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This filing contains the transcript of a joint conference call held by Agere
Systems Inc. and LSI Logic Corporation on December 4, 2006:
CONFERENCE CALL TRANSCRIPT - LSI LOGIC AND AGERE SYSTEMS ANNOUNCEMENT
CORPORATE PARTICIPANTS
Phil Brace
LSI Logic Corp. - SVP Corporate Planning/Marketing
Abhi Talwalkar
LSI lOgic Corp. - President, CEO
Rick Clemmer
Agere Systems - President, CEO
Bryon Look
LSI LOgic Corp. - CFO
Peter Kelly
Agere Systems - EVP, CFO
CONFERENCE CALL PARTICIPANTS
Suji De Silva
Cathay Financial - Analyst
Mark Edelstone
Morgan Stanley - Analyst
Charlie Glavin
Needham & Company - Analyst
Sumit Dhanda
Banc of America Securities - Analyst
Seogju Lee
Goldman Sachs - Analyst
Shebly Seyrafi
Caris & Company - Analyst
Srini Pajjuri
Merrill Lynch - Analyst
Craig Berger
Wedbush Morgan Securities - Analyst
James Poyner
Hapoalim Securities USA - Analyst
Bill Lewis
JPMorgan - Analyst
Tayyib Shah
Longbow Research - Analyst
Harlan Sur
Morgan Stanley - Analyst
Jack Schneider
Coburn Capital - Analyst
PRESENTATION
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Operator
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FINAL TRANSCRIPT
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Dec. 04. 2006 / 8:00AM ET, LSI - LSI Logic and Agere Systems Announcement
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Good day, ladies and gentlemen. Thank you for standing by. Welcome to the LSI
Logic Agere Systems conference call to discuss the transition announced this
morning. At this time all participants are in a listen-only mode. Later we will
conduct a question-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder,
this conference is being recorded. I would now like to turn the call over to
Phil Brace, Senior Vice President corporate planning and marketing at LSI.
Please go ahead, sir.
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Phil Brace - LSI Logic Corp. - SVP Corporate Planning/Marketing
Good morning, and thank you for joining us on today's call to discuss the
exciting combination of LSI and Agere Systems. Before we get started I would
like to remind you that during the course of this conference call we will make
forward-looking statements. We caution you that such statements are predictions,
are subject to risks and uncertainties and do not guarantee future results, a
level of activity, performance or achievement. Actual events or results may
differ materially from these statements.
In any forward-looking statements in which LSI or Agere expresses an expectation
or belief as to future results such expectation or belief is expressed in good
faith and believed to have a reasonable basis but there can be no assurance that
the statement or expectation or belief will result or be achieved or
accomplished. In our forward-looking statements and all other statements that
are not historical facts reflect our beliefs and predictions as of today.
Also LSI and Agere are not obligated to update forward-looking statements made
during the call to reflect events or other circumstances after the date of the
call. For a detailed description of these risks and uncertainties please refer
to the documents LSI and Agere have filed from time to time with the SEC over
the past twelve months including our most recent forms 10-K and 10-Qs. During
this call we will also be citing GAAP results as well as our results excluding
special items, a reconciliation between the GAAP to non-GAAP results which
exclude special items can be found on the homepage of our website, LSI.com.
With that, it is now my pleasure to introduce Abhi Talwalkar, LSI Logic's
President and Chief Executive Officer.
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Abhi Talwalkar - LSI lOgic Corp. - President, CEO
Thanks, Phil. Good morning, ladies and gentlemen. Joining me on today's call to
discuss our strategic combination with Agere Systems are Rick Clemmer, Agere
Systems President and Chief Executive Officer; Bryon Look, LSI Logic Chief
Financial Officer and Peter Kelly, Agere Systems Executive Vice President and
Chief Financial Officer. This is a very exciting time for all of us. The
combination of LSI and Agere will transform our company into a leading provider
of building block solutions including semiconductors, systems and related
software. We will have an unparalleled innovation pipeline and a broad array of
competitive, customer value products and solutions in large and growing markets
including storage, networking and consumer electronics, such as the mobile
handset as well as home entertainment.
The combined company which will take the LSI Logic name would have had annual
revenues approximately $3.5 billion on both companies' last four reported
quarters. Together our companies operate in more than twenty companies, boast a
combined workforce of approximately 9100 employees including nearly 4300
engineers. The new company will also own a substantial patent portfolio
consisting of more than 10,400 issued and pending U.S. patents. I hope that you
have had an opportunity to review our press release that we issued earlier this
morning. We have also put together a brief slide presentation that is meant to
serve as a framework for today's call.
Before we begin going through the slides Rick Clemmer, Agere's President and
Chief Executive Officer will spend a few moments sharing his perspective on
today's announcement. I will then walk you through some of the transaction
highlights, including key terms, the compelling strategic rationale and the many
benefits we expect the transaction to create for the customers, shareholders and
employees of both LSI and Agere. After that we will open it up for your
questions. It is now my pleasure to introduce Rick Clemmer.
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Rick Clemmer - Agere Systems - President, CEO
Thanks, Abhi. All of us at Agere are very proud of what we've accomplished over
the last year and are excited to open a new chapter by joining forces with LSI.
Fiscal 2006 Agere achieved its first full-year profitability as a public
company. We were able to accomplish this important milestone by successfully
executing the first two phases of our three-phase turnaround plan. In the first
phase we made changes to our leadership team and established a corporatewide
vision and strategy. Generating improved operating income and profitability were
the cornerstones of Phase II. Our third phase where we are well underway to
being able to achieve the design wins we have in-house and the customer
commitments that we have that will begin to shift in the next four or five
months.
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When the opportunity to join forces with LSI presented itself we quickly
realized that the opportunities for strategic investment and customer expansion
to drive profitable revenue growth resulting from this combination were
significantly greater than what we could have achieved on our own following the
completion of Phase III. Our complementary products, cultures, capabilities
together with the greater size and the scale of the combined company will give
us a strong foundation to pursue new growth opportunities, while enhancing the
range and quality of the products and solutions we offer our existing customers.
Agere shareholders will benefit from the synergies and enhanced growth prospects
that will result from creating a larger more competitive organization. Together
our two companies will be well positioned to achieve greater success. As
mentioned in this morning's press release, Abhi will become President and Chief
Executive Officer of the combined company. I have the utmost in confidence in
Abhi as CEO of the combined company. As many of you already know Abhi is a
seasoned industry veteran with over twenty years of management experience in the
high-tech industry. His vision and extraordinary track record of success as a
leader and innovator will serve the company well as it moves into the next phase
of growth. That concludes my remarks. Back to you Abhi.
