LSI Narrowly Beats Estimates
By Matt Paolucci

LSI Logic Corp. (LSI) on Wednesday reported record fiscal 2000 revenues of $615 million, a 33 percent increase over the $464 million posted in the first quarter of 1999.

Net income before amortization of goodwill and other special items (EBG), was $88 million or 26 cents a diluted share, compared to the $11.2 million or 4 cents a diluted share in the first quarter of 1999.

Estimates were for 25 cents, according to research firm First Call.

Brokerage house Josephthal & Co upgraded sharesof LSI to Trading Buy from Hold.

Improved profits reflect higher revenues, sequential gross margin expansion and declining operating expenses.

Gross margins expanded to 42.4 percent in the first quarter of 2000 compared to 34.9 percent in the first quarter of 1999. Operating expenses as a percent of revenues declined in the first quarter of this year to 24.5 percent compared to 29.8 percent in the first quarter of last year.

Cash and short-term investments grew $207 million in the first quarter to $868 million.

"Our first quarter profits represented more than a six-fold increase over the year-ago period," said Wilfred J. Corrigan, LSI Logic chairman and CEO. "This positive momentum continued into the second quarter and we expect April to be the strongest bookings month ever for the company. We expect strong revenue growth in the second quarter and for the remainder of the year."

Also during the first quarter, LSI Logic successfully completed the sale of $500 million of 4.0 percent convertible subordinated notes.

Communications continued as the primary growth driver for LSI Logic revenues and profits in the first quarter. LSI Logic expects that the company's communications business, which involves networking, broadband including optical switching, wireless, set-top boxes and other applications, will grow 60 percent in 2000.

Additionally, LSI said it would use $25 million in one time gains (not included in EBG calculation) realized on the sale of venture investments to augment the company's communications venture fund.

"We have now increased our communications venture fund to $75 million for equity investments in emerging communications technologies and promising start-ups," stated John Daane, LSI's executive vice president of the Communications Products Group.

Wall Street's overall view of LSI seems quite positive. Of the 22 brokers currently following LSI Logic, 19 rate the shares either a Strong Buy or Moderate Buy. Fiscal 2000 and 2001 earnings estimates for the Milpitas, Calif.-based company are $1.18 and $1.63, respectively.

Shares of LSI Logic were down $1.75 at $55.25 in late day trading.