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TRANSCRIPT
Investor Presentation
December 10th, 2008
LSI Proprietary 22
• This presentation contains forward-looking statements that are based on our current opinions and estimates. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that could cause LSI's actual results to differ materially from those set forth in the forward-looking statements include, but are not limited to: our reliance on major customers and suppliers; our ability to keep up with rapid technological change; our ability to compete successfully in competitive markets; our ability to achieve anticipated synergies following our acquisition of Agere Systems; fluctuations in the timing and volumes of customer demand; the unavailability of appropriate levels of manufacturing capacity; our ability to successfully and timely transition our assembly and test operations to third parties; and general industry and market conditions. In addition, the financial information in this presentation is summary in nature. For additional information, see the documents filed by LSI with the SEC, including the risk factors set forth in our most recent reports on 10-K and Form 10-Q. LSI disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise.
• In this presentation, we may discuss non-GAAP financial information. You can find comparable GAAP information and reconciliations between the non-GAAP and GAAP information on our website at http://www.lsi.com/webcast. Non-GAAP financial information excludes goodwill impairment, stock-based compensation, amortization of acquisition-related intangibles, restructuring of operations and other items, net, purchase accounting effect on inventory, loss on write-down of equity securities and acquired in-process research and development. It also excludes the income tax effect associated with the above mentioned items. We sometimes refer to these items as “special items.”
Forward Looking Statements and Non-GAAP Financial Measures
LSI Proprietary 33
LSI – Who We Are
LSI is a leading provider of silicon, systems and software solutions for the storage and networking markets.
We have strong market presence, unique competencies and the ability to capitalize on growth opportunities.
Our heritage includes more than 50 years of industry leadership and innovation with a strong IP portfolio.
We are committed to driving industry-leading technologies and standards.
LSI Proprietary 44
Key Takeaways
• We are in a very challenging economic environment where it is difficult to predict future demand.
• We have a strong balance sheet with positive quarterly operating cash flows.
– Recently repurchased $118M of 6.5% Convertible Note due in December, 2009 at a discount.
• The strategic decisions we have made over the past 18 months position us well for the future.
• We will be highly disciplined in controlling expenses in this uncertain demand environment.
• We have won significant designs with industry-leading customers.
LSI Proprietary 55
Revenues of $714MNon-GAAP gross margin of 48%Non-GAAP operating margin of 14%Cash and short-term investments of $1.2B at quarter end
LSI Q3 Highlights
Q3 2008 Financials
LSI - Q3 2008 Summary
Expanded our 6Gb/s SAS leadership, adding IBM, Dell, Fujitsu-Siemens, Intel and NEC as 6Gb/s SAS customers.Solely awarded new desktop, notebook, SoC and SSD wins at Seagate.Awarded new desktop, notebook, and enterprise SoCwins at Hitachi.Ramping in IBM DS5000 mid-range storage system.Wins with Huawei, Nokia-Siemens, and Nortel in Networking
Intellectual Property3% ($23M)
Q3 2008 Revenue
Networking DSPs, NPUs, Custom Silicon
20% ($142M)
Storage Systems
Storage Systems, RAID Adapters, RAID SW, System Mgmt SW
30% ($214M)
Storage Semiconductors FC Switch, External Storage
ICs, SAS, HDD SoCs
47% ($335M)
LSI Proprietary 66
Continued Year-Over-Year Progress
*Excluding special items
Q307 Q308 Operating Model
Long Term Drivers
Revenue $727M** $714M • Multiple long term catalysts in
Storage Systems, Storage Semi’s, Networking, and IP licensing
GM* 43.4% 48.3% 47%
• Maintain focus to produce consistent operating model performance
• Driven by product mix, costs, and volumes
R&D*as a % of Revenue
23.8% 22.8% 20%• Focusing R&D investments in areas
of strong differentiation• Revenue growth
SG&A*as a % of Revenue
12.2% 11.3% 10% • Increased efficiencies• Revenue growth
Op Inc*as a % of Revenue
7.3% 14.2% 17% • Driving towards achieving business model targets!
