NetApp buys LSI storage systems unit for $480M

LSI Corp. recently announced that NetApp Inc. has agreed to acquire its external storage systems business for $480 million in cash.

The unit for sale develops Engenio external storage systems products and technology. It reported revenues of $705 million in 2010.

LSI took over the storage systems business in August 1998, as part of its acquisition of Symbios Logic.

The LSI RAID adapter business, which develops LSI MegaRAID and 3ware storage controllers and software for direct-attached storage environments, will remain with LSI. Upon closing, most LSI external storage systems employees are expected to join NetApp, a provider of storage and data management solutions.

LSI's decision to divest the external storage systems business is part of a move to become a pure-play semiconductor company. As a result of the sale, LSI expects to eliminate $35 million to $40 million per quarter of operating expenses upon closing of the transaction.

"As the market requirements for external storage systems continue to trend toward more comprehensive solutions and offerings, greater investment levels are required to enable additional growth opportunities. We believe that NetApp is well positioned to provide the needed technologies and scale to grow the external storage systems business and better serve our customers going forward," said Abhi Talwalkar, LSI president and chief executive, in a statement.

LSI has also announced that its board of directors has authorized a new stock repurchase program of up to $750 million.

There are mixed signals for LSI in the marketplace right now. ''Recent checks suggest LSI is tracking toward the middle of 1Q11's revenue guidance range of $605-$635 million (-4 percent to -9 percent quarter-over-quarter), about in line with the Street's $622 million,'' said Craig Berger, an analyst with FBR, in a report, which was issued before the LSI-NetApp deal was announced.

''We think HDD shipments have been incrementally sluggish, though LSI management likely had a conservative 1Q TAM assumption to begin with,'' he said.

''Regarding Western Digital's recently announced acquisition of Hitachi's hard drive business, we think improved HDD consolidation, and thus profitability will be incrementally positive for HDD chip prices and margins, with Marvell and LSI the key chip beneficiaries here,'' he said. ''Stepping back, we remain believers in LSI's product-ramp story and expect accelerating revenues from new customers like Cisco, starting in late 2011 and accelerating in 2012.''

- Mark LaPedus
??EE Times