LSI Logic Reports Q3 2004 Financial Results, Provides Q4 Business Outlook

Third Quarter News Release Summary

• Revenues of $380 million, consistent with previous guidance.
• Due to the widespread semiconductor industry slowdown, LSI Logic has initiated a comprehensive restructuring program including:
  • Reduction of global workforce by approximately 510 positions.
  • Non-cash asset impairment charges totaling approximately $383 million associated with the Gresham manufacturing facility, $206 million in the third quarter and the remainder in the fourth quarter.
• GAAP* net loss of 73 cents per diluted share.
• Net loss, excluding special items**, of 7 cents per diluted share.
• Gross margin of 40 percent.
• Generated positive operating cash flow for 10th consecutive quarter

Fourth Quarter Business Outlook

• Projected revenue of $360 million to $390 million.
• GAAP* net loss range of 54-57 cents per diluted share.
• Net loss, excluding special items**, in the range of 2– 5 cents per diluted share.

*  Generally Accepted Accounting Principles
** Acquisition-related amortization, restructuring and other special items.

LSI Logic Drives Toward Profitable 2005 Comprehensive Restructuring Program Initiated

Milpitas, Cali, October 27, 2004 – LSI Logic Corporation (NYSE: LSI) today reported 2004 third quarter revenues of $380 million, a decrease of 16 percent compared to the $450 million reported in the third quarter of 2003, and a 15 percent sequential decrease compared to the $448 million reported in the second quarter of 2004.

Cash and short-term investments totaled $809 million at the end of the third quarter of 2004.  LSI Logic generated positive operating cash flow for the 10th consecutive quarter and repurchased approximately $69 million in convertible notes, reducing the company’s debt due in 2006.

Third quarter 2004 GAAP* net loss was $282 million or 73 cents per diluted share, including a $206 million non-cash charge for Gresham manufacturing facility impairment. The third quarter GAAP result compares to a GAAP net loss of $32 million or 8 cents per diluted share in the 2003 third quarter. Second quarter 2004 GAAP net income was $7 million or 2 cents per diluted share. 

Third quarter 2004 net loss, excluding special items**, was $25 million or 7 cents per diluted share compared to net income, excluding special items, of $17 million or 4 cents per diluted share in the third quarter of 2003. Excluding special items, second quarter 2004 net income was $28 million or 7 cents per diluted share.

“The wave of third-quarter pre-announcements throughout the global semiconductor industry reflected customer end-demand reassessments and the ongoing industrywide effort to work down excess supply chain inventory by the end of the year,” said Wilfred J. Corrigan, LSI Logic chairman and chief executive officer. “We have taken proactive steps to realign our R&D and SG&A expenses to our current revenue expectations, including a difficult but necessary 11 percent reduction in force.

“In Consumer our revenues grew, but at a lower rate than originally projected as retail sales reflected softer consumer demand. Both our Communications and Storage Components businesses are being impacted by slower than expected IT spending by enterprises.

“In Storage Components, we are optimistic that excess inventory will be worked down in the fourth quarter. We are projecting that our anticipated 2005 growth in this segment will be driven by our technology leadership positions in Fibre Channel, SAS, SATA, RAID controllers and other applications.

“Revenues for our Engenio Information Technologies, Inc. storage systems subsidiary were down sequentially from the second to the third quarter as a result of a customer inventory adjustment. Earlier this week, Engenio broadened its OEM agreement with Sun Microsystems to provide Sun with new modular storage technology and to co-develop technology for future Sun storage products.”

“Customer interest in our RapidChip® Platform ASIC accelerated in the third quarter with a corresponding increase in our design-win rate,” said Joe Zelayeta, LSI Logic executive vice president of ASIC Technology and Methodology. “This heightened level of sales activity is expected to continue in the fourth quarter, as we have introduced the RapidWorx 3.0 suite of design tools and validated the time-to-revenue value of the product by shipping working silicon to customers in as little as three months.”

