LSI Logic Corporation

views updated May 18 2018

LSI Logic Corporation

1551 McCarthy Boulevard
Milpitas, California 95035
U.S.A.
(408) 433-8000
Fax: (408) 434-6457

Public Company
Incorporated: 1980 as LSI Logic, Inc.
Employees: 3,370
Sales: $902 million
Stock Exchanges: New York
SICs: 3674 Semiconductors & Related Devices; 3577 Computer Peripheral Equipment Not Elsewhere Classified

A leading competitor in the customized semiconductor market, LSI Logic Corporation represents a defining force in a segment of the semiconductor industry that was recording robust growth during the mid-1990s. Formed in 1980, LSI Logic emerged during the nascence of the industry it dominated during the 1990s, helping to create and shape a market that was predicted to represent more than $5 billion by the beginning of the 21st century.

During the early 1980s, the global semiconductor industry was neither a fertile nor a hospitable market for U.S. companies to enter. By 1991, Japanese manufacturers had gained an early and sizeable lead over the rest of world, controlling 70 percent of the worldwide market for 64K DRAM chips—key components in computers, video games, and telecommunications systems and the most widely-sought products on the market. The few U.S. semiconductor manufacturers mustering any appreciable opposition against the Japanese during the period were large corporations based in California’s Silicon Valley. These manufacturers—even those with sufficient financial clout—struggled to catch up in an expensive high-technology race most especially against the Japanese, who held considerable market share and ample funding for the expensive endeavor of designing and producing memory chips.

Such was the climate pervading the semiconductor industry during the formation of LSI Logic. Despite the overwhelming odds against a small entrepreneurial company successfully competing in a market where much larger corporations were floundering, Wilfred J. Corrigan, the founder of LSI Logic, was intent on carving a niche in the industry, and in defying what he later called the “conventional wisdom that the semiconductor industry was only for major corporations.” To accomplish this formidable task, Corrigan positioned LSI Logic in a small segment of the semiconductor industry, focusing on a branch that offered tremendous growth potential and the opportunity for a small, fledgling enterprise to survive. By doing this, Corrigan gave LSI Logic a viable niche in which to begin business. No matter the strength of his idea, however, Corrigan needed money to get his venture started. The money would need to come from investors willing to take a high-risk gamble with their dollars on the slim hope that a small company could effectively compete in the combative semiconductor industry. Much, then, would depend on Corrigan’s ability to convince the financial community that his company was worth investing in, a task made even more difficult by his recent, less-than-illustrious track record as the leader of another company involved in the semiconductor industry. The high risk of financing such a small, entrepreneurial company, combined with Corrigan’s unfavorable record in the years leading up to his new venture with LSI Logic, presented investors with an opportunity they presumably would avoid.

Roughly six years prior to LSI Logic’s formation, Corrigan, son of a Liverpool, England dock worker and a graduate in chemical engineering from the Imperial College of Science, had gained control over a prominent semiconductor company, Fairchild Camera and Instrument Company. Serving as Fairchild’s chairman, chief executive, and president, Corrigan led the company through an overambitious and disastrous diversification into video games and digital watches while losing market share and falling behind in the technological race in the semiconductor business. Against this backdrop of disappointing results, Corrigan gained the reputation as a somewhat dictatorial leader who liked to show the opening scene of the movie “Patton” during sales meetings. Corrigan’s troubled tenure as Fairchild’s top executive ended approximately five years after it began, precipitated by Fairchild’s acquisition by another company, Schlum-berger Ltd., in 1979. Less than a year later, Corrigan left Fairchild to embark on a short stint as a private investor, then began effecting plans to launch his own business, LSI Logic.

With LSI Logic, Corrigan planned to enter a small segment of the semiconductor industry that produced relatively small batches of semi-finished microelectronic chips, which were then customized for each customer. As opposed to the major segment of the semiconductor industry contested by large manufacturers in Silicon Valley and in Japan, the customized chip industry produced chips that enabled its customers to differentiate their products from those of their competitors, while the major semiconductor companies manufactured standard chips in bulk. Corrigan intended to focus on one technique in the customized chip business known as gate arrays, in which the basic logic elements, or “gates,” were laid out on a chip and then connected in a particular customized order during the last stages of production.

