Davidson Kempner Capital buys a new position in LSI in 4Q13

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Davidson Kempner Capital Management and LSI

Davidson Kempner initiated positions in Perrigo Co. PLC (PRGO), Lamar Advertising Co. (LAMR), Apple Inc. (AAPL), and LSI Corp. (LSI). The fund and exited its positions in Whitewave Foods (WWAV) and McDonald’s Corp. (MCD).

Davidson Kempner added a new position in LSI Corp. (LSI) that accounted for 1.39% of the fund’s 4Q portfolio.

LSI designs, develops, and markets complex high-performance storage and networking semiconductors. It offers a broad portfolio of capabilities including custom and standard product integrated circuits that are used in hard disk drives, solid state drives, high-speed communications systems, computer servers, storage systems, and personal computers.

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LSI’s fourth quarter results beat analyst estimates. Fourth quarter 2013 revenues were $605 million, compared to $600 million in the fourth quarter of 2012 and $607 million in the third quarter of 2013. GAAP net income was $45 million, or $0.08 per diluted share, compared to fourth quarter 2012 GAAP net income of $23 million, or $0.04 per diluted share. The company’s PCIe flash-based microproducts grew 55% year-over-year, and networking investment area products grew 10% year-over-year. LSI is ranked second as a provider of merchant PCIe flash solutions and uniquely positioned as the supplier with the industry’s broadest PCIe flash portfolio. LSI’s storage semiconductor products represented approximately 77.9%, while networking semiconductor products represented 16.8% of total revenues in 2013. Among the company’s customers, Seagate Technology (STX) accounted for approximately 25% of LSI’s total revenues in 2013.

In December 2013, Avago Technologies (AVGO) announced the acquisition of LSI for $11.15 per share in an all-cash transaction valued at $6.6 billion. Avago is a leading designer, developer, and global supplier of a broad range of analog semiconductor devices with a focus on III-V based products. III-V semiconductor materials have higher electrical conductivity than silicon, so the company tends to have better performance characteristics in radio frequency, or RF, and optoelectronic applications. The acquisition creates a highly diversified semiconductor market leader with approximately $5 billion in annual revenues by adding enterprise storage to Avago’s existing wired infrastructure, wireless, and industrial businesses.

The transaction is expected to close in the first half of 2014. Avago anticipates achieving annual cost savings at a run rate of $200 million by the end of the fiscal year ending November 1, 2015—the first full fiscal year after closing. With the acquisition, semiconductor company Avago will expand into networking and storage chips. Management said the acquisition positions Avago as a leader in the enterprise storage market and expands its offerings and capabilities in wired infrastructure—particularly system-level expertise.

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