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LSI Logic Splits Storage, Chip Biz

LSI Logic has decided to send its chips and storage products into new directions.

The Milpitas, Calif.-based company will separate its storage systems operations from its semiconductor business and create an independent storage systems company. The independent company will be based upon LSI Logic's subsidiary, LSI Logic Storage Systems, which is currently reported as a separate segment in LSI Logic's financial statements. LSI anticipates taking the storage company to an initial public offering (IPO) next year.

LSI Logic Corp. makes communications, consumer and storage semiconductors for applications that access, interconnect and store data, voice and video. The pending spin-off, LSI Logic Storage Systems Inc., designs and manufactures storage hardware and storage management software that are delivered to end users through strategic partners such as IBM, StorageTek, the Teradata Division of NCR, and SGI.

These include combinations of hardware, software and services for applications like transaction processing, e-mail, data warehousing and scientific research.

The company is spinning off to better serve a market that is fraught with competition among systems vendors such as EMC, IBM, HP and a number of smaller players.

Due to existing and pending compliance regulations from the federal government, many customers are asking their storage vendors for the ability to store a lot of data and manage its flow as well. This requires a blend of content management with storage management, which the industry has taken to calling information lifecycle management (ILM), or cradle to grave data management.

But the move may also underscore the resurgence of the storage systems industry, which has taken a beating over the last few years in a soft economy. However, by analyst and vendor accounts the data storage sector has improved markedly in the wake of recent synthetic and natural catastrophes.

Uncertainty created by the recent war on terrorism and blackouts in the U.S. have led customers to think more seriously about buying systems they believe will backup and restore their crucial data in the event of a loss.

Enterprise Storage Group Analyst Bob Graham told internetnews.com the news is exciting because he is a big believer that the original equipment manufacturers such as EMC, IBM or Network Appliance should get out of the storage subsystems business and leave it to companies like LSI Logic or its rivals, such as Dot Hill.

According to LSI Logic's Form 10-Q for the third quarter of 2003, the storage systems subsidiary's revenues were $104 million, or 23 percent of the $450 million reported by LSI Logic.

In a public statement, LSI Logic Chairman and Chief Executive Officer Wilfred Corrigan said the intent is to create a company that "unlocks the value and potential of our storage systems business."

"We anticipate that a separation will intensify the market focus and strategic direction of the two companies, benefiting customers, investors and employees. The net result will be two companies, one focused on semiconductors and the other on storage systems," Corrigan said.

Tom Georgens, who has served as the president of LSI Logic's Storage Systems subsidiary for the past five years, will be the chief executive officer of the storage systems company. The current executive team that made the subsidiary a success will remain in place.

"We have expanded and strengthened our customer relations and strategic partnerships," said Georgens in a statement. "Based on the global trend toward modular, scalable storage systems and LSI Logic Storage Systems' proven partnership model, we can provide best-in-class solutions to end-market customers."