During the early 1980s, this field of the semiconductor industry was quite small, yet Corrigan believed the demand for customized chips, or application-specific integrated circuits (ASICs), would grow immensely in the coming decade. Corrigan convinced a group of venture capitalists, based chiefly in the Bay Area, to provide his company with the $6 million necessary to begin business. The company was incorporated in November 1980 and began operating in early 1981 using leased facilities in Santa Clara, California. Corrigan occupied the same executive positions he had held at Fairchild, serving as LSI Logic’s chairman, chief executive officer, and president, ready to steward the company in a market that represented under $100 million at the time but was expected to become a $1 billion industry by 1986.

Although Corrigan held the same senior management titles at LSI Logic as he had at Fairchild, there the similarities ended. At LSI Logic, Corrigan shed the unsavory image he had developed at Fairchild and astutely led his small company through its formative first years. In August 1981, less than a year after beginning business, LSI Logic entered what company officials described as the “first fully cooperative semiconductor development program involving U.S. and Japanese companies” when it formed a joint venture with Toshiba Corporation to develop a line of advanced semi-custom circuits. The joint venture represented a connection that would grow stronger and deeper as the company sought to take the lead in a burgeoning market. To secure a commanding position in the market, however, LSI Logic needed ample funding for developmental programs intrinsic to success in a high-technology business. Corrigan was repeatedly able to obtain the necessary capital for development which consequently enabled LSI Logic to expand and capture market share in a field other semiconductor companies were slow to enter. Another major infusion of capital arrived in March 1982, this time totaling more than $16 million, the bulk of which came from the same venture capitalists that had provided the money to get LSI Logic started. A group of investment bankers in the United Kingdom and First Interstate Bank supplied the rest of the money, which was used for capital equipment purchases and plant expansion.

Despite the arrival of the needed funding, the year-end finances were disappointing. By the end of 1982, LSI Logic had collected $5 million in sales, but recorded a loss of $3.7 million, making Corrigan’s plan of reaping profits in the customized chip market still a dream. The following year, however, the company recorded the first of many prodigious leaps in its sales volume, when revenues shot up seven-fold to $35 million. Perhaps more encouraging, LSI Logic also demonstrated its profitability, registering $12.5 million in net income for the year—an enormous sum given the company’s revenue total. During the next few years, however, LSI Logic’s profit total fell considerably short of the sales-to-profit ratio recorded in 1983; revenues rose vigorously throughout the decade, but profits remained comparatively low.

As before, the drive to become the leader in its market required the infusion of capital, something LSI Logic needed in 1981, 1982, and again in 1983. In May 1983, while LSI Logic was recording its first year of undeniable financial strength, Corrigan orchestrated his company’s first public offering, which the Japanese investors readily accepted. Japanese investors acquired a considerable portion of LSI Logic’s stock, demonstrating a willingness to invest in the company. Corrigan then allowed Japanese investors to take part in LSI Logic’s growth the following year with the formation of LSI Logic’s Japanese affiliate, Nihon LSI Logic Corporation. The venture financing of Nihon LSI Logic was completed in April 1984 through a private offering in Japan that raised $20 million and ceded a group of 28 Japanese investors a 33 percent stake in the newly formed affiliate. Corrigan raised an additional $20 million by employing the same strategy two months later through a private placement for LSI Logic’s British subsidiary, LSI Logic Ltd.

The creation of Nihon LSI Logic and the strengthening of the British subsidiary, LSI Logic Ltd., which had been in existence since 1982, were part of Corrigan’s strategy to expand internationally. Corrigan envisioned the establishment of largely autonomous operations in three major markets: Japan, the United States, and Europe. Corrigan referred to this blueprint for expansion as his “global triad strategy,” a plan that would firmly root LSI Logic’s presence in three critical regions and, according to Corrigan, insulate each autonomous division from downturns peculiar to each continent while enabling each part of the “triad” to take advantage of changing market conditions in its region.

