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Hard Drive Shortages Giving Solid State Drives A Boost -LSI CEO

--LSI CEO says solid state drives getting a near-term boost from hard-disk drive shortages --CEO says shortages likely won't have long-term impact on disk drives --CEO says 2012 should see a large uptick in flash memory adoption By Shara Tibken Of DOW JONES NEWSWIRES NEW YORK -(Dow Jones)- Solid state drives are getting a near-term boost from hard-disk drive shortages, the chief executive of chip maker LSI Corp. (LSI) said, though he doesn't expect the shortfall to have a long-term impact on the market. The worst flooding in decades in Thailand dismantled or damaged a large chunk of the world's hard-drive manufacturing operations, causing a shortfall of the storage devices used in PCs and data center products. As a result, some computer makers are turning to solid state drives, which use flash memory and offer faster speeds and better battery life. Abhi Talwalkar, chief executive of chip maker LSI, said in an interview last week that companies are looking to solid state drives to fill some of the hard-drive shortfall, but he cautioned the shortage "is so big that solid state drives aren't going to close the gap." The industry is expected to see a shortage of about 50 million units in the fourth quarter and further shortfalls in the first half of 2012. LSI shares slid 2.3% to $5.92 in recent trading. Many other components makers also have said solid state drives are getting a boost. Intel Corp. (INTC) Chief Financial Officer Stacy Smith earlier this month said solid state is one of the ways the industry will try to offset hard drive shortages. Flash memory provider SanDisk Corp. (SNDK) and storage chip maker Marvell Technology Group Inc. (MRVL) have made similar comments. And memory maker Micron Technology Inc. (MU) on Wednesday said it has seen higher demand for solid state drives, particularly in consumer PCs, because of the hard drive problems. The company reported a 60% quarter-over-quarter jump in solid state drives for its period ended Dec. 1. The flooding "happened during what's normally a strong seasonal demand period for [PC makers], right in the middle of shipping into the channel for the holidays," Chief Executive Steve Appleton said. "So we saw a pretty strong uptick." But there are some doubts about how much of a boost solid state drives will get or what impact the hard-drive shortages will have on their long-term use. The flash memory products already were seeing increased adoption due to thinner and lighter PCs like the Apple Inc. (AAPL) MacBook Air and "Ultrabooks" pushed by Intel Corp. (INTC), and they still cost significantly more than hard-disk drives. In addition, solid state drives are not only used in PCs but also are increasingly being installed in data centers to accelerate the transfer of information. In particular, financial services and Internet companies have been leading the adoption of flash technology, Talwalkar said. "There is broad adoption starting to take place," Talwalkar said. "Next year is going to be a meaningful inflection point relative to the adoption of flash." He noted units will start to ship in higher volumes while prices will decline. In addition, the overall reliability of flash is starting to improve, Talwalkar said, something that also should boost the market. LSI has gone through a transformation in recent years, moving away from its diverse offerings and manufacturing operations to focus on providing chips for networking and storage, including hard-disk drives. The company earlier this year reached a deal to shed its external storage systems business for $480 million to data-storage gear maker NetApp Inc. (NTAP) and it also bought flash memory chip provider SandForce Inc. to give it broader exposure to solid state drives. Talwalkar said the hard-disk drive industry will likely produce about 125 million to 130 million drives in the first quarter and ship the entire supply. But Talwalkar said that's likely below demand of about 160 million to 170 million hard-disk drives. He said the number of units built in the second quarter will be "significantly higher," but inventories likely won't be replenished until the second half of 2012. Storage and server vendors likely will receive top priority for drives, Talwalkar said, as will PCs. The areas expected to be hurt the most include retail, external storage drives and consumer electronics, he said. LSI also sources certain components from Thailand, and Talwalkar said the company has improved its supply chain enough to meet most demand from hard-disk drive customers. "For the vast majority of [models], we're not holding up their ability to build drives," Talwalkar said. "But there are one or two hot spots we continue to work on to improve." -By Shara Tibken, Dow Jones Newswires; 212-416-2189; shara.tibken@dowjones.com

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