Life Storage, Inc.
Q1 2012 Earnings Call Transcript

Published: 26 Apr 2012

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the LSI Corporation Investor Relations Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Sujal Shah, Vice President of Investor Relations at LSI. Please go ahead.

[Sujal Shah:]

Good afternoon, and thank you for joining us. With me today are Abhi Talwalkar, President and Chief Executive Officer; and Bryon Look, Executive Vice President and Chief Financial Officer. Abhi will begin the call with some opening remarks and highlights from our business, and then Bryon will provide results for the first quarter and guidance for the second quarter of 2012. During this call, we will be mentioning non-GAAP financial measures, which we may refer to as results excluding special items. Today's earnings release describes the differences between our non-GAAP and GAAP reporting. You can find reconciliations of our non-GAAP financial measures to corresponding GAAP amounts on the Investor section of our website at www.lsi.com/webcast. At that site, you can also find a copy of the earnings release and a presentation highlighting the key points from today's call and providing an overview of our business. Also on the site, we have posted a full video replay of our March 14 Analyst Day event, along with slides, which provide an in-depth information about each of our businesses. Today's remarks will include forward-looking statements. Our actual results could differ materially from those suggested by the statements made today. Information about factors that could affect future results is contained in our Form 10-K for the year ended December 31, 2011, and today's earnings release. With that, it is now my pleasure to introduce Abhi Talwalkar.

[Abhijit Y. Talwalkar:]

Thanks, Sujal. Good afternoon, and welcome. I would like to begin by providing some highlights for the first quarter. Our revenue of $ 622 million represented 19% sequential growth and over 30% year-over-year growth, driven by 3 main components

[Bryon Look:]

Thanks, Abhi, and good afternoon, everyone. LSI delivered a solid first quarter, meeting or exceeding the update we provided in March at our Analyst Day. A few of the highlights are as follows

[Sujal Shah:]

Thank you Bryon. At this point, we will begin the Q&A portion of the call. Michelle, will you please give the instructions for the Q&A session?

[Operator:]

[Operator Instructions] Your first question comes from the line of Daniel Amir.

[Daniel L. Amir:]

A couple of questions here. First of all, on the networking segment, it seems like you had a solid Q1. You're guiding for flattish Q2, but then it looks like there's some big opportunities here in the wireless base station side and on the enterprise side as well. So can you kind of give us a little more visibility about the trends and what's going on the networking segment? And then I have one follow-up.

[Abhijit Y. Talwalkar:]

Yes, I mean, on the networking side, tactically speaking relative to the quarter, I think everyone has been watching the inventory burn that's been taking place over the last 2, 3 quarters in wireless infrastructure, in particular, less so in enterprise. And I think people are starting to call the bottom at this point in time. If we look at our networking investment areas, we expect that to grow in Q2, kind of consistent with what some of our peers are also saying. At the same time, we've got some legacy declines. Longer term, we're very excited about our networking strategy and the success that we've had with Axxia, also combined with our custom silicon capability, not only in wireless infrastructure, as we alluded to in our Analyst Day, where we've got some very significant wins that will enable us to have 50% share in the control and data plane and even 40% share in baseband functions with next generation systems, which have just now started beginning in the development phase. And as we also discussed in prepared remarks, we're starting now to take Axxia and expand that into enterprise, in particular, data center switching that can really leverage the architecture's benefits.

[Daniel L. Amir:]

Okay. And the follow-up on the SSD side. There's been some commentary from other companies that this quarter, that there was a buildup a bit post-Thailand flood to the SSD market. And then towards the end of Q1, there has been some inventory decline a bit after a basically building up of inventory in the SSD market. I mean, so what are you seeing a bit on the client SSD side? I mean, are you seeing that trend or are you bucking the trend because you're gaining share? I mean, how would you look at that business?

[Abhijit Y. Talwalkar:]

Well, a, we're definitely gaining share. We've displaced a number of competitors, and we've been working with a number of our customers the last 3 to 6 months. And a lot of those products are now coming to market. They were introduced in February, March and more will be introduced here in Q2. So we definitely are benefiting from share gains. I don't know if we've completely experienced what you've described. There's certainly been some discussion around inventory. But I think that's more on consumer NAND versus really SSD, which we expect to continue to grow at the exciting growth rates we've projected coming into the year.

[Daniel L. Amir:]

And would this business be up in Q2?

[Abhijit Y. Talwalkar:]

Yes, it should be contributing to our growth.

[Operator:]

And your next question comes from the line of Jim Schneider.