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Abhi Talwalkar - LSI lOgic Corp. - President, CEO
Thanks, Rick. I would like to begin with an overview of the transaction. This
is an all-stock transaction with an equity value of approximately $4 billion.
Under the terms of the agreement Agere shareholders will receive 2.16 shares of
LSI for each share of Agere they own. Based on the closing of stock price of LSI
on Friday, December 1st, this represents a value to Agere shareholders of $22.81
per share. Pro forma ownership of the new company will be approximately 52% for
current LSI shareholders and approximately 48% for Agere shareholders.
On an organizational level I will serve as the CEO of the new company and LSI
non-executive Chairman Jim Keyes will continue to serve as non-executive
Chairman of the Board of Directors. The Board will be comprised of a total of 9
directors, 6 designated by LSI and three designated by Agere. The new LSI will
be headquartered in Milpitas, California with a significant presence including
R&D in Agere's Allentown, Pennsylvania location, and we will have various other
offices worldwide. The transaction is expected to be completed in the first
quarter of 2007, subject to approval of LSI and Agere shareholders and customary
closing conditions including regulatory approvals.
We also announced today that the LSI Board of Directors has authorized a stock
repurchase program of up to $500 million. The repurchases will be funded from
available cash and short-term investments. The combination we have entered into
with Agere reflects the extraordinary progress both companies have made in
enhancing our core business operations and strengthening our financial
foundations. Simply put this transaction would not have been possible without
the successful transformation we have achieved at LSI and a simultaneous
execution of Agere's turnaround plan under Rick's very able leadership.
Over the last 12 to 18 months we have each established strong new leadership
teams, realigned our strategic business focuses and introduced aggressive
companywide initiatives to achieve improved synergies across productlines with
the objective of delivering long-term growth and profitability. As a result of
these initiatives we are both stronger, more competitive companies than were one
year ago. It is clear to both of our companies that by joining forces now at
this critical inflection point we can accelerate the positive momentum that we
are experiencing separately and establish a larger, stronger and more efficient
foundation on which to build as we move forward.
The next few slides provide a more in-depth look at the target markets of each
company. As you will see, there are many complementary capabilities that exist
between Agere and LSI. LSI, as many people know, has an unparalleled position in
enterprise storage with one of the broadest storage building block portfolios in
the industry. LSI's products and technology span from interface controllers and
hard drives to SAN fabric silicon, to midrange enterprise rate disk systems. Our
storage customers include the likes of Seagate, IBM, HP and Brocade.
In the communication space LSI has had a long history of delivering leadership
custom silicon to datacom and telecom equipment companies such as Cisco, Alcatel
and most recently with Huawei. In the consumer space LSI has been an innovator
for more than 15 years with leading solutions in media processing. We have a
leadership market segment share position in the growing DVD recorder market
segment and have recently announced our next generation architecture that
supports MPEG-4 and H.264 media processing.
Agere is a leader in each of its core markets. Agere is a strategic supplier to
Seagate with SOCs and all of Seagate's desktop, notebook and consumer platforms.
They have also been successful in expanding their customer base with recent wins
at Samsung and other Asian part disk drive customers. Agere is also dramatically
growing its share in the preamplifier market, turning nearly every major disk
drive manufacturer into a customer.
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In mobility, the relationship with Samsung has expanded and Agere will continue
to benefit from growth in EDGE and the deployment of 3G. Their standard product
base band and protocol stack solution have allowed them to grow share at Samsung
and expand their customer base. In networking Agere has successfully leveraged
their packet processing capability to expand into new access applications, such
as small and medium business gateways. In all three businesses Agere has a solid
design win base to drive future growth.
This slide illustrates the three overarching benefits we expect to realize and
pass on to our key stakeholders as a result of this transaction. Namely growing
our revenue engines, extending our industry leadership and strengthening our
financial position. LSI's well-established presence in storage and consumer
electronics market and Agere's broad footprint in storage, mobility and
networking will enable the combined company to drive growth and shareholder
value through the strengthening of our franchises in our market segments in the
expansion of our existing customer relationships. By leveraging our increased
scale, expanded IP portfolio and integrated workforce, LSI expects to be a
stronger, more competitive innovator of core technology and building block
solutions that enable businesses and consumers to store, protect and stay
connected to their information and digital content. Together we will be better
positioned to realize significant operating synergies which we expect to amount
to at least $125 million in 2008. The transaction is expected to be slightly
dilutive in 2007 due to the effects of purchase accounting and meaningfully
accretive in 2008 to earnings per share on a non-GAAP basis.
The strength of the combined storage business is very clear given our
complementary offerings. I will provide more specifics on the collective storage
position and growth opportunities there in subsequent slides but let me now
spend some time on network and consumer. We view the network market space as
being comprised of wired and wireless public infrastructure, enterprise
connectivity which includes access to both -- access to as well as interconnect
within the enterprise and small and medium business connectivity which also
includes access to and within. These network segments represent great growth
opportunities for the combined company given industry trends, such as the
buildout of IP networks in 3G infrastructure, 10-gig Ethernet enterprise
buildout and IP-based services being offered to small and medium businesses. The
combined IP scale and scanner products especially those offered by Agere
positions us well to seize these growth opportunities.
In the consumer market the combined company will be participating in two large
high-growth market segments, the one billion unit plus mobile handset market
segment and the home entertainment market segment. Both companies are deeply
engaged with market makers in these segments and the combined scale allows us to
build on these positions.
In the enterprise storage space LSI is particularly strong in enterprise hard
disk drive controllers for the silicon for the fabric interconnect, SAS and SCSI
host controllers, RAID processors and OEM systems that get sold into the
enterprise. Agere is very strong in re-channels, preamplifiers, motor
controllers, disk controllers as well as key custom silicon in the HBA and
fabric space. Agere also has a strong position at desktop, notebook and consumer
segments, a combined storage operation gives the new LSI a major presence in all
key segments of storage that will further drive growth.
In the hard disk drive area the combined company is now positioned to provide
solutions for all segments of the storage market. Agere has best-in-class
re-channel and preamp for our technology and provides competitive solutions in
the desktop, notebook and consumer applications. LSI has a strong presence in
hard disk drive controllers for the enterprise. The combined company now has the
opportunity to grow its footprint with existing customers and expand the
customer base for all segments.
