Analysis: Talwalkar puts stamp on LSI Logic

Four months after replacing company founder and prominent semiconductor industry veteran Wilfred Corrigan as president and chief executive of the Milpitas, Calif. company, Talwalkar wooed a packed audience of analysts in New York City earlier this week, proudly proclaiming that the company is being reinvigorated with new leadership and structure.

Though Corrigan remains chairman of LSI, he was nowhere to be found at the meeting. Talwalkar left the distinct impression that the longtime ASIC company was about to go through a significant transformation—one that would win over critics that believe LSI has in recent years fallen behind the times.

Talwalkar spoke of the need to transition LSI from a technology-driven to market-driven approach, the need to cross-leverage product line strategies, and echoed the familiar cry of increasing operating efficiency and product cost.

"We will focus on markets where LSI has deep IP, design expertise and a strong silicon footprint," Talwalkar told analysts.

Talwalkar has been setting the stage for transforming the company. On Sept. 13, LSI announced it would sell its world-class 8-in. fab in Gresham, Ore., transforming the company to a fabless semiconductor model. And in August, the company said it would restructure its business to focus on the company’s key markets of custom integrated circuits, consumer products, and storage platforms and products.

Although the fab was a leading-edge one capable of handling 0.13-micron designs, Talwalkar conceded the fab should have been sold earlier—a move perhaps unthinkable when LSI was considered a manufacturing company. Answering concerns that few companies would want a costly onshore fab, Talwalkar said calls were streaming into LSI soon after the announcement was made.

Though Talwalkar has stirred a fair amount of optimism, the jury is still out as difficult challenges face LSI.

One key issue is how the company implements its foundry strategy as it transforms to a fabless model. One analyst asked whether LSI’s ASIC business was aligned with any particular foundry, and Talwalkar conceded the company needs to consolidate its foundry base. How that plays out remains to be seen.

How LSI succeeds on its move to focus on particular market sectors also bears watching. The company has lost traction in markets such as communications, where Talwalkar said LSI now derives 15 percent of its revenue from. He added the company is not going to abandon that sector. But whether LSI is able to allocate sufficient resources to reinvigorate its communications business is unknown.

The ongoing transformation of LSI’s ASIC business to structured and platform models also bears attention. Talwalkar said the company was making enhancements to its RapidChip ASIC family in the fourth quarter. How soon those enhancements improve LSI’s ASIC business revenue, which some analysts say is lagging, is unclear.