By the beginning of 1985, Corrigan could claim overwhelming success in one market of his global triad strategy, when LSI Logic ranked as the number one company in the U.S. market for ASICs. LSI Logic controlled 40 percent of the market by this time and its sales volume reflected its quick rise in the industry. Sales had soared from the $35 million generated in 1983 to $84.4 million by 1984, then shot past the $100 million mark the following year, reaching $140 million. The company’s net income, in contrast, did not record a commensurate meteoric rise, falling, in fact, from $15.4 million in 1984 to $10.1 million in 1985. In comparison to other U.S. semiconductor companies, however, LSI Logic at least remained profitable, a rare occurrence among other domestic rivals who were suffering debilitating losses from unrelenting Japanese competition.

To actualize his global triad strategy and help invigorate laggard profits, Corrigan moved resolutely toward the eye of storm, increasing LSI Logic’s presence where the most powerful semiconductor companies existed—in Japan. In 1985, LSI Logic extended its joint development program through a multi-year agreement with Toshiba. During that same year, LSI Logic entered into a joint venture with Kawasaki Steel—Japan’s third largest steel manufacturer—to build a $100 million wafer fabrication plant near Tokyo.

By 1986, LSI Logic controlled 45 percent of the U.S. ASICs market and 25 percent of the worldwide market. Although the company had secured an enviable position in the customized chip market, the increasing growth of the industry’s sales volume had drawn numerous competitors attracted by the enormous growth potential in the business. By the mid-1980s, LSI Logic was competing in a crowded field and one that, as the decade progressed, became increasingly unprofitable. Much attention had been paid to revenue growth in the customized chip market, but little could be said of parallel profit growth, a phenomenon borne out in the annual revenue and net income totals recorded by LSI Logic, an industry leader. LSI Logic could claim enviable victories in revenue growth, market share, and consistent advancement in technological sophistication, but these victories came with a price: alarmingly low profits. In 1986, LSI Logic generated nearly $200 million in revenues, yet recorded a paltry $3.8 million in net income. Two years later, revenues surged to $379 million, while the company’s net income climbed to $23.8 million, which was a considerable increase to be sure, but it was merely a prelude to two years of consecutive losses totaling nearly $60 million. By 1991, after halting its two-year net income slide into the red, LSI Logic, still an industry leader, was a $700 million company with net income amounting to $8.3 million, or $4 million less than it had earned when it was a $35 million company in 1982. Significant changes were needed to lift LSI Logic’s profitability, but the company’s transformation was costly, leading to another year of what industry pundits termed LSI Logic’s “profitless prosperity.”

In 1992, the company instituted sweeping cost-cutting measures to reduce overhead expenses and to embark on a new path toward increased profitability. Employment was trimmed by 1,000, falling to 4,500; a test and assembly plant in Braunschweig, Germany was closed; and several operations deemed inconsistent with the company’s new future were eliminated. The company-wide downsizing program reduced LSI Logic’s operating expenses as a percentage of revenues from 36 percent to 27 percent, but it also resulted in an enormous $102 million restructuring charge and a $110 million loss for the year, making 1992 the third of the previous four years that LSI Logic lost money.

The changes effected in 1992 sought to propel the company back into the black and end its near decade-long inability to produce profits commensurate with its leading position in the customized chip market. Reducing overhead was not sufficient by itself to eliminate LSI Logic’s ails. To more resolutely transform the company’s fortunes, Corrigan also implemented LSI Logic’s CoreWare program in 1992. This program offered customers access to a library of system-level building blocks and design tools. The company had always distinguished itself with its ability to provide a high level of customer service through computer software and other means, one of the chief reasons Corrigan believed back in 1980 that a small company could fare better in the customized chip market than a large company. CoreWare represented a significant leap in LSI Logic’s ability to provide responsive service and, perhaps most importantly, CoreWare represented a sophisticated service that would yield higher profit margins, something the company desperately needed.

