Impressive Moves, LSI!
LSI (NYS: LSI) continues to impress me.
There's this global macroeconomic crisis going on, floods in Thailand are holding back both chip-building supplies and orders from some of LSI's largest customers, and the company is up to its ears in an audacious change in strategy. Some of this stuff is under LSI's control; most of it absolutely isn't.
And amid all this chaos, the company just reported third-quarter results smack in the middle of management guidance, and right in line with Street targets as well. But LSI didn't stop there: Separately, the company also announced a $370 million deal to acquire privately held SandForce.
The SandForce deal is a bigger game-changer than the similarly sized sales of LSI's external storage division to NetApp (NAS: NTAP) back in April. SandForce's already industry-leading chips for solid-state drive innards will gain from LSI's large financial assets and decades of storage-chip expertise.
And LSI gets a foot in the SSD door with SandForce customers from OCZ Technology (NAS: OCZ) to SMART Modular Technologies, stretching out a customer list that's heavy in traditional hard-drive builders. The Thai floods are hurting LSI because Seagate Technology (NAS: STX) and Western Digital (NYS: WDC) are among its most important clients.
SandForce relies on third-party manufacturing services. The flash memory chips that complete an SSD product are made all over the world, from Brazil to Singapore to Idaho. This sprawling supply chain isn't terribly sensitive to local disasters, unlike traditional hard drives.
So LSI got out of storage system sales to focus on the nuts and bolts of the exploding SSD market. Consumers expect thinner, lighter, and faster systems these days, exemplified by the Apple (NAS: AAPL) MacBook Air and Intel's (NAS: INTC) similar Ultrabook system template. SSDs deliver on all three points, albeit at the cost of higher prices. The price gap between the old and new technologies is shrinking fast, and the need for large local drives decreases as more of our data moves into the Internet cloud.
I think LSI made a sweet deal here, and if the crisp execution amid today's typhoon-class headwinds is any indication, I expect the company to milk the SSD opportunity to the last drop.
My All-Star CAPS portfolio has contained an outperform call on this four-star stock (out of five) for some time now. LSI hasn't helped my world-beating ambitions so far, but I'm a patient Fool, and management keeps refreshing my trust by making all the right moves. The long-term opportunity looks larger than ever. Click here to take your own CAPS position in LSI -- or any other stock.
At the time this article was published Fool contributor Anders Bylund holds no position in any of the companies mentioned. The Motley Fool owns shares of Western Digital, Intel, and Apple, and also owns call options on Intel. Motley Fool newsletter services have recommended buying shares of Intel and Apple; creating a bull call spread position in Apple; and creating a bull call spread position in Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.