[Gabriela Borges:]

This is Gabriela Borges on behalf of Jim. I want to follow up on your comment on having leading share in the flash control market. Could you talk a little bit more about the competitive environment here and perhaps quantify roughly how much they have told?

[Abhijit Y. Talwalkar:]

Well, I mean, our comment around leading share is really tied to 2012, although we do believe we're probably tied for #1 or an incredibly close #2 in 2011. But in terms of 2012, just based on our tops-down, bottoms-up analysis and looking at all the design wins that we've had and where we've displaced some of our competitors, we feel pretty good about our ability to achieve a #1 unit share in 2012. And that's obviously a result of a broadening of the customer base but also a superior product performance, a firmware stack that is heavily tested and product ties more so than what some of our competitors are offering as well. I think the combination of LSI and SandForce has also driven a lot of synergies as all of the sudden now, this great technology is supported by the wherewithal of LSI.

[Gabriela Borges:]

Great. That's very helpful. And then as a follow-up, if I may. Following the snapback in 1Q with HDD revenues, what's your sense of how your HDD customers are progressing with their recovery post Thailand. For example, when we look to 2Q, do you think customer TAM levels will be back at pre-flood levels?

[Abhijit Y. Talwalkar:]

I think, in terms of what's out there, and we would agree with some of the numbers that are out there obviously. Some of our biggest customers but also analysts are projecting a TAM of about 160 million units in Q2. That's up from about 143 million, 144 million in Q1. That still is not back up to probably full natural demand, but I think we agree with some of the comments that have been made. Notebook is pretty much all caught up. Enterprise is almost caught up. Desktop or 3.5-inch drives are not completely caught up, likely will catch up in Q3. We don't anticipate any inventory replenishment in Q2 either as output is still probably lagging demand, in particular, in the areas that I've discussed. But the recovery has been certainly good and at faster pace than anticipated coming into the year.

[Operator:]

And your next question comes from the line of Blayne Curtis.

[Blayne Curtis:]

Maybe just following up on the hard drive market. Obviously, you've seen a tailwind with the recovery, maybe on a more normalized basis, SSD share. And obviously, your main competitor is ramping. Your main customer, I think you've talked about wins at their main customer. I was wondering if you could net all these out, where you see your share going forward after we get the recovery?

[Abhijit Y. Talwalkar:]

Well, for the full year, we definitely expect our share to be up. So we're very confident in that happening, and we're 4 months in the year and continue to feel very good about that. Right? We also continue to expect our share to grow in preamps as well, where we grew a nice share last year.

[Blayne Curtis:]

Got you. And then a question for Bryon. I mean, the gross margin takes a step-up in Q2. Is this the new level? And obviously, you're long-term model is higher than this, but is this the new base we're operating off through there?

[Bryon Look:]

Yes, I think we're continuing to focus on continuing to improve our gross margin levels. We had our Analyst Day just a month or so ago and provided a new business model target there for gross margins at approximately 55%. So as revenues continue to grow, as we continue to focus on managing our costs and so forth, I think we do expect to be expanding gross margin.

[Operator:]

Your next question comes from the line of Vivek Arya.

[Vivek Arya:]

Two questions, actually. One is the design wins with Western Digital. I think you have had the design wins for some time. Why are you more confident that you can translate those into revenues this year and how meaningful can that be in the second half?

[Abhijit Y. Talwalkar:]

Well, first of all, we're not going to discuss any specific customer or customer designs just out of respect for confidentiality expressed by our customers. But we feel very good about our ability to ship SoCs across all 3 customers. And keep in mind, development cycles typically for a brand-new hard drive and a brand-new SoC can be anywhere from 2 to 3 years.

[Vivek Arya:]

All right. And a separate topic, what is the impact of small cells as they start getting used more in wireless infrastructure? Is your opportunity impacted in any way?

[Abhijit Y. Talwalkar:]

No. In fact, we have an architecture that scales down into various segment within small cells. Keep in mind, when people around the word small cell, there's actually multiple segments within small cells, pico, femto and so forth. Our product line, today, in our customer's platforms actually supports aspects of small cell as well, and we've got a very scalable architecture in Axxia. So we think we're going to be positioned very well as that market develops. It's still a very small percentage of the overall base station volume and TAM and will probably be so for several years.

[Operator:]

Your next question comes from the line of Suji De Silva.

[Sujeeva De Silva:]

First of all, Abhi, as you look at the second half of the year, how would you rank order some of the growth opportunities that you guys have in front of you?