With the changes implemented in 1992, including its centerpiece CoreWare program, LSI Logic moved forward, invigorated and redirected toward a more positive future. By the end of the company’s first fiscal quarter in 1995, it had recorded increases in its revenues for ten consecutive quarters. The company had also recorded consecutive quarterly improvements in its net income total during the same time span, a feat without rival in the company’s history. In the first quarter of 1995 alone, LSI Logic recorded $45.3 million net income, twice the amount it had generated during its most profitable year before the implementation of its cost-cutting measures and the CoreWare program. With this encouraging financial growth fueling optimism, Corrigan and the management of LSI Logic planned for a future beyond the mid-1990s that promised to be decidedly more profitable than the company’s past.

Principal Subsidiaries

Nihon Semiconductor, Inc.; Headland Technology Ltd.; Headland Technology GmbH; LSI Logic Europe (United Kingdom) plc (97%); LSI Logic Corporation of Canada, Inc. (55%); LSI Logic K.K. (Japan) (64%); LSI Logic Foreign Sales Corporation (U.S. Virgin Islands); LSI Logic Asia, Inc.; LSI Logic International Services, Inc.

LSI Logic Corporation

views updated May 23 2018

LSI Logic Corporation

1621 Barber Lane
Milpitas, California 95035
U.S.A.
Telephone: (408) 433-8000
Toll Free: (866) 574-5741
Fax: (408) 954-3220
Web site: http://www.lsilogic.com

Public Company
Incorporated: 1980 as LSI Logic, Inc.
Employees: 4,700
Sales: $1.7 billion (2003)
Stock Exchanges: New York
Ticker Symbol: LSI
NAIC: 334413 Semiconductor and Related Device Manufacturing; 334419 Other Computer Peripheral Equipment Manufacturing

LSI Logic Corporation is a leading global designer and manufacturer of custom semiconductors. The company's principal products are Application Specific Integrated Circuits, or ASICs, as well as Application Specific Standard Products, or ASSPs. LSI Logic competes in three main market areas: consumer products, communications, and storage components. The company planned to spin off a fourth business area, storage systems, as the public company Engenio Information Technologies, Inc., in 2004. LSI Logic was a defining force in the customized semiconductor market through the mid-1990s. The company adapted to changing market conditions by developing a strong market in standardized semiconductor products as well. LSI Logic operates subsidiaries in Japan, Hong Kong, and the United Kingdom, and a manufacturing facility in Gresham, Oregon. Wilfred J. Corrigan founded the company in 1980. Corrigan still headed the company in 2004.

Gaining a Foothold in the 1980s

During the early 1980s, the global semiconductor industry was neither a fertile nor a hospitable market for U.S. companies to enter. Japanese manufacturers had gained an early and sizeable lead over the rest of world, controlling 70 percent of the worldwide market for 64K DRAM chips—key components in computers, video games, and telecommunications systems and the most widely sought products on the market. The few U.S. semiconductor manufacturers mustering any appreciable opposition against the Japanese during the period were large corporations based in California's Silicon Valley. These manufacturers—even those with sufficient financial clout—struggled to catch up in an expensive high-technology race, especially against the Japanese, who held considerable market share and ample funding for the expensive endeavor of designing and producing memory chips.

Such was the climate pervading the semiconductor industry during the formation of LSI Logic. Despite the overwhelming odds against a small entrepreneurial company successfully competing in a market where much larger corporations were floundering, Wilfred J. Corrigan, the founder of LSI Logic, was intent on carving a niche in the industry and in defying what he later called the "conventional wisdom that the semiconductor industry was only for major corporations." To accomplish this formidable task, Corrigan positioned LSI Logic in a small segment of the semiconductor industry, focusing on a branch that offered tremendous growth potential and the opportunity for a small, fledgling enterprise to survive. By doing this, Corrigan gave LSI Logic a viable niche in which to begin business. No matter the strength of his idea, however, Corrigan needed money to get his venture started. The money would need to come from investors willing to take a high-risk gamble with their dollars on the slim hope that a small company could effectively compete in the combative semiconductor industry. Much, then, would depend on Corrigan's ability to convince the financial community that his company was worth investing in, a task made even more difficult by his recent, less-than-illustrious track record as the leader of another company involved in the semiconductor industry. The high risk of financing such a small, entrepreneurial company, combined with Corrigan's unfavorable record in the years leading up to his new venture with LSI Logic, presented investors with an opportunity they presumably would avoid.