One of the key benefits of the transaction is the increased scale and
industry-leading positions that the combination will provide. Between the two
companies we will have an R&D capability that will be the envy of our
competitors. With an engineering population of over 4200 engineers, including
over 1700 Ph.D.'s and MSEE's the combined company will have an impressive
innovation pipeline that is expected to fuel the growth of the company going
forward. I am confident, and I know this is a belief that everyone here with me
today shares, that the new LSI we are building will be even greater than the sum
of its parts. LSI and Agere share a rich heritage of innovation and thought
leadership in creating enabling technologies to bring people and information
together.
Let me now talk briefly about the high points on financials. As you can see our
combined financial profile will be greatly strengthened. In addition to a
combined revenue level of $3.5 billion based on our respective past four
quarters ended September 30, 2006, the combined company will be well positioned
to drive sustainable long-term revenue growth with multiple growth engines. As
for operational efficiencies we expect to realize significant cost savings in
calendar year 2007 and cost savings of at least $125 million in 2008 and
thereafter. We expect to achieve these savings in areas of manufacturing and
operating expenses and both companies have demonstrated the ability to do this
over the past 18 months. The combined cash position will be in excess of $1.4
billion net of LSI's convertible redemption in November this year. Finally we
expect this transaction to be meaningfully accretive to non-GAAP EPS in 2008
before any effect of our announced share repurchase program.
To ensure that we realize all of these important financial outcomes, as well as
the other benefits we expect this transaction to create, we are forming a joint
integration planning team to be led by Rick and I. This team will work to
achieve a seamless transition from a customer service
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and product delivery perspective. We are committed to leveraging the talent and
experience both companies to make our combined company a strong formidable
competitor that will also be agile enough to respond quickly to changes in our
operating environment and the evolving needs of our customers.
Finally, as you can see our combination creates a number of significant
intangible benefits for all our key constituencies. Shareholders of the combined
company can look forward to improved value creation prospects that will come
from sustainable, long-term growth and profitability and significant annual
operating synergies. The $500 million stock repurchase program our Board has
authorized underscores our commitment to delivering value for our shareholders.
Employees will be part of an organization that is more competitive and has a
stronger industry position that either of our companies could achieve on a
stand-alone basis, and we will be able to offer our customers greater value
through our increased scale and resources including expanded technology, design
competencies and systems expertise as well as more R&D in focused areas.
This concludes our prepared remarks. It has been a pleasure to share our
thoughts and excitement about this transaction with you. I hope our discussion
today has give you an even better understanding of the many opportunities and
benefits we expect to realize as a result of this combination. We are confident
that the new LSI will be in an excellent position to deliver tangible and
sustainable value to its shareholders in an even wider array of innovative,
value added products and solutions to our customers. I am personally very
excited about the prospects for improved profitable growth in value creation
that lie ahead and look forward to bringing you up-to-date on our progress as we
move through the integration process and beyond.
With that, we would be happy to take your questions. Operator.
QUESTION AND ANSWER
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Operator
(OPERATOR INSTRUCTIONS) Suji De Silva, Cathay Financial.
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Suji De Silva - Cathay Financial - Analyst
Congratulations on the deal. So on the combined portfolio, I guess Abhi I want
to ask you, now you have quite a few segments you are in. Maybe you can talk
about what you envision being the target mix for the company as you go out a
couple years? Which areas might you be more emphasizing here and which ones,
perhaps not as strategic to where you see the company going?
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Abhi Talwalkar - LSI lOgic Corp. - President, CEO
I think it is probably too early to really talk about what is going to happen
in two, three years, but clearly our focus here is to combine these two
companies to establish a powerhouse in networking, consumer and storage
segments. And our objective here is to extend and enhance our strong storage
position both networking and consumer, represent high growth opportunities for
us to combine scale will allow us to seize on those growth opportunities, so we
are going to be clearly focused across those three market segments.
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Suji De Silva - Cathay Financial - Analyst
And real quick on the cost synergies you've laid out, how much of that they
have identified here in the press release has already been in process versus how
much of that will be acceleration as a result of the merger?
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Abhi Talwalkar - LSI lOgic Corp. - President, CEO
Nothing has been in process since just announced the definitive agreement.
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Suji De Silva - Cathay Financial - Analyst
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I meant for the company's plans prior.
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Abhi Talwalkar - LSI lOgic Corp. - President, CEO
No. The $125 million identified are all new that we result from the
combination.
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Rick Clemmer - Agere Systems - President, CEO
This is purely incremental. All of the other cost reductions that we've
achieved at Agere have already been achieved. And this is incremental to that.
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Suji De Silva - Cathay Financial - Analyst
Great. That helps, and then last question, guys on the storage landscaping Abhi
and Rick, what made this sort of a timely combination here in terms of what you
are seeing in the storage landscape?
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Abhi Talwalkar - LSI lOgic Corp. - President, CEO
I think what was timely about this, as I said in the talk, is both companies
have done a tremendous job over the past 12, 15 months in transforming our
companies and generating momentum; bringing the two companies together at this
juncture will allow us to just accelerate that momentum.
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Suji De Silva - Cathay Financial - Analyst
Great. Thanks, guys. Good luck.
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Operator
Morgan Stanley, Mark Edelstone.
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Mark Edelstone - Morgan Stanley - Analyst
Congratulations, and especially to Rick and Peter for getting the company in
shape here to get this done. Abhi, can you give us your view, my guess is that
if we look at the storage IC market that the combination here is going to make
you guys number one. First, is that your impression, and then I had a follow-up
question for you on the communication strategy.
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Abhi Talwalkar - LSI lOgic Corp. - President, CEO
I think we clearly have an unparalleled position across semiconductors and
storage.
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Mark Edelstone - Morgan Stanley - Analyst
If you talk about the datacom and telecom businesses between the two that is
clearly an area where the companies have not had a tremendous amount of scale;
when you combine the companies you will see an advantage there. Can you just
talk about the markets and strategies that you would have going forward to
fortify your position there?
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Abhi Talwalkar - LSI lOgic Corp. - President, CEO
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I think that is a very good point. I think the combined companies will have
revenues in this space of networking across both within the enterprises, whether
they are small or large, as well as external in terms of infrastructure of about
$850 million. So that does provide a scale. Both companies have areas of that
particular business that are sort of what we refer to as legacy business. But
where the growth focus is for both companies I think is where the growth is in
the marketplace. There is clearly a buildout in terms of 3G sort of networks as
well as IP packet processing networks, the small and medium business area
represents a significant growth opportunity around these IP packet services and
that is clearly where Agere has been focused and has leadership to apology. I
think the combined entity is also very well positioned to drive growth in
penetration within the enterprises. Again medium and large enterprises around
routers and switching technology based on Ethernet. We already have a strong
position in fiber channel fabrics.
