November 13, 2003 3:31 PM PST

LSI Logic may spin off storage group

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LSI Logic on Wednesday said it plans to separate its storage systems operations from its mainstream semiconductor business and is considering an initial public offering of the new company in the first half of next year.

The independent company will be based on LSI Logic's wholly owned subsidiary, LSI Logic Storage Systems. The storage systems unit makes hardware and storage management software and sells products through partners such as IBM.

"Our plan is to create an independent storage systems company that unlocks the value and potential of our storage systems business," LSI Logic CEO Wilfred Corrigan said in a statement. "We anticipate that a separation will intensify the market focus and strategic direction of the two companies, benefiting customers, investors and employees."

Arun Taneja, founder of the Taneja Group research firm, was not surprised by the announcement. He said the market values LSI's storage systems business at a higher level than the overall semiconductor business. "The nonstorage side of the business is typically valued at much lower multiples of revenue," he said. "The storage unit has been the gem within the company."

For the third quarter of 2003, LSI Logic Storage Systems posted revenue of $104 million, or 23 percent of the $450 million reported by LSI Logic. Those results represented the sixth straight quarter of year-over-year revenue growth for the storage systems unit.

The storage industry overall has been showing signs of vitality. Analysts have made upbeat comments about the storage market because of an increase in the amount of data to be stored and other factors. Storage-related companies are reporting profits, and new companies are entering the industry.

LSI's storage systems unit makes storage products, including disk drive arrays and controllers, which manage how data is written onto disks.

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 new company, LSI said.

 

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