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Here are highlights from Thursday's Analyst Blog:

iPod Not Using LSI

Q1 revenue for LSI Logic (NYSE:LSI) was $476 million, below our estimate of $481 million. Storage fell 13% sequentially. Also, consumer revenue declined 24% sequentially because of lower PlayStation product sales and seasonality of digital audio products. Moreover, PortalPlayer will not be providing chips for the iPod and management estimated that the loss in revenue will be $40 million in the second half of 2006. We, therefore, are maintaining our Hold rating and target price of $11.

The company has challenges ahead. For one, LSI competes against larger and better-capitalized companies in its ASIC business. Firms such as IBM (NYSE:IBM) have been taking market share in high-end ASICs, hurting both LSI's top-line and bottom-line. Second, firms such as Altera (Nasdaq:ALTR) and Xilinx (Nasdaq:XLNX) have been successful at offering FPGAs as a substitute technology for ASICs. As FPGA costs are decreasing, these components are becoming more attractive to traditional users of ASICs. In response, LSI is shipping the RapidChip (a competing product), but the success of this new technology remains uncertain.

YHOO Unveils Plan

Yahoo! (Nasdaq:YHOO) hosted a meeting for analysts Wednesday (5/17) where it unveiled its much-anticipated search monetization plan. The company is making its search engine more user-friendly for both users and advertisers, as well as improving the relevance of queries to attract more users to the site. Behind the scenes, advertisers will have greater analytical capabilities that should drive increased spending as they are able to see the direct impact of advertising campaigns on results. The design is complete and currently in testing. We can expect to see major differences to the portal in the latter half of the year, with a financial impact in 2007.

In addition to search monetization, Yahoo! covered a number of other topics. Of note is its social networking initiative, where we believe Yahoo! holds a leadership position. Although social networking/media/search has received little media attention, this is a powerful platform in its ability to attract dedicated users and generate revenue through graphical advertising, sponsored listings, sponsorships, and subscriptions.

Yahoo! is also a leader in online media, which will likely attract the bulk of money coming from traditional advertisers into online advertising. While search has shown the strongest growth over the past few years, traditional advertisers, such as consumer product companies that have shied away from online, are more attracted to traditional media. This is where we believe Yahoo! holds a significant advantage over its peers with its media focused management. We are positive on Yahoo! and its new initiatives along with the potential for growth in online advertising spending from traditional advertisers, and continue to rate the stock a Buy.

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