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Rick Clemmer - Agere Systems - President, CEO
If I could just add, Mark, I think the real opportunity in the networking side
is to match the unparalleled platform that LSI has in concert with us on the
semiconductor electronics for the storage industry. And we think with the
combination gets us the potential strength and power to create a platform that
is just as compelling as it is in storage. So you know we've been working hard
taking in from the telecom infrastructure side with the opportunity to drive
carrier class capability down to the SMB market on packet processing. And you
know we think this just strengthens that and gets us that much better
opportunity to be successful.
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Mark Edelstone - Morgan Stanley - Analyst
Good luck, guys. Thanks a lot.
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Operator
Charlie Glavin, Needham & Co.
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Charlie Glavin - Needham & Company - Analyst
My congratulations to both as well. Abhi, maybe more for you there, there are
certain things that Agere brings to the table that you guys have not been
involved in, particularly on the headset and the wireless side. Are there
certain things that you you've matched, is now going to be looking at in terms
of markets that you guys have not been getting into that with this acquisition
had been now opened up for LSI?
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Abhi Talwalkar - LSI lOgic Corp. - President, CEO
Well, I mean, it matches as you referred to in terms of our home entertainment
efforts within the home around product categories such as set top box, DVD
recorders as well as digital TV, we continue to be focused on building those
product lines. But clearly the combination and with Agere's very strong position
in mobility -- and clearly it was also something that we had always been looking
at, which is how does LSI participate in this $1 billion unit market and Agere
allows us to do that with not only leadership technology but working very
closely with the market makers such as Samsung. So I see the two companies
looking and further evaluating the growth opportunities as we combine the
efforts in the consumer space.
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Charlie Glavin - Needham & Company - Analyst
And I noticed that Bill Watkins from Seagate expressed his support on this deal
at least within the press release. Can you describe in terms of going forward
the say the Anaconda platform, the ARM-based platform for Agere, how that works
with you? Have you guys actually been doing any sort of joint designs, maybe not
together but has Seagate actually had the teams together there, particularly
over the last 6 to 18 months?
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Abhi Talwalkar - LSI lOgic Corp. - President, CEO
The teams as in the LSI and Agere teams?
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Charlie Glavin - Needham & Company - Analyst
Yes.
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Abhi Talwalkar - LSI lOgic Corp. - President, CEO
No, the teams have not been working together.
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Charlie Glavin - Needham & Company - Analyst
Okay.
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Abhi Talwalkar - LSI lOgic Corp. - President, CEO
When you look at Anaconda we are on schedule, and we think it gives us the
re-channel that can add the broad array to actually enter into the enterprise
space. So by having the combination of LSI's experience in enterprise space
combined with the Anaconda technology that rolls out early next year we think
puts us in an excellent position to be a supplier into Seagate at the enterprise
level as well.
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Charlie Glavin - Needham & Company - Analyst
Thanks, Rick. Thanks, Abhi.
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Operator
Sumit Dhanda, Banc of America.
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Sumit Dhanda - Banc of America Securities - Analyst
Abhi, a couple of questions for you. In terms of the dilution to '07 you said
it is slightly dilutive. Any more granularity to offer up? You did say there are
some significant cost savings next year. And then exactly when do the cost
savings start to kick in? Is it the second quarter of next year? If you could
just add some color?
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Abhi Talwalkar - LSI lOgic Corp. - President, CEO
Let me give you what color I can, and clearly if you want to go deeper, Bryon
can offer some or Peter. As you know, the closing itself is sort of looked at as
potentially something that will happen in Q1 of the calendar year so that
certainly modulates the amount of cost savings that we can generate next year.
But we anticipate this to be actually accretive once you factor in the deferred
revenue around the IP revenues that exist in terms of some purchase accounting
requirements that we have. But we will start generating cost savings immediately
after the closing. In terms of the $125 million that we've referred to for 2008,
that goal is to deliver that $125 million for the entire part of 2008.
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Bryon Look - LSI LOgic Corp. - CFO
So to make it more clear, Sumit, breakeven to slightly accretive to our
non-GAAP 2007 EPS excluding the effect of the deferred revenue treatment under
purchase accounting and meaningfully accretive to our 2008 EPS on a non-GAAP
basis.
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Sumit Dhanda - Banc of America Securities - Analyst
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That helps. The second question I have for you, Abhi was seems like it's a
little bit of a shift in strategy as opposed to an LSI Logic which was divested
businesses, refocusing on a couple of verticals to looking at a broader spectrum
of businesses going forward and actually adding to your existing businesses. So
I guess the first question is fundamentally what really drove this call it a
slight change in strategy?
--------------------------------------------------------------------------------
Abhi Talwalkar - LSI lOgic Corp. - President, CEO
From the onset the objectives or transformation was to build multiple growth
franchises for the company. And the combination allows us to do that, allows us
to have an unparalled position in storage. It allows us to go seize growth
opportunities in networking consumer. The combined positions in those two
markets along with the combined scale and the investment base that will have and
a very talented workforce we will be able to grow in those two markets.
--------------------------------------------------------------------------------
Sumit Dhanda - Banc of America Securities - Analyst
And finally I guess on the DSP side or on the base band side given that you
have now a presence in mobility going forward, how do we think about that? It's
a very competitive market, requires a huge R&D effort. Is that a business that
you really want to be in longer-term given how strongly competitive you [are]
there?
--------------------------------------------------------------------------------
Rick Clemmer - Agere Systems - President, CEO
Maybe we should clarify the current status of that business. Our base band
business which is keyed off of primarily the software stack with Samsung in the
leadership position but also serving Amoi, one of the top three handset
providers in China and they have been working with Chi Mei on a low-cost 3G
handset design. But if you look at that business, that business has just turned
profitable a couple quarters ago, so with the resources that we have focused and
the customer commitments that we have relative to our volume purchase agreements
that have just been concluded, we think we can continue to improve that
profitability throughout fiscal '07 up to mid to high single digit levels. So
unlike many of the other companies that are struggling in the base band area and
losing a lot of money, our business is actually profitable and gives us a
foundation to be able to realize the full growth potential associated with it.