[Abhijit Y. Talwalkar:]

Rank order in terms of just percentage growth, obviously, not absolute growth. We still feel very good about, obviously, flash just given the growth rates in the flash market or the markets that we're in relative to flash, growing at 40% to 50%. So that's certainly going to -- the upturn in terms of growth, we expect to start seeing meaningful contribution with our Nytro product line or PCIe flash. So I would put our flash-related businesses at the upper end, if you will. I think networking in terms of investment areas, we'd also expect good growth as we continue to ramp new products as well. And I think we're fairly optimistic as long as economic environment stays stable that we'll see nice growth in data centers and in the pull of servers, especially with Romley, which has a pretty decent proposition. And we're well-represented there in Romley and also have some incremental share gains and revenue footprint as well. And then hard disk drive, kind of in that order.

[Sujeeva De Silva:]

Great. And then on specifically network infrastructure on the investment side, in wireless, I know you're starting to ramp at the second of the top 3 customers. How far along are you with that second customer? Is that already underway or is that on the come?

[Abhijit Y. Talwalkar:]

Well, let's make sure the questions are clear. First of all, we're shipping some form of silicon or multiple pieces of silicon into at least 4 out of the 5 wireless infrastructure guides today. Right? And it could be in the form of multiple custom silicon chips. It could be in the form of Axxia. When we talked about the incremental wins at the Analyst Day and we talked about basically winning 2 of the wireless infrastructure players with Axxia, those developments are just now getting into the development -- they're in development about 3 to 6 months. So that will add to our ability to achieve and really surpass this 50% goal that we have for control plane and data plane. But along the way, we'll continue to ship into the wireless infrastructure space with the business that we have today.

[Operator:]

Your next question comes from Arnab Chanda.

[Arnab Chanda:]

A couple of questions for you, Abhi. First of all, if you look at your wireless infrastructure wins, I think that was fairly unexpected because you were not a player there except maybe in some more legacy area or ASICs. Can you talk a little bit about when do you see that sort of growth in the investment areas, especially in wireless infrastructure, be able to offset the legacy declines? Is it going to be this year or next year? And then one question about the hard drive business. I think this was asked, but I'm going to ask you a different way. There's sort of 3 factors that you have. One, obviously, is the supply chain bonds snapback; two, your share gain is probably accredited late in the year; but then, three, there's an offsetting factor where you're no longer going to be single-sourced probably at your major customer. Do you think you can grow hard drives with those 3 factors all through this year or do you think there will be kind of a pause before it comes back with the new customer end?

[Abhijit Y. Talwalkar:]

All right. Couple of big questions there. Let's take the networking one. First of all, our networking investment areas have been consistently growing at CAGR of about 25-plus percent over the last 5 years, and we've been very much focused on wireless infrastructure and obviously, a number of segments in enterprise through a standard product, as well as a custom silicon sort of strategy. And they go hand-in-hand as well. We are in production with Axxia today at a major wireless infrastructure provider today. So we're already now in the production and will expect that to grow as we bring on more customers, and we announced the second customer out of the major players as well. And that has now just started development. And we expect our networking investment areas, which again comprise wireless networks, as well as enterprise, custom and standard, to continue to outpace our legacy declines. And we still expect, assuming CapEx returns in the wireless space, as I think everyone is expecting, exiting Q2 and into the second half, that in aggregate our networking business should grow this year. Okay? In hard disk drives, lots of moving parts, obviously, both TAM increases, post-merger product road map rationalization and decisions as well, ramps of new products. Very, very difficult to really call how things play out in the second half, but we very much we'll be gaining share for the full year. And we will be very much growing our business very nicely in 2012 over 2011, both on the SoC side, as well as the preamp side.

[Operator:]

Your next question comes from the line of Craig Berger.

[Craig Berger:]

Just wanted to understand SandForce and the solid-state drive business a little bit better. What kind of revenue target should we still be expecting for the year? I think that was around $125 million. What's the gross margin profile of that business? And within the revenue, sort of how much is client, how much is enterprise, controllers and how much is flash that's part of the packaged deal that you're passing on?

[Abhijit Y. Talwalkar:]

Okay. Let's see if I can hit those, Craig. First of all, there's no flash in any of our content or what we sell. In terms of gross margins, let's say, gross margins are north of our average. Okay? In terms of growth of SandForce or our SandForce flash processors, we have not specifically provided a growth for that part of the flash business for 2012. But I'll reiterate what I have said around our flash business, which is, if you assume SandForce was part of LSI all of 2011, the aggregate flash-based revenues or flash-oriented revenues at LSI would have been about $70 million in 2011. And I've been on the record to say that we expect our aggregate flash business to grow 100% to 150% this year, and we're on track to do that. Did I answer all your questions on SandForce?

