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LSI Logic CEO Abhi Talwalkar: Chipping Away

When Abhi Talwalkar agreed to take the top post at LSI Logic in May 2005, he knew he was in …

When Abhi Talwalkar agreed to take the top post at LSI Logic in May 2005, he knew he was in for a wild ride. Once a Silicon Valley darling, LSI had risen from no-name startup in 1981 to $2 billion global company under founder Wilfred Corrigan, who established it as a leading manufacturer of customized microelectronic chips for the semiconductor industry.

But the chip-maker had fallen far and fast from its perch, discovering that in the rapidly changing and consolidating chip industry, a company’s future was only as sure as its ability to adapt nimbly to change. As early as the late ’90s, LSI began losing its way, failing to reinvent itself in response to industry changes while placing too many bets on disparate businesses. Following the dot-com collapse, spending on telecom equipment that contained LSI chips dried up, delivering additional blows to the company’s bottom line. Investors lost confidence as the stock crab-crawled in the single digits, offering little hope of a return.

Corrigan and the LSI board realized it was time for a change. But rather than seeking out a seasoned turnaround artist, the board tapped Talwalkar, a 20-year Intel veteran. The 41-year-old’s mission: to completely transform and recast the flailing company and position it strategically for the future. A tall order for a first-time CEO, to be sure, but Wall Street approved of Talwalkar’s Intel pedigree and investors grew bullish when they saw he intended to make the tough calls necessary to get LSI back on track. In less than two years, Talwalkar has guided the company through four acquisitions, including a $4 billion dollar merger with Agere in 2007, two divestitures and has replaced all but two executives in the senior ranks. “We’ve changed the company, I would say, in every single dimension,” Talwalkar says.

One particularly bold move was to shed or shutter LSI’s manufacturing facilities, including its large chip fabrication plant, moving instead to an entirely fabless, outsourced model. In the new semiconductor space, Talwalkar observes, only two giants could survive on their own: his former employer, Intel, and its rival Samsung. “The economics are just ridiculous,” he says, noting that a company would have to generate $10-$15 billion to justify the investment in R&D required to build rather than buy. “Just about everyone is commingling and partnering and leveraging.”

LSI still invests 20–25 percent of revenues in R&D, but without having to manufacture wafers from scratch, it can spend on areas in which it can successfully differentiate. “We are very deliberate now about the markets we focus in,” Talwalkar says, noting that storage and networking products are LSI’s top priorities. “We actually had a great position in the storage area but we were squandering it because we lacked a cohesive strategy.” Today storage accounts for roughly $2 billion of LSI’s revenue and the company boasts an impressive roster of OEM customers including IBM, HP, Dell, Seagate, Western Digital, Cisco, Ericsson and Nokia Siemens Networks.

The transition has not always been pretty, Talwalkar admits, and things grew particularly ugly following the merger with Agere, as both investors and employees expressed doubts about the CEO’s ability to achieve the promised synergies. “People wanted to hand me my head, frankly,” he recalls. “But we’re through that because we moved very quickly.” Since the merger’s completion, LSI has shed 42 percent of its workforce and has achieved top-line growth for the past four quarters. Despite an ugly year for technology companies, LSI reported better-than-expected results for Q4. And while Talwalkar is tightlipped about specific financial forecasts, he expects the company to continue its upward trend. “We have a very solid balance sheet, a very good cash position,” he says, adding that, macroeconomic conditions aside, “a lot of our destiny is within our control.”

For Talwalkar, who made the leap from sure thing to risky rescue, the ride has been well worth the risk. “Even on my worst days, I’ve never looked back,” he says. “Even though Intel’s a great company, and I have great relationships there still, it’s just been a blast doing this.”

About C.J. Prince