Chip vendor LSI Corp. has warned investors of a revenue shortfall and said it would eliminate 900 jobs and sell off its consumer products business as part of a plan to cut costs following its April merger with Agere.

LSI did not disclose how much money it would get for selling the consumer products division. However, late Wednesday the company revealed the buyer as Magnum Semiconductor Inc., of Milpitas, California, a vendor of chips and software for consumer entertainment devices like DVD recorders, digital camcorders and portable video players. Magnum will fund the purchase through a private-equity investment and expects to close the deal in the third quarter.

The deal will also lead LSI to shrink its work force further, since Magnum plans to offer jobs to a "significant number" of LSI's consumer workers.

The changes are part of the first stage in a three-phase corporate reorganization designed to reduce operating expenses and improve LSI's profit margin in the chip business, according to a statement from LSI President and CEO Abhi Talwalkar. In May, LSI warned investors that it was seeking a buyer for its consumer division, which makes chips for DVD recorders, set-top boxes and personal media players.

"We are accelerating our timetable for aligning the resources of the new LSI with market opportunities," Talwalkar said in a release. "Today's actions will position the company to improve our gross margins in the semiconductor business."

The new layoffs will affect 13 percent of LSI workers across all global business departments, excluding the chip packaging and testing workers in former Agere plants in Bangkok and in Singapore, LSI spokesman Robert Guenther said Thursday.

Despite the new savings, LSI warned investors that its revenue was lower than expected, and reduced its forecast for second-quarter revenue for the period ending June 30, 2007, to a range of US$650 million to $670 million, compared to its original forecast of $715 million to $745 million. The new number would produce a quarterly net loss of between $0.43 and $0.52 per share, a greater loss than the original goal of $0.40 to $0.49 per share. LSI is scheduled to announce its quarterly earnings on July 25.

LSI, of Milpitas, California, traded $4 billion of its stock to merge with Agere, of Allentown, Pennsylvania, in a deal that closed April 2. The merger combined LSI's strength in making chips for enterprise storage and telecommunications with Agere's experience in manufacturing chips for cell phone handsets and the hard drives in consumer PCs. Together, the combined companies had 9,100 employees and predicted annual revenue of $3.5 billion.

The IDG News Service is a Network World affiliate.