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LSI Corp.

If you’re of the Warren Buffett school of thought — “buy what you know” — you may want to steer clear of semiconductor stock LSI Corp. (NYSE:LSI). It makes high-tech gear that’s used for networking and media services, among other applications

LSI is in the middle of a transformation away from data storage and into chipmaking. Back in 2010, approximately 37% of revenues came from storage and 63% from semiconductors — but the dual nature of the business gave it too many competitors. So across 2011, LSI divested its data storage operations to NetApp (NASDAQ:NTAP) so it can focus on the higher margins of being a chipmaker. It also allowed LSI to form strategic relationships with companies previously viewed as rivals in the storage segment.

The risk is that “systems” businesses related to storage contributed the most growth in years past, so LSI is making a gamble. However, many analysts expect accelerating revenues from new customers that could include NetApp, EMC (NASDAQ:EMC) and Cisco (NASDAQ:CSCO) across 2012. The sheer demand for semiconductors in all manner of electronics ensures industrywide growth, and LSI is positioning itself to tap into this potential.

The company has zero long-term debt, and its 2012 earnings are expected to grow 27% over 2011 numbers. One fear is the stock may be a bit overbought in the near term, with a 36% run-up since Thanksgiving. But there’s tremendous growth potential across 2012 and 2013 if LSI plays its cards right.

Article printed from InvestorPlace Media,

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