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Tickers in this Article: LSI, NSM, TXN, AMAT, MRVL
LSI Corporation (NYSE:LSI) has been hit hard by the severe downturn in the semiconductor chip industry. The company has posted a series of losses, and has projected even more for the first quarter of 2009. This bad earnings news has been compounded by the continuing bleak outlook for the short-term future of the semiconductor industry. The stock has been thrashed as well, taken down from a 52-week high of $7.37 per share to as low as $2.36, and recently traded at $3.19. Still, things aren't always as bad as they seem, and it doesn't take much for an industry to take a dramatic turn for the better. So, is there any logic to buying the stock right now?

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A Semi-Cycle of Gloom
While the semiconductor industry has always been regarded as highly cyclical, demand simply fell off the cliff this time around. This marks the end of an awful chip-buying cycle for the company , which has been impacted heavily by the massive recession and an oversaturation of chip manufacturers. LSI reported losses of $622 million (96 cents per share) for 2008 - this followed its $2.5 billion loss in 2007. Although the company has been trying to turn itself around for the last five years, each year has ended in a loss.

How the Chips Stack Up
Despite the awful climate for chip manufacturers, other companies in the same field didn't all fare quite as badly as LSI. National Semiconductor Corporation (NYSE:NSM), for example, still has positive numbers, showing a profit of 91 cents per share on its earnings for the trailing twelve months (TTM) and expects continued positive results for 2009, though the earnings will be halved. Bellwether stock Texas Instruments (NYSE:TXN) shows a similar trend, although its income falloff may be greater. An optimistic note listed Texas Instruments as raising its mid-point guidance for the quarter, though. LSI does have significant diversification, as do National Semiconductor and Texas Instruments. Still, it doesn't seem that LSI has executed as effectively as others in the industry have. (The semiconductor industry lives and dies by a simple creed: smaller, faster and cheaper. Learn more in The Industry Handbook: The Semiconductor Industry.)

Semiconductor giant Applied Materials (Nasdaq:AMAT) has still managed to eke out profits through the downturn, but it is looking at negative projections for the whole year. Marvell Technology Group (Nasdaq:MRVL), had a negative first quarter, but is hoping to pull off positive results for 2009. Still, while some of these larger companies are hanging in on profitability, the diminished numbers show the global decline in the semiconductor industry. Even in contrast, these companies are able to scratch out profits where LSI has not.

A Chip of Hope
Abhi Talwalkar, the CEO of LSI, recently predicted in an interview with Reuters that the worst of the chip downturn was nearly over, and with the industry bottomed-out, some of its consumers are seeing the end of inventory tightening. Talwalkar indicated that demand would pick up sooner than later. He also cited that some of the poorly-capitalized chipmakers would have a hard time making it through the rough environment, and that there are "too many players" in the industry. Talwalkar further suggested there would be consolidation.

However, industry data released on March 19 showed that the bookings for the semiconductor industry were down another 5% in February, showing that any resurgence is still out of sight. Even after the chip business picks up, LSI will still have a formidable task continuing the re-orienting plan for its business. In order for the company to succeed in the future, a stronger competitive edge and niche product development are needed.

The Logical Play
There is no fundamental action, other than predictive talk, happening right now in the semiconductor industry. Talwalkar's faint talk may be optimistic, and when you see such industry stalwarts as National Semi and Applied Materials having earnings numbers cut in half (or worse), it's a caution to long-term investors to wait. Let the chipmakers, particularly LSI, produce the chip sales and earnings. The way it looks now, you'll have plenty of time to get in on these stocks, should that happen in the future. (Learn how internal return on investment helps determine a stock's ability to propel shareholder returns in Earnings Power Drives Stocks.)

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