So I think the opportunity to come together and to accelerate the transition to
the next node of technology through the investments that we can make together
positions it well as well as potentially even bringing some additional
functionality to the base band itself.
--------------------------------------------------------------------------------
Sumit Dhanda - Banc of America Securities - Analyst
Thank you very much.
--------------------------------------------------------------------------------
Operator
Seogju Lee, Goldman Sachs.
--------------------------------------------------------------------------------
Seogju Lee - Goldman Sachs - Analyst
Congratulations all around. Abhi I guess this answers my question about your
re-channel strategy. But just in terms of I realize that Agere had some
significant tax assets, which in at Agere could have been applied to an asset
sale. Can you just talk about how that comes over and how that can be applied
going forward?
--------------------------------------------------------------------------------
Abhi Talwalkar - LSI lOgic Corp. - President, CEO
Let me let Bryon and Peter answer that question.
--------------------------------------------------------------------------------
Bryon Look - LSI LOgic Corp. - CFO
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I think just to reiterate, we see a lot of opportunities here in the
combination across each of the businesses and positions that the two companies
have. So yes, I think you're referring to could there have been an alternate
transaction perhaps just related to storage, and we see a lot of value across
the board.
--------------------------------------------------------------------------------
Peter Kelly - Agere Systems - EVP, CFO
And you don't lose the NOLs in the second 382; basically you can take 5% of the
fair market value of the company just before the change in control over the next
twenty years. So both ourselves and LSI have very tax effective structures, and
we would look to continue to drive our business that way as we go forward.
--------------------------------------------------------------------------------
Seogju Lee - Goldman Sachs - Analyst
Just in terms of the expense savings, Abhi, I am guessing those are in terms of
how you're looking at it in terms of just sharpening the focus, in terms of the
operations and also some manufacturing savings at this point and it doesn't
entail say exiting any particular business at this point.
--------------------------------------------------------------------------------
Abhi Talwalkar - LSI lOgic Corp. - President, CEO
No, those savings are driven out of operational efficiencies and efficiencies
that we will realize based on the manufacturing scale of the two companies
combined.
--------------------------------------------------------------------------------
Seogju Lee - Goldman Sachs - Analyst
And in terms of the CY '08 do you think that is at a full run rate at that
time, or just in terms of the timing and when they fully come in, how should we
see that?
--------------------------------------------------------------------------------
Abhi Talwalkar - LSI lOgic Corp. - President, CEO
As in do we anticipate more in 2009 and beyond?
--------------------------------------------------------------------------------
Seogju Lee - Goldman Sachs - Analyst
Yes.
--------------------------------------------------------------------------------
Abhi Talwalkar - LSI lOgic Corp. - President, CEO
I mean clearly our focus is going to continue to drive a very efficient
operation as we drive our focus across our focus segments. So that 125 is for
the entire year, and we will always be focused on driving efficiencies.
--------------------------------------------------------------------------------
Seogju Lee - Goldman Sachs - Analyst
Great. Thanks. Congratulations.
--------------------------------------------------------------------------------
Operator
Shebly Seyrafi, Caris & Co.
--------------------------------------------------------------------------------
Shebly Seyrafi - Caris & Company - Analyst
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Thank you very much and congratulations on this excellent deal. So Agere has
talked about upsides in terms of revenue growth to say 15 to 20% not formerly
guided but say upside potential and if you X out PortalPlayer and Sony for LSI
we are talking about around maybe 10%, 11% growth maybe '08. So I am wondering
whether, Abhi, you see the acquisition of Agere as increasing say the upside
revenue growth potential let's just say in the midteens from near 10 to 11%. Is
that the way you generally see the upside potential increasing?
--------------------------------------------------------------------------------
Abhi Talwalkar - LSI lOgic Corp. - President, CEO
I am not going to comment on the specific numbers and so forth. Also in terms
of Sony there is no Sony revenue whatsoever in the LSI revenue profile for 2006.
I see the upside potential coming from combining our two companies that will
allow us to deliver a much more broader product portfolio, as well as obviously
drive further penetration in shared wallet growth within our customer base.
--------------------------------------------------------------------------------
Shebly Seyrafi - Caris & Company - Analyst
But I think it is fair to say, Abhi, that your communication segment has not
been as much of a growth segment as the other segments, say the consumer
expectation in storage, etc. And LSI I'm sorry Agere has talked about higher
growth rates there. Do you see your communication business now having better
growth prospects? And if so, how much more do you see how that growth increases?
--------------------------------------------------------------------------------
Abhi Talwalkar - LSI lOgic Corp. - President, CEO
Clearly as a combined company as we said earlier will be well positioned in
various segments within networking, both communications in terms of external to
enterprises in terms of public infrastructure and access, as well as all the
interconnected networking within the enterprise. So I think the combination is
positioned to drive new growth engines in that particular area on top of the
growth that you alluded to that Agere is looking at next year.
--------------------------------------------------------------------------------
Shebly Seyrafi - Caris & Company - Analyst
And finally, do you care to state about how accretive you expect EPS to be in
'08 or a range of EPS increases to your numbers in '08?
--------------------------------------------------------------------------------
Abhi Talwalkar - LSI lOgic Corp. - President, CEO
At this time it is best to characterize it is meaningfully accretive, and that
is ahead of the $500 million repurchase program.
--------------------------------------------------------------------------------
Shebly Seyrafi - Caris & Company - Analyst
Thank you.
--------------------------------------------------------------------------------
Operator
Srini Pajjuri, Merrill Lynch.
--------------------------------------------------------------------------------
Srini Pajjuri - Merrill Lynch - Analyst
Bryon, just a couple of clarifications. One, do you have a longer-term model in
mind and are you targeting certain gross margin and operating margin with this
acquisition. And then the second one is any changes to your manufacturing
strategy going forward?
--------------------------------------------------------------------------------
Bryon Look - LSI LOgic Corp. - CFO
I think relative to the business model both of our companies have made
significant progress with our operations over the last couple of years, moving
towards our respective (indiscernible) targets and including delivery of
double-digit operating margins. We certainly expect that through
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the combination and we identified certainly savings that will drop to the bottom
line that we will be able to further improve the profitability of the new
company. So we would expect as we go forward here that we would be providing a
new target business model; not prepared to do that at the current point in time.
And relative to the manufacturing strategy I don't see a change in the strategy
there; I do see that there is significant opportunities through the scale that
we have to be able to drive further improvements in terms of cost to sales.