[Christian D. Schwab:]

Yes. Client versus enterprise?

[Abhijit Y. Talwalkar:]

Client versus enterprise, we were more exposed to client because that's where the focus had been relative to SandForce. That focus now has expanded to enterprise as we discussed in the prepared remarks. We're also starting to ship in the enterprise space in Q2. We're already shipping today, but we'll see improvement in share gains this year in enterprise. Keep in mind, number of the enterprise opportunities have also been cuffed, and we've been working on those. And some of those are in production today as well. So in aggregate, LSI has pretty good representation in enterprise, and we expect it to keep growing.

[Craig Berger:]

And then just as a brief follow-up. First of all, did you guys say what's actually driving the margins higher? And then, b, when I talked to investors, kind of the biggest fear is that your hard drive customers are overbuying controllers relative to consumption. And so what kind of checks and balances do you have that, that's not the case or what are you saying to make yourselves feel comfortable that this is a sustainable base from which we can apply growth and seasonality?

[Abhijit Y. Talwalkar:]

Yes, let me tackle the second question, and we'll go back to Bryon on the gross margin question. Yes, I've seen some of the analysis that was done around LSI potentially overshipping or shipping ahead of customers. I've looked at it and it's grossly inaccurate and is missing a number of elements as well. Just a number of facts. First of all, in Q4, let me back up, we have a hub-based supply chain model with our customers, so we have complete visibility into that inventory that we maintain. And our customers have no incentive to order more than they need because they order and they pull from the hub. They build the drive, and they ship it. So we have very good visibility from that standpoint. Just some other facts. We undershipped our customers in Q4 because our customers leveraged what they had from an inventory standpoint, so we probably undershipped to the tune of 4 million units in Q4. As it pertains to Q1, there were a number of factors that drove our performance, and I think one factor that is not well understood is our preamp business. Our preamp business was decimated in Q4 because that's where the Thai floods hit us the hardest. And we saw our preamp business grow almost 100% from Q4 to Q1, which is also part of the growth that we experienced. In addition to that, some of the other factors, we are growing share in enterprise and so we saw a nice growth Q4 to Q1 in the enterprise space. And aside from that, we see our units track very nicely to our customers in Seagate and Hitachi.

[Bryon Look:]

Yes, and then just very quickly on your gross margin question, right. It's pretty simple. Our gross margins were affected in the fourth quarter significantly from the Thailand flooding situation, so there's some recovery of that. We have the expansion about 290 basis points quarter-over-quarter. And of course, we have significantly higher revenue levels as well, which helped with the better absorption of our fixed costs.

[Operator:]

Your next question comes from the line of Hans Mosesmann.

[Hans C. Mosesmann:]

Another question on flash, just to kind of beat this dead horse, if you don't mind. Can you comment, Abhi, on the competitive dynamic in client and enterprise going forward, not what happened last year, but who were the main players and what are the advantages and excessive value add that LSI brings to these 2 market, clients and enterprise?

[Abhijit Y. Talwalkar:]

Yes, I mean, I think from an architectural standpoint, we've got a very good solution that delivers, I think, great performance across a broader base of workloads and real world applications that's demonstrated. If you look at all the different test labs out there to do benchmarks and takeoffs, SandForce-based solutions are typically always the top 5. If not, they're 4 out of the top 5. So we've got, I think, a good coverage of the segments and good performance across a broad base of application environment. Some of the technologies that we have around where management and so forth, such as our DuraClass technology is another example. I think the other key to the success that SandForce has had which has enabled many players in the marketplace has been the fact that we have a very complete, comprehensive firmware base, as well as the ability to provide a level of customization as well, as we do see that required across a lot of the major players as well as they personalize that something that we do extensively and are also building up support to take on more of that. Because we think that is going to be a differentiator in terms of support as well. And then we've been providing reference designs to enable more players into the marketplace. And then I think the other element, which is not well understood by a lot of people, is the custom capability. Because we also are now experiencing some of the large SSD players as they try to cover a very broad base of SSD segments, and that market is going to continue to bifurcate. They have a strategies in certain areas where they want to do full custom to drive different levels of differentiation, and were doing that today because of our great custom capability in a number of areas they are going to use standard products, which are going to be SandForce-based. That comprehensive capability is something that really only LSI has. And as a result, we're really elevating our value proposition into who we think are going to be the major players in this market as the market grows and develops.

