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Article Excerpt
KAUSHIK ROY, ANALYST, WEDBUSH MORGAN: I'm Kaushik Roy, the Data Center Technology Analyst at Wedbush Morgan. It's my pleasure to introduce Sujal Shah. He's the VP of Investor Relations at LSI these days. It's not Logic anymore. So, Sujal is going to make some comments and then I'll ask a few questions and then open and take questions in the room. So, Sujal?
SUJAL SHAH, VP, IR, LSI: Yes. Thank you, Kaushik, and good afternoon. It's a pleasure to be here. I think it goes without saying that we're in a very difficult economic environment with a lot of challenges and clearly all of you face a lot of challenges and difficult decisions as you look out over the tech sector and you look at different investment decisions and you try to evaluate different companies in this environment.
So, before we get into Q&A, I just wanted to give a little bit of a backdrop on LSI and talk about some of the changes that we've been making within the Company and also talk about our business composition and our revenue growth drivers and growth opportunities that we think that when taken in aggregate actually make LSI relatively well positioned versus peers and give us an opportunity not only to weather this downturn but also emerge from this downturn as a stronger Company as we have the ability to play offense here.
So, to start with, our balance sheet is very strong. We've got about $1.1 billion of cash and $524 million of net cash or cash in excess of debt. We have two debt obligations, one that comes due in December of this year and the other that comes due in May of 2010 and, like I mentioned, we have $524 million of cash in excess of that debt.
If you look over the past couple of years and some of the changes that we've made in financial structure in the Company, we've reduced our operating expenses by 25% a quarter over a two year period. So, that equates to $75 million a quarter, including some of the actions that we've recently announced that we've taken with the Company.
In addition, we've divested some of the more volatile and riskier businesses, so we no longer have any exposure at all to the handset space or to consumer electronics. We divested those businesses last year and in addition we outsourced manufacturing. So, we don't have any wholly owned wafer fabs, nor do we do backend assembly and tests internally. We've moved all of that to being 100% outsourced which has given us two benefits. Number one, we've lowered our fixed costs and, number two, we've lowered our capital expenditure requirements going forward.
So, if we look at CapEx on a relative basis from 2008 to what we expect in 2009, our CapEx requirements are going to be down 25% to 30%. Through this downturn, our goal is to maintain positive operating cash flow. So, that's the financial metric that sort of bounds things for us. So, you can interpret from there that there's no line in the sand with respect to operating expenses. Essentially, we're going to continue to look at end market demand, continue to market conditions with respect to customers in markets, and maintaining positive operating cash flow is going to be the goal.
So, the one thing that's unique about LSI perhaps relative to some investment peers is we didn't wait for the downturn to take actions and to change our business composition and to structure the Company for financial success. We started making those changes starting two years ago. So, the net effect of that is whereas some of our competitors are currently rationalizing some of those things and currently looking at businesses where they may or may not have scale and try to make decisions on their business composition, we've already done that.
So, our primary businesses are in storage and in networking. And we actually think that that's a very favorable business composition. So, 85% of our revenues are tied to what we would call business critical infrastructure spending. So, this is tied to IT managers, whether they're buying storage systems or they're buying network equipment.
So, to break that down a little bit further, about 35% of our revenues are tied to storage systems. About 25% of our revenues are tied to servers. About 20% is tied to networking. And only about 15% is exposed to PC sales. So, even with the downturn, digital content continues to grow. And the need to store that content, as well as transport that content continues. And maybe...
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