--------------------------------------------------------------------------------
Srini Pajjuri - Merrill Lynch - Analyst
Thank you.
--------------------------------------------------------------------------------
Operator
Craig Berger, Winbush Morgan Securities.
--------------------------------------------------------------------------------
Craig Berger - Wedbush Morgan Securities - Analyst
With the storage group do you see the largest incremental opportunities in sort
of desktop, mobile or small form factor?
--------------------------------------------------------------------------------
Abhi Talwalkar - LSI lOgic Corp. - President, CEO
Craig, you're very familiar with the growth initiatives we have on the
enterprise space in terms of productline expansion on the semiconductor side and
expansion in the system space. If you look at the combination especially as it
pertains to hard disk drives that is projected to be a $4.5 billion market in
2009, in terms of our collective position today we would have a very strong
position yet far from saturated which allows us to drive significant growth
across really all segments. Enterprise, desktop as well as consumer and notebook
through all the players that are in that market.
--------------------------------------------------------------------------------
Craig Berger - Wedbush Morgan Securities - Analyst
Can you assess the performance of the storage products in desktop and mobile
versus that of Marvell? And I ask that because Marvell has been making noise
about getting into Seagate on the enterprise side. Can you also comment on that?
--------------------------------------------------------------------------------
Abhi Talwalkar - LSI lOgic Corp. - President, CEO
Let's be clear. Marvell is in Seagate on the enterprise level, and to this
point in time Marvell has not been successful with any platforms in the desktop
or consumer space. The alliance that Agere has with ST based off of our
industry-leading re-channel technology and now with future designs moving
forward with an ARM-based controller, we think puts us in an excellent
leadership position. We continue to get favorable feedback from Seagate and we
are in a very good position there. And as we talked about earlier, the
re-channel technology we have under development under Anaconda will give us the
breadth of market coverage such that we think it has an opportunity to
participate in the enterprise space. So we are very well positioned there and
are not concerned about any comments that Marvell may make or have.
--------------------------------------------------------------------------------
Craig Berger - Wedbush Morgan Securities - Analyst
Okay. Thank you. Can you briefly review the combined company's manufacturing
facilities and strategies?
--------------------------------------------------------------------------------
Abhi Talwalkar - LSI lOgic Corp. - President, CEO
I think our manufacturing strategy as Bryon said earlier, LSI has a fabless
strategy that we implement and executed to, I think most people are familiar
with Agere who has had a fab like strategy. They have a JV with Chartered
Semiconductor they refer to as SMP. We don't anticipate the manufacturing
strategy changing relative to assembly and test. LSI uses all external assembly
and test facilities. Agere has an assembly and test capability; we have looked
at that. I have been impressed with that operation in terms of sort of its
overall advantage that it has provided Agere
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and Rick and the management team from a cost standpoint, as well as the service
orientation that it provides. So we don't anticipate changes to our
manufacturing strategy.
--------------------------------------------------------------------------------
Craig Berger - Wedbush Morgan Securities - Analyst
Thanks a lot.
--------------------------------------------------------------------------------
Operator
James Poyner, Hapoalim Securities.
--------------------------------------------------------------------------------
James Poyner - Hapoalim Securities USA - Analyst
This is for LSI initially. You've said in the past that on your consumer
electronics business that you would probably need to do acquisition there to
give you better critical mass going forward. Does this deal put that strategy on
hold? In other words are you unlikely at this point to do a significant
acquisition on the consumer electronic side while you are integrating the Agere
deal? And second question just to be clear, my thinking is that LSI has not had
much if any exposure directly in the cellphone market until this Agere deal.
Is that correct?
--------------------------------------------------------------------------------
Abhi Talwalkar - LSI lOgic Corp. - President, CEO
That is correct to your last question. And to your first question, we still
believe that the consumer categories that we've talked about in our calls
represent high-growth markets of 30 to 50% from a growth standpoint. We continue
to drive a diversification of that business to drive diversification beyond the
DVD recorder space and we're still focused on doing that. Clearly our immediate
focus is to drive a successful integration of this combination of Agere and LSI.
--------------------------------------------------------------------------------
Operator
Bill Lewis, JPMorgan.
--------------------------------------------------------------------------------
Bill Lewis - JPMorgan - Analyst
Thanks, and congratulations. It would seem that this transaction that the mix
of semiconductors versus systems is going to significantly increase on the
semiconductor side. Have you thought or rethought the Engenio business within
that context and whether you will look at separating that?
--------------------------------------------------------------------------------
Abhi Talwalkar - LSI lOgic Corp. - President, CEO
Absolutely not, Bill. We've also had this discussion with you and many of the
analysts; the silicon to system strategy that we've been driving over the last
12 months has been embraced by our customers. It delivers value that they are
seeking for it, allows them to drive their R&D at innovation levels above that.
I don't see any changes whatsoever to that strategy. It has been working very
effectively for us.
--------------------------------------------------------------------------------
Bill Lewis - JPMorgan - Analyst
Okay, and then on the IP side, Agere has talked about becoming more aggressive
about generating licensing revenue in the '08 timeframe and beyond. Are you
going to pursue that strategy?
--------------------------------------------------------------------------------
Abhi Talwalkar - LSI lOgic Corp. - President, CEO
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Absolutely, and I think what I am excited about is Agere has certainly
demonstrated the ability to apply its capabilities of harvesting that value and
generating value for its shareholders. LSI has nearly 3500 patents. We had just
started working on our own harvesting capability. I am anxious to get the Agere
capability applied to that to start delivering value there as well.
--------------------------------------------------------------------------------
Bill Lewis - JPMorgan - Analyst
And last question if I could just on ASICs versus standard products, at least
at LSI you have been deemphasizing a lot of your traditional ASIC business. Got
out of RapidChip. Now with Agere maybe you're taking on more. What is going to
be your view on the balance (multiple speakers)?
--------------------------------------------------------------------------------
Abhi Talwalkar - LSI lOgic Corp. - President, CEO
I don't see us taking on more ASICs. In fact I think both companies have been
very focused on driving market led strategies where we have a vast array of
standard products and all the associated firmware and software above that, as
well as even reference systems. And that strategy continues. I think we have
absolutely been moving away from a broad merchant market ASIC strategy and this
combination just further accelerates that if you look at the Agere productline.
--------------------------------------------------------------------------------
Bill Lewis - JPMorgan - Analyst
So that trend should continue towards standard products?