Roughly six years prior to LSI Logic's formation, Corrigan, son of a Liverpool, England, dockworker and a graduate in chemical engineering from the Imperial College of Science, had gained control over a prominent semiconductor company, Fairchild Camera and Instrument Company. Serving as Fairchild's chairman, chief executive, and president, Corrigan led the company through an over ambitious and disastrous diversification into video games and digital watches while losing market share and falling behind in the technological race in the semiconductor business. Against this backdrop of disappointing results, Corrigan gained the reputation as a somewhat dictatorial leader who liked to show the opening scene of the movie Patton during sales meetings. Corrigan's troubled tenure as Fairchild's top executive ended approximately five years after it began, precipitated by Fairchild's acquisition by another company, Schlumberger Ltd., in 1979. Less than a year later, Corrigan left Fairchild to embark on a short stint as a private investor, then began effecting plans to launch his own business, LSI Logic.

With LSI Logic, Corrigan planned to enter a small segment of the semiconductor industry that produced relatively small batches of semi-finished microelectronic chips, which were then customized for each customer. As opposed to the major segment of the semiconductor industry contested by large manufacturers in Silicon Valley and in Japan, the customized chip industry produced chips that enabled its customers to differentiate their products from those of their competitors, while the major semiconductor companies manufactured standard chips in bulk. Corrigan intended to focus on one technique in the customized chip business known as gate arrays, in which the basic logic elements, or "gates," were laid out on a chip and then connected in a particular customized order during the last stages of production.

During the early 1980s, this field of the semiconductor industry was quite small, yet Corrigan believed the demand for customized chips, or application-specific integrated circuits (ASICs), would grow immensely in the coming decade. Corrigan convinced a group of venture capitalists, based chiefly in the Bay Area, to provide his company with the $6 million necessary to begin business. The company was incorporated in November 1980 and began operating in early 1981 using leased facilities in Santa Clara, California. Corrigan occupied the same executive positions he had held at Fairchild, serving as LSI Logic's chairman, chief executive officer, and president, ready to steward the company in a market that represented under $100 million at the time but was expected to become a $1 billion industry by 1986.

Although Corrigan held the same senior management titles at LSI Logic as he had at Fairchild, there the similarities ended. At LSI Logic, Corrigan shed the unsavory image he had developed at Fairchild and astutely led his small company through its formative first years. In August 1981, less than a year after beginning business, LSI Logic entered what company officials described as the "first fully cooperative semiconductor development program involving U.S. and Japanese companies" when it formed a joint venture with Toshiba Corporation to develop a line of advanced semi-custom circuits. The joint venture represented a connection that would grow stronger and deeper as the company sought to take the lead in a burgeoning market. To secure a commanding position in the market, however, LSI Logic needed ample funding for developmental programs intrinsic to success in a high-technology business. Corrigan was repeatedly able to obtain the necessary capital for development, which consequently enabled LSI Logic to expand and capture market share in a field other semiconductor companies were slow to enter. Another major infusion of capital arrived in March 1982, this time totaling more than $16 million, the bulk of which came from the same venture capitalists that had provided the money to get LSI Logic started. A group of investment bankers in the United Kingdom and First Interstate Bank supplied the rest of the money, which was used for capital equipment purchases and plant expansion.

Despite the arrival of the needed funding, the year-end finances were disappointing. By the end of 1982, LSI Logic had collected $5 million in sales, but recorded a loss of $3.7 million, making Corrigan's plan of reaping profits in the customized chip market still a dream. The following year, however, the company recorded the first of many prodigious leaps in its sales volume when revenues shot up seven-fold to $35 million. Perhaps more encouraging, LSI Logic also demonstrated its profitability, registering $12.5 million in net income for the year—an enormous sum given the company's revenue total. During the next few years, however, LSI Logic's profit total fell considerably short of the sales-to-profit ratio recorded in 1983; revenues rose vigorously throughout the decade, but profits remained comparatively low.

