up 20% in 2011 on higher sales of storage systems, RAID adapters, related software, and chips used in storage applications, while sales in its largest territory, Asia/Pacific, grew only 8%.
In the past decade, LSI has regularly struggled with profits -- partly due to industry cyclicality and partly because of a series of acquisitions. However, the company was in the red in both 2010 and 2011 -- the first time it's been profitable two years in a row in more than a decade. (The only other year it turned a profit since the turn of the century was in 2006).
One challenge for LSI is its limited customer base; its top 10 clients account for about two-thirds of sales. One way that LSI cuts costs is by using foundries for wafer fabrication, assembly, and test operations, which leaves the company free to focus on product development. Outsourcing allows it to adjust manufacturing capacity in relation to changes in customer demand; it also doesn't have to spend the large amounts of capital required to build and upgrade facilities. The company primarily outsources production of its chips to Taiwan Semiconductor Manufacturing Company (TSMC), IBM Microelectronics, and to Singapore-based Silicon Manufacturing Partners, a joint venture between GLOBALFOUNDRIES and LSI. The company also uses third-party contractors such as Amkor Technology, Siliconware Precision Industries, and STATS ChipPac to assemble and test its data storage systems products.
LSI has reframed its storage product portfolio through a series of acquisitions over the years. In early 2012 it bought flash storage processor maker SandForce in a deal valued at about $346 million. The deal will improve LSI's position in the server and storage PCIe flash adapter market. SandForce processors are already found in LSI's WarpDrive product line.
LSI has operations in Austria, Canada, China, Finland, Germany, Hong Kong, India, Ireland, Israel, Italy, Japan, Singapore, South Korea, Spain, Sweden, Taiwan, Thailand, the UK, and the US. – less