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LSI Logic, Vitesse Semi warn of weakness

The two chipmakers reduce forecasts for their current quarters, blaming continued weakness from communications and data-storage customers.

    Vitesse Semiconductor and LSI Logic on Monday both reduced forecasts for their current quarters, blaming continued weakness from communications and data-storage customers.

    Despite the warnings, both stocks closed higher. Vitesse rose $1.25, or 3 percent, to $39.06. And LSI was up 51 cents, or 3 percent, to $16.82.

    Vitesse said it now expects fiscal second-quarter revenue to come in at $150 million to $160 million, down from projections of $180 million to $190 million, and said pro forma net income will fall in the range of 21 cents to 22 cents a share, compared with previous targets of 26 cents to 27 cents a share. According to First Call, Vitesse was expected to report a second-quarter profit of 26 cents a share on revenue of $177.6 million.

    Vitesse makes chips that companies like IBM, Cisco Systems and Lucent Technologies use in their network and automatic test equipment.

    Vitesse had already watered down second-quarter expectations when it announced its fiscal first-quarter results in January, but several analysts had upgraded or reiterated "strong buy" ratings during the past month.

    CEO Lou Tomasetta said in a release that when the company reviewed February's business, it became apparent that a continuing loss of visibility among communications customers and an unexpected decline in storage applications was putting estimates at risk. He added that Vitesse still sees strong growth in its network processor, switch fabric and other accounts and that these areas are softening the blow from communication integrated-circuit suppliers.

    Analysts were still upbeat on the stock Monday. Prudential Securities analyst John Barton reiterated his "strong buy" on the stock while lowering his 12-month target prices on all the communications chipmakers he covers.

    "No company is immune to the slowdown. However, we continue to believe that Vitesse is best positioned," Barton wrote in a research note. He added that the revised projections still leave the company better off than its peers.

    Barton noted that "Vitesse shares have already been trading as if they were going to miss the quarter," but nevertheless slashed his price target to $53 from $100.

    LSI Logic, which also makes communications and storage semiconductors for data, voice and video, said its first-quarter revenue is now expected to be down around 30 percent from its fourth-quarter revenue of $751 million. That compared with the previously expected 12 percent decline. Earnings are expected to be 3 cents a diluted share, down from the 21 cents the company earlier projected. Year-ago first quarter earnings were 26 cents a diluted share.

    According to First Call, LSI was expected to report a first-quarter profit of 21 cents a share on revenue of $780 million.

    The company also said it has started cost-reduction measures to align operating expenses with current revenue projections. Its goals are to improve profitability without impairing LSI's competitive position.

    In late January, LSI cut its second-quarter projections, but said it was expecting a rebound in the second half.

    The company changed its tune Monday. CEO Wilfred J. Corrigan said he is confident revenue will grow when the economy improves. But, he added, "we do not have sufficient visibility at this time to accurately predict the timing for the resumption of growth."