As before, the drive to become the leader in its market required the infusion of capital, something LSI Logic needed in 1981, 1982, and again in 1983. In May 1983, while LSI Logic was recording its first year of undeniable financial strength, Corrigan orchestrated his company's first public offering, which the Japanese investors readily accepted. Japanese investors acquired a considerable portion of LSI Logic's stock, demonstrating a willingness to invest in the company. Corrigan then allowed Japanese investors to take part in LSI Logic's growth the following year with the formation of LSI Logic's Japanese affiliate, Nihon LSI Logic Corporation. The venture financing of Nihon LSI Logic was completed in April 1984 through a private offering in Japan that raised $20 million and ceded a group of 28 Japanese investors a 33 percent stake in the newly formed affiliate. Corrigan raised an additional $20 million by employing the same strategy two months later through a private placement for LSI Logic's British subsidiary, LSI Logic Ltd.

Company Perspectives:

For more than 20 years, we've been providing innovative solutions to customers worldwide. As the foremost global supplier of custom, high-performance semiconductors, we partner with trend-setting customers to build complete systems on a single chip. Customers take advantage of our unique CoreWare methodology to increase performance, lower system costs and accelerate bringing their products to market. Also, because of our leadership in connectivity solutions and interface I/O, OEMs continue to look to us for standard product solutions in SCSI and Fibre Channel technology.

Global Growth in the Mid-1980s

The creation of Nihon LSI Logic and the strengthening of the British subsidiary, LSI Logic Ltd., which had been in existence since 1982, were part of Corrigan's strategy to expand internationally. Corrigan envisioned the establishment of largely autonomous operations in three major markets: Japan, the United States, and Europe. Corrigan referred to this blueprint for expansion as his "global triad strategy," a plan that would firmly root LSI Logic's presence in three critical regions and, according to Corrigan, insulate each autonomous division from downturns peculiar to each continent while enabling each part of the "triad" to take advantage of changing market conditions in its region.

By the beginning of 1985, Corrigan could claim overwhelming success in one market of his global triad strategy, when LSI Logic ranked as the number one company in the U.S. market for ASICs. LSI Logic controlled 40 percent of the market by this time and its sales volume reflected its quick rise in the industry. Sales had soared from the $35 million generated in 1983 to $84.4 million by 1984, then shot past the $100 million mark the following year, reaching $140 million. The company's net income, in contrast, did not record a commensurate meteoric rise, falling, in fact, from $15.4 million in 1984 to $10.1 million in 1985. In comparison to other U.S. semiconductor companies, however, LSI Logic at least remained profitable, a rare occurrence among other domestic rivals who were suffering debilitating losses from unrelenting Japanese competition.

To actualize his global triad strategy and help invigorate lagging profits, Corrigan moved resolutely toward the eye of storm, increasing LSI Logic's presence where the most powerful semiconductor companies existed—in Japan. In 1985, LSI Logic extended its joint development program through a multi-year agreement with Toshiba. During that same year, LSI Logic entered into a joint venture with Kawasaki Steel—Japan's third largest steel manufacturer—to build a $100 million wafer fabrication plant near Tokyo.

By 1986, LSI Logic controlled 45 percent of the U.S. ASIC market and 25 percent of the worldwide market. Although the company had secured an enviable position in the customized chip market, the increasing growth of the industry's sales volume had drawn numerous competitors attracted by the enormous growth potential in the business. By the mid-1980s, LSI Logic was competing in a crowded field and one that, as the decade progressed, became increasingly unprofitable. Much attention had been paid to revenue growth in the customized chip market, but little could be said of parallel profit growth, a phenomenon borne out in the annual revenue and net income totals recorded by LSI Logic, an industry leader. LSI Logic could claim enviable victories in revenue growth, market share, and consistent advancement in technological sophistication, but these victories came with a price: alarmingly low profits. In 1986, LSI Logic generated nearly $200 million in revenues, yet recorded a paltry $3.8 million in net income. Two years later, revenues surged to $379 million, while the company's net income climbed to $23.8 million, which was a considerable increase to be sure, but it was merely a prelude to two years of consecutive losses totaling nearly $60 million. By 1991, after halting its two-year net income slide into the red, LSI Logic, still an industry leader, was a $700 million company with net income amounting to $8.3 million, or $4 million less than it had earned when it was a $35 million company in 1982. Significant changes were needed to lift LSI Logic's profitability, but the company's transformation was costly, leading to another year of what industry pundits termed LSI Logic's "profitless prosperity."