--------------------------------------------------------------------------------
Abhi Talwalkar - LSI lOgic Corp. - President, CEO
Well I think the way to look at it is there are certain markets, take the hard
disk drive market for example, there is a number of markets across our three
areas of focus that continue to use custom silicon. Because that is what those
systems companies require and that is what supports their overall
differentiation strategy in the marketplace. So we will continue doing that but
neither company really is driving a broadbased ASIC market, merchant market
strategy.
--------------------------------------------------------------------------------
Rick Clemmer - Agere Systems - President, CEO
Certainly on the Agere side the only place where we use ASIC is the way to meet
a customer requirement based off of our core technology. So a good example of
that is in the storage area networks with the 4-gig HBA where it is based off of
our [certis] capability. Clearly there is ASIC built around that to customize it
but it is truly built off the certis capability. We have not been in the market
looking significant designs that are just broadbased bag of gates designs.
--------------------------------------------------------------------------------
Bill Lewis - JPMorgan - Analyst
Great. Thank you.
--------------------------------------------------------------------------------
Operator
Tayyib Shah, Longbow Research.
--------------------------------------------------------------------------------
Tayyib Shah - Longbow Research - Analyst
A question on the handset and consumer business. How do you expect to join your
media processor application technology with what Agere is doing in that space?
And if you plan to do that what sort of timeline are you looking at for you guys
to have some working products out in the market?
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--------------------------------------------------------------------------------
Abhi Talwalkar - LSI lOgic Corp. - President, CEO
Clearly we have had those discussions in terms of the potential synergies that
come from Agere's based band chipsets and bringing that together with some of
the application processor capability that we have. I think its too early and
premature for me to comment here. But as we get closer to closing and certainly
post close we will be able to provide more insight into future potential there.
--------------------------------------------------------------------------------
Tayyib Shah - Longbow Research - Analyst
And then you didn't quite have the scale in the consumer business in the past,
and it seemed that you always had a timeline in mind to evaluate that business
and see whether it would increase in terms of scale and profitability. Does this
merger achieve that thinking, or are you going to stick with the consumer
business on a longer-term basis and see where it goes from here?
--------------------------------------------------------------------------------
Abhi Talwalkar - LSI lOgic Corp. - President, CEO
As I said earlier, the consumer marketplace represents a significant growth
opportunity -- the combined company affords us scale to continue to drive growth
in consumer as well as the other two segments. We have been driving ourselves
and the management team to a specific set of milestones to diversify that
consumer business and to growth that business and we will continue to drive to
that set of milestones.
--------------------------------------------------------------------------------
Tayyib Shah - Longbow Research - Analyst
Does the merger change your thinking on some of your legacy networking business
that you were exiting?
--------------------------------------------------------------------------------
Abhi Talwalkar - LSI lOgic Corp. - President, CEO
You know, frankly it doesn't because the legacy networking business that we are
exiting was merchant market ASIC oriented. So that is why we moved away from
that. If I look at the Agere product base in networking and communications, it
is heavily predicated on standard products, also with a very capable solution
stack. So, no, I don't believe so.
--------------------------------------------------------------------------------
Tayyib Shah - Longbow Research - Analyst
And finally, are there any parts of the combined company that don't procure
longer-term strategy that can look towards exiting any product lines like that?
--------------------------------------------------------------------------------
Abhi Talwalkar - LSI lOgic Corp. - President, CEO
We're going to continue to obviously through the integration process and beyond
make sure that we sharpen our focus around our core segments. We are not at this
point in time ruling out any potential divestitures or disinvestments. But that
is something that we will work on over the transition phase.
--------------------------------------------------------------------------------
Tayyib Shah - Longbow Research - Analyst
Thank you, guys.
--------------------------------------------------------------------------------
Operator
Harlan Sur, Morgan Stanley.
--------------------------------------------------------------------------------
Harlan Sur - Morgan Stanley - Analyst
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Thank you and good morning. Congratulations, Abhi and for the whole team. Abhi,
clearly LSI's value proposition has been a systems to silicon to software very
broadbased approach to what I think is capturing significant leadership in the
storage systems market, where the barriers to entry are extremely high. And from
my perspective the big differentiator has been the systems and software
expertise. It is clear that Agere has compelling silicon technology. How do you
assess Agere systems and software capabilities?
--------------------------------------------------------------------------------
Abhi Talwalkar - LSI lOgic Corp. - President, CEO
I will say a few comments, and then I will have Rick add to it as well. I think
Agere especially in the areas of networking and I think this applies really in
all their categories but I want to talk about networking here to build on your
comment and your question. In the networking space Agere has a significant
software base, as well or firmware base that goes with those products. And we've
had some discussions as to how do we take some of what we've learned in terms of
the systems capability to help drive and accelerate some of the great technology
that Agere has at the silicon software level in the networking space.
--------------------------------------------------------------------------------
Rick Clemmer - Agere Systems - President, CEO
If you look at one of the product areas that we've been very focused on
recently at Agere, really taking our carrier class capability for packet
processing and moving that down to the SMB market as well as the high-end
consumer market. One of the things that we've been able to do is through the
utilization of software have a product out measured in months as opposed to
years if you would have to do an actual system on a chip. So in fact of the
revenue that we ship associated with this some 20 to 30% of that will be in the
form of software revenue and not for semiconductor revenue itself. So I think we
are well down the path of the software being a critical element of our business
as well and I clearly believe that when you look at our mobility business the
thing that has really allowed us to differentiate ourselves and be significant
is the software stack associated with our base band. And the significance that
that has played with us in being successful and now having at this point in time
something approaching two-thirds or greater of the 2.5G market share at Samsung.
So and that is driven by the software capability associated with our internal
business and the same firmware requirements on the disk drive side. So our
leadership space is from a software viewpoint is clearly deployed across all of
our businesses.
--------------------------------------------------------------------------------
Harlan Sur - Morgan Stanley - Analyst
Thank you, and congratulations.
--------------------------------------------------------------------------------
Operator
[Anthony Whey], [Coburn Capital].
--------------------------------------------------------------------------------
Jack Schneider - Coburn Capital - Analyst
It is [Jack Schneider] for Tony Whey. My question was asked, but let me just
give you some shareholder feedback. Initially we've been Agere shareholders for
a while and we think this sounds great. We are very excited about the company
and thank you, Rick because you came in here and really restructured this
business and repositioned it for growth and listening to Abhi speak we are very
excited about and interested in owning shares in the new company. So great job,
guys. Thanks.
