By Jerry A. DiColo
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- The mergers of hardware and tech services firms will result in greater consolidation among the companies that supply them chips and other components, said Abhi Talwalkar, chief executive of LSI Corp. (LSI).
"The semiconductor industry has way too many players in it," Talwalkar said in an interview last week, adding that the networking segment in particular has to be consolidated.
LSI makes chips that help in the networking and storage components of company data centers. Talwalkar declined to say what LSI's role would be in any future consolidation, though he added that some customers have been suggesting particular areas where they hope LSI could provide components.
Talwalkar compared the current networking chip environment to the handset market a few years ago. Back then, there were too many market participants, resulting in shrinking market share and profits. LSI and others have since exited the market, with even chip giant Texas Instruments Inc. (TXN) winding down that segment of its wireless business to focus on more profitable analog and embedded chips.
Now, in general, chip customers are looking for suppliers that can offer a broader range of products as markets converge, Talwalkar said. In just the last few months, he said, customers have told him they have plans to "spend more with fewer companies."
LSI sells chips to a wide array of networking and storage customers, including Sun Microsystems Inc. (JAVA), which is currently awaiting approval from the European Union for its acquisition by software giant Oracle Corp. (ORCL).
But as the approval process drags on, competitors have been targeting Sun's customers, hurting its market share. And despite public comments to the contrary, some industry observers believe Oracle may decide to spin-off Sun's hardware businesses.
Talwalkar said that from his perspective, Oracle's public statements that it plans to hang on to Sun hardware appear accurate.
"Our experience is consistent with what Oracle has been saying," he said.
LSI shares were recently flat at $5.12. The stock is up 34% over the past year. Last week, the company reported third-quarter profit and revenue above Wall Street expectations, helped by strong sequential growth across all of the company's businesses.
-By Jerry A. DiColo, Dow Jones Newswires; 212-416-2155; jerry.dicolo@dowjones.com