Shifting Focus in the Early 1990s

In 1992, the company instituted sweeping cost-cutting measures to reduce overhead expenses and to embark on a new path toward increased profitability. Employment was trimmed by 1,000, falling to 4,500; a test and assembly plant in Braunschweig, Germany, was closed; and several operations deemed inconsistent with the company's new future were eliminated. The company-wide downsizing program reduced LSI Logic's operating expenses as a percentage of revenues from 36 percent to 27 percent, but it also resulted in an enormous $102 million restructuring charge and a $110 million loss for the year, making 1992 the third of the previous four years that LSI Logic lost money.

The changes effected in 1992 sought to propel the company back into the black and end its near decade-long inability to produce profits commensurate with its leading position in the customized chip market. Reducing overhead was not sufficient by itself to eliminate LSI Logic's problems. To more resolutely transform the company's fortunes, Corrigan also implemented LSI Logic's CoreWare program in 1992. This program offered customers access to a library of system-level building blocks and design tools. The company had always distinguished itself with its ability to provide a high level of customer service through computer software and other means, one of the chief reasons Corrigan believed back in 1980 that a small company could fare better in the customized chip market than a large company. CoreWare represented a significant leap in LSI Logic's ability to provide responsive service and, perhaps most importantly, CoreWare represented a sophisticated service that would yield higher profit margins, something the company desperately needed.

Key Dates:

1980:
Wilfred Corrigan incorporates LSI Logic.: 1983:
LSI goes public.: 1984:
A Japanese subsidiary, Nihon LSI Logic, is founded.: 1995:
Revenue exceeds $1 billion.: 1998:
LSI acquires Symbios.: 2004:
LSI spins off storage systems subsidiary Engenio.

With the changes implemented in 1992, including its centerpiece CoreWare program, LSI Logic moved forward, invigorated and redirected toward a more positive future. By the end of the company's first fiscal quarter in 1995, it had recorded increases in its revenues for ten consecutive quarters. The company had also recorded consecutive quarterly improvements in its net income total during the same time span, a feat without rival in the company's history. In the first quarter of 1995 alone, LSI Logic recorded $45.3 million net income, twice the amount it had generated during its most profitable year before the implementation of its cost-cutting measures and the CoreWare program. With this encouraging financial growth fueling optimism, Corrigan and the management of LSI Logic planned for a future beyond the mid-1990s that promised to be decidedly more profitable than the company's past.

Ups and Downs in the Late 1990s

Revenue at LSI Logic exceeded $1 billion in 1995, and the company seemed to have secured its place in the industry. That year, LSI became the sole owner of its Japanese affiliate, Nihon Semiconductor, and that company changed its name to LSI Logic Japan Semiconductor, Inc. LSI broke ground on a U.S. manufacturing facility that year as well, building a plant in Gresham, Oregon. Yet revenue fell slightly the next year, and the company continued to face challenges. Though it led the market in ASICs, it nevertheless felt the heat from strong competitors such as computer giant IBM Corp. and Lucent Technologies, Inc. LSI continued to bring out new products, but it had to spend huge amounts on research and development. By 1998, research and development spending equaled 20 cents for every dollar in revenue the company pulled in. LSI seemed a bit lost in the late 1990s, with Electronic Business (September 1999) characterizing the period leading up to 1999 as "three miserable years." In 1998, LSI made a major acquisition that had industry analysts scratching their heads. It put in an offer for part of Symbios Inc., a Colorado-based chip maker that had recently changed hands several times. LSI put in a bid for Symbios's chip business in January 1998, but parent company Hyundai instead offered Symbios to Adaptec, Inc. When that deal fell through, LSI returned to the table and bought all of Symbios—not just the chip business—for $804 million, substantially more than Adaptec had put down in its failed offer. The expensive transaction led LSI to post a loss of $126 million for 1998.

