LETTER TO OUR STOCKHOLDERS

By almost any measure, 2009 was the most challenging year for the global economy since the Great Depression. With first-half economic uncertainty a common theme among companies serving the information technology (IT) sector, LSI prepared to weather the storm by streamlining the company for increased efficiency, and significantly reducing operating expense. At the same time, however, we took aggressive steps to position the company to grow faster than its markets when economic conditions return to more normal patterns.

We intensified our focus on the development of new storage and networking technologies and secured a record number of design wins with world-class storage and networking manufacturers such as Cisco, Huawei, IBM, Intel, Oracle, Seagate, Western Digital and ZTE.

We also took advantage of our strong cash position to expand our indirect channel presence and add complementary storage technology to our portfolio of solutions through the acquisitions of the AMCC 3ware® RAID adapter business and ONStor, Inc., a private maker of clustered, network-attached storage solutions.

Our 2009 revenues, while sharply impacted by poor global macroeconomic conditions, rebounded significantly in the second half of the year as end users who had deferred IT investments resumed spending, signaling the start of a recovery cycle that should continue to benefit LSI as it strengthens going forward.

With careful management of our operating expenses, we drove positive operating cash flows of $204 million for the full year and continued to maintain a healthy balance sheet. LSI ended the year with cash and short-term investments of approximately $962 million.

In our storage systems segment, stronger IT purchases in the fourth quarter contributed to record quarterly revenues of $257 million, a 24% sequential increase from the third quarter of 2009. In August, we introduced an all-new midrange storage platform, which has been received very positively by major server OEMs. We experienced significant growth in our indirect channel sales of RAID storage adapters, introducing new 6-gigabit per second (Gb/s) SAS MegaRAID® products
and bringing to market a broad range of 3ware brand products for small to mid-sized businesses. And, sales of our recently-enhanced Engenio® 7900 storage system achieved record levels in the fourth quarter.

In storage semiconductors, we continued to lead the market with our 6Gb/s SAS solutions that are used by top-tier server and storage vendors to provide connectivity for SAS and SATA hard disk drives, which represent the majority of drives shipping today. Going forward, we anticipate the use of SAS as a shareable connection between servers and external storage systems, and are well positioned here with our industry-first 6Gb/s SAS switches, announced earlier this month.

In hard drive semiconductors, we broke new ground with the introduction of the industry’s first
40-nanometer read channel products, which reduce power consumption and can improve storage capacity by as much as 10%, a compelling advantage for hard disk drive makers. We continued to make significant progress on capturing design wins in this space, and have now secured new opportunities with all five hard disk drive makers.

And most recently, we have leveraged our core technology and expertise to enter the growing market for solid-state storage, collaborating with Seagate, for example, to develop board-level products designed for enterprise servers used in data center and cloud computing environments. The first of these products is currently sampling to OEM customers.

In our networking semiconductor area, we continued to invest in the development of state-of-the-art, multicore processors that offer unmatched price-performance, security and control of wireless and wireline voice, video and data traffic. Our multicore solutions have now been selected by several major telecommunications equipment manufacturers, including Alcatel-Lucent, Ericsson, Huawei and Nokia-Siemens.

In the enterprise networking space, we further expanded our presence at Cisco, shipping our digital signal processors (DSP) for use in their ISR G2 router. We have also secured additional DSP design wins for multimedia applications on key Cisco router platforms.

Against the headwind of an extraordinarily weak economy, LSI introduced more than two dozen new silicon, systems, and software products and continued building a strong pipeline of design wins with Tier 1 companies, which should materialize into significant growth in the years ahead.

While the degree and pace of the economic recovery that began in the second half remains uncertain, we believe that LSI is now positioned to deliver solid progress against its business model going forward.

Abhi Talwalkar
President and Chief Executive Officer
LSI Corporation

March 26, 2010

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