UBS Securities downgrades LSI on reduced near term visibility

UBS Securities downgraded rating of microchip maker LSI Corp. to Neutral from Buy on Friday, on reduced visibility in design win ramp. The brokerage lowered its price target to $5 from $8.50.

“We believe revenue is likely to grow at a slower pace versus its previous expectations due to push out in design win ramp and increasing competition across most of the product lines,” said Parag Agarwal, an analyst at UBS Securities.

Though the company has restructured itself by positioning itself in right markets, a lack of substantial traction in any of the major markets coupled with high level of operating expense is likely to keep the stock range bound in near to mid-term, UBS Securities said in a report to its clients.

Along with a reduced level of revenue growth, the analyst expects that the operating expense will continue to remain high in near to mid-term as the company tries to remain competitive through new product roll out. Furthermore, increasing competition is likely to pressure pricing, which could lead to lower margin profile.

The brokerage lowered its third quarter revenue estimate to $641 million from $684 million and its 2010 estimate to $2.590 billion from $2.704 billion. The brokerage maintained its third quarter EPS estimate of $0.11 and its 2010 estimate of $0.48.

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For 2011, the brokerage reduced its EPS estimate to $0.46 on revenue of $2.686 billion from $0.60 on revenue of $3.037 billion.

LSI shares closed Friday down 1.23 percent at $4.03 on the NYSE, while in after-hours the stock fell 0.50 percent at $4.01.

This article is copyrighted by International Business Times, the business news leader