LSI Puts Merchant ASICs on Shelf

By Suzanne Deffree -- Electronic News, 3/7/2006

LSI Logic Corp. is moving away from merchant ASICs and toward a refocus on the information storage and consumer markets.

The strategy, announced by LSI’s CEO and President Abhi Talwalkar on Monday, calls for increasing associated research and development investments, while redirecting R&D from non-core areas and reducing associated selling, general and administrative expenditures. Specifically, LSI has said it plans to redirect investments in its RapidChip platform ASIC technology and sell its ZSP DSP unit to fund additional R&D investments in the two focus markets.
 
“By focusing our resources on fewer markets, where our deep insight and unique silicon-to-systems capabilities can be fully leveraged, we anticipate delivering greater value to customers,” Talwalkar said in a statement. “Today, we are taking specific actions to significantly enhance our ability to target growing opportunities in the storage and consumer markets, where rapid information growth and the surging consumption of digital content play to our strengths in providing differentiated market solutions that incorporate silicon, systems and software.”
   
LSI said it will cease further RapidChip development and realign its custom silicon capabilities to more deeply serve customers in the storage and consumer markets. RapidChip customer designs currently in production or under development will continue and will not be affected by the action, the company said.
 
The company’s ZSP unit, which provides licensed ASIC technology to the broadband and wireless communications markets, is expected to be sold. No timeframe for that was announced.

LSI’s Q4 2005 sales broke down to about 71 percent storage with 31 percent components and 40 percent systems; consumer at 17 percent; and communications around 15 percent.
 
“RapidChip technology targets a broad-based set of requirements across a wide range of industry segments and applications, while our DSP technology has been primarily deployed in areas outside of our focus markets,” said Jeff Richardson, LSI’s executive VP, custom solutions group, in the statement. “Further pursuit of broad-based ASIC opportunities in non-focus areas is inconsistent with our strategy. Going forward, our custom silicon resources will be concentrated to serve customers more fully within our chosen markets.”

Wall Street watchers at The Lehman Brothers suggest that LSI’s decision to end its RapidChip line could be a boon, while limited, for its competitor Altera.

“With respect to laterals, we note that Altera competes with LSI on Rapid Chip structured ASIC with its Hard Copy solution. However we note that Hard Copy is less than 10 percent of Altera's revenue and that structured ASIC designs as compared to ASICs or FPGAs continue to be more moderate and appear to still be in more nascent stages of growth,” said Tim Luke, a managing director with the firm, in a research note this morning.

With its increased focus on storage, the company today canceled its previously postponed plan for an initial public offering of its wholly owned storage systems subsidiary, Engenio Information Technologies Inc. 
 
“Through the strategy and actions we are executing today, we expect to drive increasing value for LSI and our customers,” said Talwalkar. “The combination of keen market focus, rich technology portfolio, and our silicon, systems architecture and software expertise will create greater synergy and opportunity to build deeper, more valuable customer engagements.”