Chip-maker LSI in April completed a $4bn merger with fellow chip-maker Agere. Here Mitch Seigle, LSI Global VP, answers the key questions about the integration plans, the decision to go completely “fabless”, and the combined entity’s strategy going forward.
Q. Let’s start with you: what’s your background?
A. I’ve been at LSI 10 years. I joined as part of LSI’s acquisition of Symbios, and before that I was at EMC. I’ve been in marketing, communications, and employee communications. At EMC I was involved in its launch of the Centriplex, its first open systems storage.
Today my role is to manage all of the information in the company. Most of my time of course has been taken up with the merger of LSI and Agere, which closed on April 2. Suddenly we were a 9,000-employee company. I have been engaged at all levels in understanding the opportunities that we have from all of the combined technologies and where it makes the most sense to focus our attention.
Q. How did the company decide what to focus on?
A. There were three key criteria: the places the new LSI had significant and sustainable presence; where we had significant and sustainable differentiation; and where we had significant and sustainable growth opportunities. Those things helped us determine that we need to focus on semiconductors, and systems for storage and networking. There were many difficult decisions but it was only right for the company to set the stage.
Q. The Agere merger was massive. How would you describe the state of integration?
A. Integration is an ongoing process. Some areas have longer timeframes, like IT and applications. But the organizational integration is complete, and the brand integration is largely complete. Many things were accomplished even before the deal was completed, so we were able to very quickly bring the organizations together. We had already done unified networks, phones, business cards, and web sites, so once the deal closed we were ready to behave as one company.
Q. As part of the process there were quite significant job losses, how would you describe morale now?
A. When actions affect employees there is always potential for morale to be affected. But many employees were very enthusiastic when the deal was announced, and obviously some were less so. We spent a lot of time communicating why we did what we had to do, and that there were a lot of positive things going on. When the deal closed we had simultaneous broadcasts around the world with management and employees.
Q. What else did you do to explain the merger to the troops?
A. There was a lot of planning. There was a big focus on touching as many employees as possible from both sides [LSI and Agere] on day one. On their first morning there was a common landing page on the intranet with a blog from the CEO, and we had managed to change all company signs from LSI Logic to LSI Corp.
Q. One of the big decisions was to quickly move to an entirely fabless manufacturing model [in other words, LSI no longer manufactures the silicon, but instead works on the designs that are then manufactured by specialist manufacturers.]
A. LSI, prior to the merger, had already become fabless by around 2006. In about May  we sold the last fab to ON Semiconductor, on the proviso that they kept the employees.
When we merged with Agere we became fab-light because they had back-end testing, assembly, semiconductor packaging, and so on, and a joint venture with Chartered Semiconductor. We looked at it and decided that to focus on areas that provided the best value opportunities, we felt that moving to third-party manufacture would provide the highest-quality products for customers and enable us to focus investment on areas that would serve customers better.
Q. So what are the key markets you are targeting today?
A. There are still many spaces, many areas where we have core technologies. For example, in SAS [serial-attached SCSI] we have technologies from the chips in the server to HBAs [host bus adapters] to storage systems. What they have in common is that customers there need the underlying technology, marketplace expertise, and knowledge. Server vendors need to choose where to source their supplies, and the merger means they have fewer vendors to deal with.
In the systems we build, our goal is to focus deeply on the networking and storage markets across that entire ecosystem. We make building-block solutions that customers can use in a wide variety of ways.
Q. LSI also disposed of a number of assets: I can see why the consumer group [sold to Magnum Semiconductor] was not really core but you also sold the handset division, for instance.
A. Yes we sold the mobility products division [essentially a handset maker] to Infineon. It was contributing and delivering value but the level of investment needed to attain critical scale was large. In some of these areas you need scale to serve the markets fully; our chosen markets for systems are storage and networking. The same was true of the consumer group.
Q. At one time LSI was going to spin off what was then LSI Storage as a separate entity. What changed your mind?
A. There was a plan to take it public, but we decided in ’05-’06 that we would no longer pursue an IPO as it was again considered core. Now that is the Engenio Storage Group but what we did was make it a separate division.
Q. Could you remind us what the key groups are today?
A. There is Engenio, there is the Networks and Storage Products Group which does semiconductors, custom silicon and SAS chips, and there is the Storage Peripherals Group, which does hard disk drives and electronics.
We have SAS [serial-attached SCSI] that can be integrated at the server level, and HBAs that are SAS-enabled. We have worked with HP and Seagate on SAS, and the play there is for storage networking without the complexity of fiber channel. It’s especially big in the SME market.
Q. LSI makes components as well as subsytems, but isn’t there sometimes a conflict of interest with some companies using your components to compete against rivals using your subsystems?
A. I can understand why the market might see that as a potential problem. But we are playing in an ecosystem where on some fronts we are competitors, on some we are partners, and I think it works. We never compete directly with our customers. We do not sell LSI-branded systems direct to customers, we sell them to IBM, Teradata, SGI etcetera. We do the enabling technology that allows our customers to provide the solutions that their customers are after.
Q. The deal with Agere was a huge merger and it was representative perhaps of the underlying forces at work in the silicon market. Is it only a matter of time before you merge with another giant or make another huge acquisition?
A. I would defer to the CEO and board, but I think what they would say is that they would not rule it in nor rule it out. They would probably say they may make investments that are a strategic fit, but I don’t expect there to be a merger on quite the [Agere] scale on the horizon.
Q. What is your key marketing message going forward as a combined entity?
A. We need to do more to demonstrate our long history of innovation – both companies have a shared history of innovation. We have 10,400 issued and pending patents, making us one of the most innovative companies around. We are going to continue to get that message out in our core markets.