--------------------------------------------------------------------------------
Abhi Talwalkar - LSI lOgic Corp. - President, CEO
Thank you.
--------------------------------------------------------------------------------
Operator
Thank you, ladies and gentlemen. Before I turn the call back to Mr. Talwalkar
for some brief closing remarks I would like to let you know that a telephone
replay of this conference call will be available today at approximately 10 AM
Eastern standard time and can be accessed through December 8th. The replay
access numbers are 1-888-286-8010 within the U.S. and 1-617-801-6888 for all
other locations. The pass code number
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is 15043040. The webcast will be archived at www.LSI.com/investors or
www.Agere.com/webcast. I would now like to turn the call over to Mr. Talwalkar.
Please go ahead, sir.
--------------------------------------------------------------------------------
Abhi Talwalkar - LSI lOgic Corp. - President, CEO
Thank you. Before I sign off I just want to reiterate how excited we are about
the combination with Agere and the many benefits we believe this transaction
will enable us to deliver to our shareholders, employees and customers. LSI's
well-established presence in the storage and consumer electronics market and
Agere's broad footprint in storage mobility and networking will enable us to
drive growth and shareholder value through the strengthening of our franchises
in our market segments in the expansion of our existing customer relationships.
By leveraging our increased scale, expanded IP portfolio and integrated
workforce, LSI expects to be a stronger, more competitive innovator of core
technology in building block solutions that enable businesses and consumers to
store, protect and stay connected to their information and digital content. I
look forward to the opportunity to speak with many of you in person about our
expectations for this transformation transaction and to updating you on our
progress in the coming quarters. That concludes our call for today. Thank you.
--------------------------------------------------------------------------------
Operator
Thank you, ladies and gentlemen, for your participation in today's
presentation. You may now disconnect, and have a wonderful day.
--------------------------------------------------------------------------------
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ADDITIONAL INFORMATION AND WHERE TO FIND IT
This communication may be deemed to be solicitation material in respect of the
proposed transaction between Agere Systems Inc. ("Agere") and LSI Logic
Corporation ("LSI"). In connection with the proposed transaction, Agere and LSI
intend to file relevant materials with the Securities and Exchange Commission
(the "SEC"), including the filing by LSI with the SEC of a Registration
Statement on Form S-4 (the "Registration Statement"), which will include a
preliminary prospectus and related materials to register the shares of LSI
common stock to be issued in the merger, and LSI and Agere plan to file with the
SEC and mail to their respective stockholders a Joint Proxy Statement/Prospectus
relating to the proposed transaction. THE REGISTRATION STATEMENT AND THE JOINT
PROXY STATEMENT/PROSPECTUS WILL CONTAIN IMPORTANT INFORMATION ABOUT LSI, AGERE,
THE TRANSACTION AND RELATED MATTERS. INVESTORS AND SECURITY HOLDERS ARE URGED TO
READ THE REGISTRATION STATEMENT AND THE JOINT PROXY STATEMENT/PROSPECTUS
CAREFULLY WHEN THEY ARE AVAILABLE. Investors and security holders will be able
to obtain free copies of the Registration Statement and the Joint Proxy
Statement/Prospectus and other documents filed with the SEC by LSI and Agere
through the website maintained by the SEC at www.sec.gov. In addition, free
copies of the Registration Statement and the Joint Proxy Statement/Prospectus
and other documents will also be available when they become available on the
Agere website at www.agere.com and on the LSI website at www.lsi.com. The
Registration Statement, the Joint Proxy Statement/Prospectus and other relevant
documents may also be obtained free of charge from Agere by directing such
request to Investor Relations, Agere Systems Inc., 110 American Parkway N.E.,
Allentown Pennsylvania 18109 and from LSI by directing such request to Investor
Relations, LSI Logic Corporation, 1621 Barber Lane, Milpitas, California 95035.
The contents of the websites referenced above are not deemed to be incorporated
by reference into the Registration Statement or the Joint Proxy
Statement/Prospectus. Agere, LSI and their respective officers, directors and
employees may be deemed to be participants in the solicitation of proxies from
their respective stockholders with respect to the proposed transaction.
Information regarding the interests of these officers, directors and employees
in the proposed transaction will be included in the Joint Proxy
Statement/Prospectus.
SAFE HARBOR FOR FORWARD LOOKING STATEMENTS AND OTHER IMPORTANT INFORMATION
This document contains statements regarding the proposed transaction between
Agere and LSI, the expected timetable for completing the transaction, future
financial and operating results, benefits and synergies of the proposed
transaction and other statements about Agere and LSI managements' future
expectations, beliefs, goals, plans or prospects that are based on current
expectations, estimates, forecasts and projections about Agere and LSI and the
combined company, as well as Agere's and LSI's and the combined company's future
performance and the industries in which Agere and LSI operate and the combined
company will operate, in addition to managements' assumptions. These statements
constitute forward-looking statements within the meaning of the U.S. Private
Securities Litigation Reform Act of 1995. Words such as "expects,"
"anticipates," "targets," "goals," "projects," "intends," "plans," "believes,"
"seeks," "estimates," variations of such words and similar expressions are
intended to identify such forward-looking statements which are not statements of
historical facts. These forward-looking statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions that are
difficult to assess. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in such forward-looking
statements. These risks and uncertainties are based upon a number of important
factors including, among others: the ability to consummate the proposed
transaction; difficulties and delays in obtaining regulatory approvals for the
proposed transaction; difficulties and delays in achieving synergies and cost
savings; potential difficulties in meeting conditions set forth in the
definitive merger agreement entered into by Agere and LSI; general economic and
geopolitical factors, changes in the semiconductor and storage systems
industries; the highly competitive nature of the segments in which Agere and LSI
operate; reliance on a limited number of customers; the ability of suppliers to
fill orders on a timely and reliable basis; the ability to hire and retain
qualified personnel; the complex nature of Agere and LSI products; existing and
future litigation; difficulties and costs in protecting intellectual property
rights and exposure to infringement claims by others. For a more complete list
and description of such risks and uncertainties, refer to Agere's Form 10-K for
the year ended September 30, 2006 and LSI's Form 10-K for the year ended
December 31, 2005, as well as other filings by Agere and LSI with the US
Securities and Exchange Commission. Except as required under the US federal
securities laws and the rules and regulations of the US Securities and Exchange
Commission, Agere and LSI disclaim any intention or obligation to update any
forward-looking statements after the distribution of this document, whether as a
result of new information, future events, developments, changes in assumptions
or otherwise.