“LSI Logic is taking action to improve operating expenses and cost of sales, while aligning our R&D investments to the most attractive business opportunities,” said Bryon Look, LSI Logic chief financial officer. “We continue to generate positive operating cash flow and moved to a net positive cash-to-debt position during the third quarter. We are improving our cost structure, reducing debt and targeting profitable revenue growth in the coming year.”

LSI Logic Fourth Quarter Business Outlook

	GAAP*	Special Items**	Excluding Special Items
Revenue	$360 million to $390 million		$360 million to $390 million
Gross Margin	41-43 percent		41-43 percent
Operating Expenses	$360 million to $364 million	Approximately 200 million ‡	$160 million to $164 million
Net Other Income (Exp.)	$(2) to $(3) million		$(2) to $(3) million
Tax Provision	$6 million		$6 million
Net Loss Per Share	($0.57) to ($0.54) ‡	Approximately $0.52	($0.05) to ($0.02)
Diluted Share Count	387 million		387 million

‡ LSI Logic’s estimated fourth quarter GAAP results include an anticipated $177 million non-cash charge for Gresham manufacturing facility impairment.

Capital spending is projected to be around $40 million in the fourth quarter, and approximately $80 million in total for 2004.

Fourth quarter depreciation and software amortization is expected to be approximately $23 million.

*  Generally Accepted Accounting Principles

** Acquisition-related amortization, restructuring and other special items.

NOTE:  The company’s financial guidance will be limited to the comments made on today’s public conference call and contained in the Fourth Quarter Business Outlook section of this news release.

LSI Logic Conference Call Information

<>LSI Logic will hold a conference call today at 2 p.m. PDT to discuss third quarter financial results and the fourth quarter business outlook. The number is 1-303-262-2190. Internet users can access the conference call by visiting http://www.lsilogic.com/investors.  A replay of the call will be available today at approximately 5 p.m. PDT and will be available for 48 hours. The replay access numbers are 1-800-405-2236 within the U.S. and 1-303-590-3000 for all other locations, passcode 11011177#.

About LSI Logic >

LSI Logic Corporation (NYSE: LSI) focuses on the design and production of high-performance semiconductors for Consumer, Communications and Storage applications that access, interconnect and store data, voice and video. LSI Logic engineers incorporate reusable, industry-standard intellectual property building blocks that serve as the heart of leading-edge systems. LSI Logic serves its global OEM, channel and distribution customers with Platform ASICs, standard-cell ASICs, standard products, host bus adapters, RAID controllers and software. In addition, the company supplies storage network solutions for the enterprise. LSI Logic is headquartered at 1621 Barber Lane, Milpitas, CA 95035.  http://www.lsilogic.com

Safe Harbor for Forward Looking Statements

This news release contains forward-looking statements, which include the following: projected revenues for the fourth quarter of 2004; projected GAAP net loss for the fourth quarter of 2004; projected net loss, excluding special items, for the fourth quarter of 2004, the company’s expectation of growth and profitability of the company in 2005; the company’s expectations of a continued heightened level of sales activity for RapidChip® Platform ASICs in the fourth quarter of 2004; projected capital spending in the fourth quarter of 2004 and in 2004; an expected charge for Gresham manufacturing facility impairment in the fourth quarter; expected fourth quarter depreciation and software amortization; a work-down of excess inventory during the fourth quarter; and expected growth in Storage Components revenues in 2005. Forward-looking statements also include projections of gross margins, net other income (exp.), tax provisions, earnings/loss per share and diluted share count. These forward-looking statements are based on the opinions and estimates of management at the time the statements are made and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that could cause LSI Logic’s actual results to differ materially from those set forth in the forward-looking statements include, but are not limited to: continued excess inventory in the Storage Components channel; continued softness in retail demand for our Consumer Products; continued weak IT spending by enterprises; further charges relating to restructuring activities or asset impairments; the company’s achievement of revenue objectives; the company’s ability to meet financial targets; and the continued availability of appropriate levels of manufacturing capacity. For additional information, readers are referred to the documents filed by LSI Logic with the SEC, and specifically the risk factors set forth in the company’s most recent reports on Form 10-K, 10-Q and 8-K.