**The $727M includes $99M of revenue from Consumer and Mobility, which were sold in 2007
LSI Proprietary 77
Storage Semiconductors
Advanced OEM RAID solutions Value added RAID and data management software
Interface Controllers, Read Channels, SoCs, & Pre-Amps in all HDD categories
LSI: The Broadest OEM Storage Product Line: ~$2B in Annual Revenues – Largest Storage OEM supplier
Major Customers
#1
#1
#1
#2
Storage Systems & Software
Industry leading family of SAS components in Server and Storage systems
Proven custom silicon targeted at high performance SAN interconnect solutions (HBAs and Switches)
Hard Disk DriveComponents
SAS STD Products
SAN Custom Solutions
OEM RAID Systemsand Software
LSI Proprietary 88
THE Leading Provider of OEM External Storage Systems
*Source: IDC
Industry Proven Enterprise RAID Stack1st to market 2G & 4G FC, and SAS transitions
Growth OpportunitiesNew SAS/FC/iSCSI Entry Product lineHost RAID Software and RAID-on-Chip ExpansionIncreasing Data Management SoftwareWinning, ramping, and expanding Tier 1 customersFuture product line extensions
HighlightsIBM now shipping LSI 7900 technology under the DS5000 product lineBelieve we are worldwide leader in iSCSI based on volumes shipped by our OEM customersHP selected our Storage Virtualization Manager software suite
LSI Market Position Proven Revenue Performance ($M)
PB 1-3 (Entry-level) PB 4-6 (Midrange)
Growing External Storage TAM ($M)*
$0
$200
$400
$600
$800
$1,000
2002 2003 2004 2005 2006 2007
$0
$5,000
$10,000
$15,000
$20,000
$25,000
2006 2007 2008e 2009e 2010e 2011e
’02–’07 LSI Storage Systems CAGR = 11%
SAN Storage Systems Market
LSI Proprietary 99
LSI Market Position
* Source: IDC, April 2008
Growth in HDD ICs Through Most Competitive And Complete Portfolio
Broadest portfolio of productsRead Channel and Preamp leadership1st to market with perpendicular recording and iterative decoding in 65nmLeading supplier to the HDD and Tape industries
Growth DriversExpanding footprint within existing customers Design wins at new customersContinued share gains in SoC and Pre-Amps
HighlightsDelivered world’s fastest read channel – 4Ghz data rates for enterprise drivesSolely awarded multiple Desktop & Notebook SoCs at Seagate, in addition to 2 future generations of Enterprise SoCsSecured new SoCs in Hitachi’s desktop, notebook, and enterprise drives.Awarded Solid State Drive SoC at SeagateLSI technology shipped in > 1.7 billion drives
9.1%
32.4%
25.7%
17.3%
Other .5%
7.4%
HDD Provider Share (Units)*
LSI Proprietary 1010
Clear leader in SAS; Co-developed SAS specBroadest family of SAS productsLeadership in servers and expanding in external storage
Growth DriversServer RAID-on-Chip (ROC) integrationMegaRAID+ROC business expansionSAS in external storage systemsSAS-SAS/SATA bridge silicon
HighlightsDot Hill selected LSI 3Gb SAS controllerDell, Fujitsu-Siemens, IBM, Intel, NEC, and Sun have selected our 6Gb SAS RoC solutions
* Source: IDC
Expanding SAS leadership
LSI Market Position
Higher PerformanceLower PowerLower CostGreater Density
$0
$100
$200
$300
$400
$500
$600
$700
2007 2008e 2009e 2010e 2011e
SAS in External Storage
Increase $$ due to SAS Multiplier Effect
External Storage ICs
Server ICs
Mill
ions
Server & External Storage Silicon’07-’11 CAGR = 8.8%*
LSI Proprietary 1111
0.0
5.0
10.0
15.0
20.0
2006 2007 2008e 2009e 2010e 2011e
THE Leading Provider of Fibre Channel SAN SiliconWell positioned to gain share
*Source: Dell’Oro Group** Estimated*** Source: LSI Estimate, IDC
Named Strategic Supplier of the Year by BrocadeIn development on Fibre Channel over Ethernet silicon designs and expect to ramp at major HBA and Switch companies in 20098Gb/s designs in production
HighlightsHighlightsSAN Switches
8M+ FC HBA Silicon Shipped Since 2000LSI #1 Share***
SAN Ports ’06-’11 CAGR = 17% *
SAN HBAs
Switch HBA
Mill
ions
of P
orts
LSI ShareIn 2007**
AdditionalOpportunity
12
Service Provider Network
WirelessBase Station
2/3/4G
Multi-ServiceAccess Nodes
IP / ANBackbone
Media GatewayVoice / Video
Enterprise NetworkTransactional / Data Warehouse High Performance Content Delivery
MSBG LAN/SAN Router & Switches
Central Office
EnterpriseConnectivity
Business Gateways
Service & Media Gateways
WirelessAccess
WirelineAccess
LSI Networking Market Focus
OEM Customer Focus
Awarded 2 significant design wins for Gigabit Ethernet Phy productsNokia Siemens now shipping LSI communications processor & software in new mini-DSLAMShipping StarPro media processors to 3 of top 4 networking OEMsNortel announced availability of gateways incorporating LSI LLP, NPs, VoIP SoCs, and Ethernet Phys
Highlights
13
LSI – Where We’re GoingThe strategic decisions we have made over the past 18 months, combined with our strong balance sheet, position us well for the future.
•Storage Systems – Continued growth in entry level platforms and strong mid-range
product cycle– Ramping in new IBM DS5000– Won HP for SVM software
•Storage Semi’s– 6Gb SAS wins at Dell, Fujitsu-Siemens, Intel, IBM, NEC, and
Sun– Awarded new desktop, notebook, and enterprise SoCs at
Seagate and Hitachi– New Solid State Drive SoC win at Seagate
•Networking – Won 2 significant gigabit Ethernet Phy designs with a leading
networking silicon provider– Won new designs at Huawei, NSN, and Nortel
•Broad patent portfolio with active IP licensing business