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The following excerpts explain why Zacks semi-conductor analyst Abdul Saleh remains neutral on LSI Corporation (LSI), the application specific integrated circuits (ASICs) manufacturer:
'LSI reported Q3 revenue of $727 million, exceeding the high-end of the company's guidance of $675 million - $705 million, up 47.5% from a year ago and up 8.5% sequentially. Pro-forma EPS (excluding ESO and special items) of $0.06 beat our estimate by a penny. Better-than-expected revenue growth was driven by strong storage results (up 32% q/q) and by strength in networking (up 19% q/q, driven by strong spending in wireless infrastructure).
'Gross margin came in at 43.4%, up from 40.9% reported in the previous quarter. The semiconductor segment reported revenues of $530.4 million, up 69.2% on a year-over-year basis and up 9.3% sequentially. Within the semiconductor group, storage semis were especially strong with $292 million (up 14.5% q/q) driven by strong shipment of SOCs and HDD controllers to Seagate Technologies (STX).
'In the fourth quarter, revenues are expected in the range of $700 - $730 million and non-GAAP EPS in the range of $0.05 - $0.09. We maintain our Hold rating on the stock and have reduced our target price to $7.00. LSI guided Q4:FY08 revenue to be in the $700 million - $730 million range.
'It is important to note that the consensus revenue number for Q4 and our prior estimate included one full quarter of LSI's mobility business. Since the sale of the mobility business has recently been completed, we estimate that LSI's mobility segment will contribute revenue of approximately $26 million in Q4.
'In the meantime, valuation remains highly stretched as Q4 EPS guidance suggests a downside to its target based on valuation and the company's restructuring and cost reduction benefits continue to be offset by gross margin pressure. Consequently, we maintain our Hold rating on shares of LSI and have reduced our target price to $7.00, which is 29.5 times our 2007 EPS estimate on a cash adjusted basis and above the industry median.'
Read the full analyst report on LSI.
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