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Downgrades hammer LSI Logic shares

LSI Logic shares tumbled 7 1/16, or 17 percent, to 33 7/16 Wednesday after analysts downgraded the chipmaker following its second-quarter earnings report.

LSI (NYSE: LSI) did meet analysts' estimates in the quarter, raking in $98 million, or 29 cents a share, on sales of $644 million. However, some analysts were looking for slightly higher sales and earnings in the quarter.

First Call Corp. consensus predicted the chipmaker would earn 29 cents a share in the quarter.

On Wednesday, Kaufman Brothers cut the stock from a "buy" recommendation to "accumulate." Prudential Securities downgraded the stock from a "strong buy" rating to "accumulate" while Salomon Smith Barney cut it from a "buy" to a "neutral" recommendation.

The $644 million in sales represents a 29 percent improvement from the year-ago quarter when it earned $31 million, or 10 cents a share, on sales of $501 million.

Despite the negative analyst reaction, LSI officials were generally upbeat about future earnings and sales.

"With communications chip sales leading the way, LSI Logic is poised for accelerated growth in the second half of the year," said CEO Wilfred Corrigan in a prepared release. "Based upon our bookings momentum and the global demand for our communications solutions, we now expect communications products to reach 50 percent of the company's revenues by the end of the third quarter."

Last quarter, LSI rolled past analysts' estimates, earning $88 million, or 26 cents a share, on sales of $615 million.

Company officials said its communications chip business is growing much faster than expected and should improve 65 percent from the year-ago period.

Its shares raced up to a 52-week high of 90 3/8 in March after falling to a low of 21 9/16 in October.

Nineteen of the 20 analysts following the stock rate it either a "buy" or "strong buy."

Analysts expect the Milpitas, Calif. company to earn $1.26 a share in the fiscal year.