LSI buys SandForce to power high-end storage drive

NEW YORK, USA: Chipmaker LSI plans to buy high-end storage provider SandForce for $322 million to strengthen its presence in the small but fast-growing market.

LSI also reported third-quarter results in line with expectations as flooding in Thailand disrupts the country's hard disk drive industry, for which LSI makes controllers.

Competition has been brewing in the young but booming market for flash memory used in corporate data centres, and analysts foresee consolidation as larger players move in.

Using solid-state drives made of NAND flash memory chips -- typically found in smartphones -- is expensive but is catching on with social media companies, banks and other corporate customers willing to pay top dollar for speedy and energy-efficient performance.

As prices come down, solid state drives are expected to eat into demand for traditional hard drives made by companies like Seagate Technology , which is one of LSI's top customers.

"If hard disk drives are going replaced with solid state drives and you're not a player there, then you're going to be in trouble," said Merriman Capital analyst Kaushik Roy.

LSI will assume $48 million of unvested stock options held by employees and the acquisition is expected to close in early 2012, the company said on Wednesday.

Chief Executive Abhi Talwalkar told analysts on a conference call that LSI's business has been hurt by flooding in Thailand that has killed at least 373 people since mid-July and devastated industrialized areas in the centre of the country.

Seagate's factories in Thailand, the world's second-largest exporter of hard drives, are running but it has warned it could face problems getting components from suppliers.

"Our customers have talked about the disruption to their factories, logistics, power and availability of labor. Some of LSI's subcontractors in Thailand have been similarly impacted and the effects of this have been factored into our outlook," Talwalkar said.

Talwalkar also said the quarterly revenue guidance takes into account a likely 10 per cent dip in LSI's hard drive business during the quarter caused by the flooding.

LSI forecast fourth-quarter adjusted profit from continuing operations of 6 cents a share to 14 cents a share on revenue of $500 million to $550 million.

Third-quarter revenue from continuing operations was $547 million, up from $453 million a year ago.

Analysts on average expected third-quarter revenue of $547 million, according to Thomson Reuters I/B/E/S.

In May, LSI sold its Engenio external storage business to NetApp for $480 million, leaving LSI to focus on microchips for hard drives and networking equipment.

The Milpitas, California company's third-quarter non-GAAP income from continuing operations was $83 million, or 14 cents per share, compared with $63 million, or 10 per diluted share, a year earlier and in line with expectations.

Shares of LSI were down 3.9 per cent in extended trading after closing up 2.42 per cent at $5.93.