Nevertheless, by 1999, LSI Logic looked to be in a much better position. Whereas it had made its reputation by making customized chips, LSI began to move into standardized devices, or ASSPs (Application Specific Standard Products). Wilfred Corrigan had long insisted on rigorous design protocol which meant that all LSI's products could work together. Electronic Business, in the article cited above, described the company's evolution from making customized products to making a broader product line of standardized chips: "it became like a kid with an erector set, assembling the most appropriate pieces for each customer from its library." By 1999, application-specific, or custom, products made up only a quarter of LSI's sales. In addition, a growing portion of its sales came from what it called system-on-a-chip, or SOC, devices. This was an evolving market that put processors, memory, and logic on a single chip. The SOC allowed manufacturers of products like digital cameras and cell phones to pack more features into smaller, lighter machines. It also let manufacturers upgrade and refine their products more quickly. The SOC market was expected to grow rapidly in the late 1990s through the early 2000s, and LSI confidently predicted that revenue would reach $2 billion by the end of 1999. This represented a 40 percent leap over 1998, but LSI pulled it off.

New Purchases and Product Lines: 2000 and Beyond

The company now began a series of acquisitions. Between 1998 and 2003, LSI picked up more than a dozen companies, giving it ever broader product lines. It paid $106 million for SEEQ Technology, Inc. in 1999, a California firm that was a leading designer of data communications devices specifically for the networking market. The next year, LSI picked up another California company, DataPath Systems. The deal was a stock swap valued at around $420 million. In 2001, LSI bought the RAID (Redundant Array of Independent Disks) business of American Megatrends, Inc., a Georgia computer engineering firm. These and other acquisitions helped LSI Logic consolidate its product offerings into four main markets, consumer goods, communications, storage components, and storage systems.

LSI Logic greatly expanded its product line just in time for the semiconductor industry to contract. In 2000, two top executives at LSI, including John Daane, considered the likely successor to founder Wilfred Corrigan, resigned in order to take jobs at other firms. Corrigan was in his early sixties, and the company lacked a plan for carrying on without him. LSI's stock plunged on the news. The stock price had also slid several months earlier, on news that the company would not meet its second quarter sales estimates. By the last month of 2000, it was clear that the semiconductor market as a whole was skidding. The year 2000 had been a profitable one for LSI, despite the second quarter bobble. Sales hit $2.74 billion, and profits had risen as much as 140 percent. The company had done well selling to the communications market, taking 50 percent of its sales in this area. Yet by December, orders slowed to a trickle, and Corrigan predicted much slower sales growth for his company in the next few years. Corrigan also predicted in an interview with Electronic News (March 26, 2001) that storage would now be the most important market for LSI. It had picked up a lot of its storage systems business when it bought Symbios in 1998, and it eventually consolidated all its storage business into a subsidiary company called LSI Logic Storage Systems, Inc.

Corrigan had been through many ups and downs in the semiconductor industry, and by late 2002 he told Electronic Engineering Times (October 28, 2002) that the market was about to rebound. LSI had a new product, RapidChip, that the company hoped would give it inroads to new customers. Nevertheless, the first quarter of 2003 did not go well, with a 10 percent revenue decrease compared to a year earlier. LSI began to cut costs. It cut hundreds of jobs and planned to sell its manufacturing plants in Colorado Springs and in Tsukuba, Japan. In mid-2004, LSI announced plans to spin off its storage systems subsidiary. This firm changed its name to Engenio Information Technologies, Inc. in May, 2004. It was to go public on the New York Stock Exchange, with LSI Logic retaining a majority of the shares.