[Hans C. Mosesmann:]

Yes, Abhi, if you don’t mind, if you can just mention who your key competitors are in each one of those segment or maybe they're the same?

[Abhijit Y. Talwalkar:]

Well, I think there's competitors obviously such as Marvell. There are competitors in sort of the lower-end segments like Phison, and there's several others. There's also some that are doing internal. But in those internal situations, in some cases, we're participating because we're doing the custom silicon. Samsung is a major player in SSDs today. Their flash storage processors are all internal and their own silicon as well. So that's not an opportunity really today for any of us that are in the merchant market, but maybe that opens up here as the market continues to grow in segment.

[Operator:]

Your next question comes from the line of Harlan Sur.

[Harlan Sur:]

Abhi, your largest SSD customer, I think, estimated TAM growth of about 12% to 13% for the second quarter. Is that -- how much of your HDD business is expected to grow in June? And it also sounds like you expect SoCs to continue to grow, as well as your preamp business. What's happening with your ServeRAID and your SAN businesses in the second quarter?

[Abhijit Y. Talwalkar:]

Maybe I'll expand and give you a little bit more color and maybe focus this around the growth into Q2. If you look at our midpoint, we're going at about 4%. And then obviously, at the upper end, it's roughly 7.5% to 8% growth. But if you kind of focus on midpoint, the assumption is that we have -- obviously, we've got some contribution in terms of growth with our flash-oriented business. We're assuming about a high single-digit growth in HDD, which is kind of in line with our largest customer, especially if you look at their organic sort of hard drive and the growth of the organic hard drive business. And then from a server standpoint, expecting seasonality and expect that growth to be somewhere around 2% to 3%. Networking, generally flattish, however, investment area is growing while we're offsetting some declines in legacy. So that's kind of the makeup of Q2, with a few exceptions there.

[Harlan Sur:]

Great, and I appreciate that. And then on the SAS for your external storage business. This is -- I'm talking about next-generation 12 gig. Any updates on any market share gains on some of this next-generation platforms where you currently have, let's say, very little footprint. My understanding is that the bake-offs are happening now. Wondering if the team in LSI is starting to see the benefits given your lead on 12 gig?

[Abhijit Y. Talwalkar:]

Yes, I believe we are, and we do participate in external storage today. Our share is not as strong as it is in the server side. Our share is probably in the 35% to 40% range. This is, today, in terms of what's shipping. In the last 1 to 2 earnings calls, we have announced 2 external storage systems vendors that have chosen LSI 12-gig SAS. We were public about one of them, that's Dot Hill. I don't believe we're public about the second one. And you're absolutely right, the bake-offs, the evaluation, all that is underway now. And we anticipate to make progress and grow share. 12-gig SAS in external storage is really a 2013, probably mid-2013 start. Right, a little bit lagging that of server.

[Operator:]

Your next question comes from the line of Betsy Van Hees.

[Betsy Van Hees:]

I know there's a lot of questions that have been asked on SandForce, but I do have a couple. You, in your last quarterly call, said that you thought revenue from SandForce is going to be about $20 million to $25 million. So given the commentary, I would imagine that it was -- it exceeded that. I was wondering if you could tell us how much it exceeded by or give us a percentage as we try and model this business.

[Abhijit Y. Talwalkar:]

We're probably not going to give you that level of clarity. But you're correct in it exceeding $25 million.

[Betsy Van Hees:]

Okay, fair enough. And then when we're looking at your business in Q3, I know you don’t want to give any type of guidance. But what can we assume for a typical seasonality as we look at the different businesses?

[Abhijit Y. Talwalkar:]

We're all hoping for a typical seasonality cycle for once, as the last 2 years certainly have not provided it, given the national disasters and other factors and so forth. If you think about our composition, 75%, 80% of our composition is still on the order -- is still oriented around enterprise IT infrastructure and service provider IT infrastructure. If service providers start to see CapEx spending loosen up into the second half, which certainly that's what the sentiment is out there, that, combined with what's expected in terms of server and data center growth and just enterprise cycles, second half is up from the first half in aggregate. Right? But that's probably as far as I would go. And then I'd say, historically, we've seen a 3% to 5% sort of growth in Q2 to Q3 and higher growth in the Q4 time frame. And if you look at from HDD TAM standpoint, what people are projecting in terms of TAM is 160 million units in Q2, moving to 180 million units in Q3 to 185 million, 190 million units in Q4. So there's certainly going to be growth that will come with that.

