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LSI Semiconductor
LSI CORPORATION
1621 Barber Lane
Milpitas, CA 95035
USA
408-433-8000
www.lsi.com
Economic Sector: Technology
Industry: Electronic Semi.
Number of Employees: 4,588
Market Capitalization: $4.6B
Shares Outstanding: 615 mil
% Held By Institutions: 78.63%
LSI Corporation designs, develops,
and markets storage and networking
semiconductors worldwide
Offers integrated circuits for hard disk
and tape drive solutions, which are
used to store and retrieve data in
personal computers, corporate
network servers, archive/back-up
devices, and consumer electronics
products
Provides custom and standard
networking solutions that include
chips, such as network processors,
digital signal processors, content-
inspection processors, traffic shaping
devices, and physical layer devices,
as well as software, evaluation
systems
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Key Success Factors / Key Risk Factors
Key Success Factors
Valuation
The P/E ratio of 14.41 is lower than the average P/E for this Industry which is 56.87.
The Price/Sales ratio of 1.88 is lower than the industry average of 2.91.
The PEG ratio is 0.61. The average Market Edge PEG ratio for this Industry is 0.68
Profitability
The Return on Assets (ROA) is 14.23. ROA for this Industry Group is 7.90. It reflects the ability
of management to produce profits from each dollar of company assets.
Balance Sheet Strength
The Current Ratio is 3.08. Current ratios above 1 (Short-term debts are less than its assets)
Key Risk Factors
Valuation
The P/B Value ratio 4.21 is higher than the average P/B of 2.52 for this Industry
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Reasons for Possible Turnaround
New product cycle ramps and new opportunities ahead in areas like flash
storage processors, PCIe flash adapters, HDD SoCs, SAS for multicore
processors
Transforming its business model into a storage and networking company
Focusing on fewer and larger end-markets
Continuing adoption of newer storage protocols such as SAS and ramp in
new entry-level storage systems will improve its position in the hard
drive market
Has begun to address markets for storage systems products beyond its
traditional OEM base to grow and diversify
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B. Valuation Using FCF to All Investors
Fiscal Year of Forecast 12/31/2011 12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017
Forecast
Valuation All Investors
Cost of Debt 8.00%
Cost of Preferred Stock 9.00%
After Tax Weighted Average Cost of Capital 12.00%
FCF to Debt -$ -$ -$ -$ -$ -$ -$
Present Value of FCF to Debt - - - - - - -
Value of Debt -$
FCF to Preferred Stock -$ -$ -$ -$ -$ -$ -$
Present Value of FCF to Preferred Stock - - - - - - -
Value of Preferred Stock -$
FCF to Investors (85,667)$ (19,170)$ 64,650$ 164,381$ 277,227$ 399,038$ 418,481$
Present Value of FCF to Investors (76,488) (15,282) 46,016 104,467 157,306 202,165 189,299
Entity Value 3,446,974$
Less Value of Debt 0
Less Value of Preferred Stock 0
Forecast Equity Value Before Time Adj. 3,446,974
Forecasted Value as of Valuation Date 3,784,112
Less Value of Contingent Equity Claims 0
Value Attributable to Common Equity 3,784,112$
Common Shares Outstanding at BS Date 615,190
Equivalent Shares at Valuation Date 615,190
Forecast Price/Share $6.15
Fiscal Year of Forecast 12/31/2011 12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017
Net Income 98,575 163,782 239,539 323,925 414,082 506,328 531,644
Common Equity Issued (Repurchased) 85,667 19,170 (64,650) (164,381) (277,227) (399,038) (418,481)
Forecasted Price at Year End $6.67 $7.47 $8.37 $9.37 $10.50 $11.76 $13.17
New Shares Issued (Repurchased) 12,840 2,565 (7,725) (17,537) (26,407) (33,937) (31,777)
Shares Outstanding at End of Year 628,030 630,595 622,871 605,334 578,927 544,990 513,213
Forecast EPS $0.16 $0.26 $0.38 $0.53 $0.70 $0.90 $1.00
Forecast
EPS Forecast
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Margin Compared to Semiconductor Industry Avg.
Operational Metric LSI Industry Avg.
Gross Margin 55% 61%
Operating Profit Margin 6% 23%
Return on Sales 7% 19%
Return on Asset 6% 13%
Income/Employee $32K $96K
Operational improvement could lead to a higher stock price