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

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 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.”

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