SAN JOSE, Calif. -As reported, LSI Corp. has signed a definitive agreement to sell its external storage systems business to NetApp Inc. for $480 million in cash. The business being purchased generated revenues of $705 million in 2010.
Here's what analysts are saying about the deal:
Craig Berger, an analyst with FBR, said: ''This deal is the next evolutionary step for LSI as management remakes the business into a storage and networking semiconductor company, versus the hybrid semi/systems business LSI has been for the past decade. Deal positives include LSI becoming a pureplay semiconductor firm, higher margins, management focus on the chip business, and avoiding an increasing investment profile for the systems business.
Deal negatives include roughly $0.05 of EPS dilution in 2011 (a 10 percent earnings reduction!), elimination of the firm's best revenue growth driver, and a reduction in overall scale. Indeed, the systems business has been LSI's only growth segment over the past eight years, growing revenues from $343 million in 2002 to $955 million in 2010, an impressive 16 percent CAGR. Thus, we are mixed on this transaction. 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.''
Hans Mosesmann, an analyst with Raymond James & Associates Inc., said: ''Management is pleased with the $480 million the External Storage System business fetched given industry valuations for storage systems companies, which management noted was 0.2x for Xyratex (non-branded systems) and 0.7-0.8x for HP and Dell (branded systems). With significant industry consolidation and no branded strategy in place, we believe LSI made a very smart move.
From a strategic perspective LSI can now more actively engage with EMC and NetApp at the silicon level, an area that was clouded by the fact that LSI was a systems level competitor.''
There is a Chinese proverb that basically says (paraphrased).."you cannot have one foot in one boat and another foot in another boat and still expect to float". I like the imagery. I apologize to any Chinese person who knows the exact phrase in case I messed it up somewhat, but the meaning is not easily missed.
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