[Operator:]

Your next question comes from the line of Stephen Chin.

[Stephen Chin:]

Couple of questions for me on the networking side of the business. I know that you guys mentioned that investment areas grow in Q1 and you expect it to grow again in Q2. I was wondering if you could provide a little more granularity on whether it's existing products that maybe has been on the market for more -- that was launched for more than a year that -- before you saw growth or is it actually from just new programs ramps over the last quarter and then current quarter where you're experiencing the growth?

[Abhijit Y. Talwalkar:]

Yes, it's hard to break that out but I'd say, more new product ramps that we've launched in the last couple of quarters or recent quarter. Right?

[Stephen Chin:]

Okay. And I guess also for -- in terms of what your customers might be seeing in terms of the CapEx trends and spending at security level? I know a number of them have already been reported it. But it does seem like Q1 was relatively weak for a number of these equipment OEMs and the expectations that Q2 in the second half would improved and then see growth? But I guess in terms of the conversations you've had, what is the underlying actual spending trends and budget as they're opening up already that your customers might be seeing? If you can talk to that.

[Abhijit Y. Talwalkar:]

Yes, I think that's certainly the hope. I mean that North America will start to see a lift here in Q2 some time. Europe will probably continue to be a bit problematic, and China will continue to do well, and particularly, in the second half though. So at least what we're hearing, some of that maybe a hopeful expectations from customers or at least service providers and equipment companies that sell to them. But I think everyone is of the same opinion that networks are incredibly oversubscribed and there needs to be spending growth to keep up with the challenges that exist. And so with most of that inventory now burned off, we do hope and anticipate things to start improving from here on out.

[Stephen Chin:]

Okay, got it. And then for the ARM-based Axxia products that you mentioned earlier, I was curious as to when you might see revenues for that product line? Is it 1 or 2 years off and also what kind of feedback have you gotten from customers regarding a second micro-architecture that you may need to support or re-compile the software for -- in order to support that?

[Abhijit Y. Talwalkar:]

Yes, I mean I think -- let me take the second question first because that's an easy one. We obviously work hand-in-hand and collaborated with a number of our lead customers around this and there's strong pull for this, which means they completely understand and have assessed the software porting activity but see tremendous benefit in making that happen and doing that, so really good support there on the customer side. In terms of revenues relative to the ARM-based Axxia product line, that's not something that we've put out there. And I just out of concerns of sharing too much with our competition, I probably won't answer that today. But we'll keep you posted on progress on that front. We're very excited, and I think that is absolutely a key differentiator and has been part and parcel to the success that we were able to announce at the Analyst Day relative to future share in wireless infrastructure.

[Stephen Chin:]

All right, great. And just one last quick one on your storage business. Just given some of the online storage, sort of cloud storage service offering that have come out recently. I was curious as to whether or not you think there will be a lot of pent-up demand in the second half given that both enterprise storage, it's not growing terribly fast. In terms of the TAM side and also on the desktop side, the 3.5-inch side, that has yet to fully recover. So I was wondering given the types of drives that these cloud service providers might utilize, if there might be continued strong demand and potentially, better-than-expected demand in the second half because of that?

[Abhijit Y. Talwalkar:]

Yes, I mean all the trends are very supportive of just continued build-outs. And we're very well positioned there, especially if you look at our HDD business, which has a heavy exposure to enterprise drives with Seagate and Hitachi, who are really -- and now WD, obviously, with the enterprise business from Hitachi, we're leaders in the marketplace. And then we also have a very strong market share position in desktop for 3.5 inch, and those are going to be probably the greater mix in terms of cloud oriented deployments. And then don't forget our PCIe flash, our Nytro product line, a lot of that is also aimed at these web 2.0 companies and those that are also offering cloud services. So we think all of that is a great opportunity for us throughout the year.

[Sujal Shah:]

Okay. Thank you, Stephen. It looks like there's no further questions, so I'd like to thank all of you for joining us this afternoon. If you have any additional questions, please call Investor Relations at LSI. Thank you, and have a nice day.

[Operator:]

Ladies and gentlemen, a telephonic replay of this conference will be available beginning today at approximately 5 p.m. Pacific Daylight Time and will run through 9 p.m. Pacific Daylight Time on May 3. The replay access numbers are 1 [phone] within the U.S. and 1 [phone] for all other locations. The conference ID number is 66912997. The webcast will be archived at www.lsi.com/webcast. That does conclude your conference for today. Thank you for your participation. You may now disconnect.