SAN JOSE, Calif. - LSI Corp. has signed a definitive agreement to sell its external storage systems business to NetApp Inc. for $480 million in cash.
Under terms of the agreement, NetApp will purchase LSI's external storage systems business, which develops the Engenio external storage systems products and technology. The business being purchased generated revenues of $705 million in 2010.
The storage systems business was acquired by LSI in August, 1998, as part of its acquisition of Symbios Logic.
The LSI RAID adapter business, which develops LSI MegaRAID and 3ware storage controllers and software for direct-attached storage environments, will remain with LSI. Upon closing, most LSI external storage systems employees are expected to join NetApp, a provider of storage and data management solutions.
LSI's decision to divest the external storage systems business is part of a move to become a pure-play semiconductor company. As a result of the sale, LSI expects to eliminate $35 million to $40 million per quarter of operating expenses upon closing of the transaction.
"As the market requirements for external storage systems continue to trend toward more comprehensive solutions and offerings, greater investment levels are required to enable additional growth opportunities. We believe that NetApp is well positioned to provide the needed technologies and scale to grow the external storage systems business and better serve our customers going forward," said Abhi Talwalkar, LSI president and chief executive, in a statement.
LSI also announced today that its board of directors has authorized a new stock repurchase program of up to $750 million.
There are mixed signals for LSI in the marketplace right now. ''Recent checks suggest LSI is tracking towards the middle of 1Q11's revenue guidance range of $605–$635 million (–4 percent to –9 percent quarter-over-quarter), about in line with the Street's $622 million,'' said Craig Berger, an analyst with FBR, in a report, which was issued before the LSI-NetApp deal was announced.
''We think hard disk drive shipments have been incrementally sluggish, though LSI management likely had a conservative 1Q TAM assumption to begin with,'' he said.
''Regarding Western Digital's recently announced acquisition of Hitachi's hard drive business, we think improved HDD consolidation, and thus profitability, will be incrementally positive for HDD chip prices and margins, with Marvell and LSI the key chip beneficiaries here,'' he said. ''Stepping back, we remain believers in LSI's product-ramp story and expect accelerating revenues from new customers like Cisco, starting in late 2011 and accelerating in 2012.''
$700m includes both the internal and external storage units at LSI. Both were in the same division. LSI only sold off the external storage unit. They kept the more profitable internal storage unit. Internal storage includes RAID PCI cards that go directly into PC's, Servers, etc... External storage was large RAID systems with external control boards
The question is what opportunity does LSI have to grow? The answer sadly appears to be not much. The management is at best average. The vision they have had over the last decade is to try not to lose more money. As one might expect under the circumstances, LSI does not have much cash relative to other semiconductor companies.
its about the profits and profit margins. Probably LSI is making a loss in this $700m and is affecting its bottom line.
"As a result of the sale, LSI expects to eliminate $35 million to $40 million per quarter of operating expenses upon closing of the transaction."
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