Semiconductor designer LSI (NYSE: LSI) picked an interesting time to become a powerhouse in storage controllers.

LSI is focusing on that opportunity and making inroads with Seagate Technology (Nasdaq: STX) and other leading hard drive makers, typically pushing out incumbent component providers STMicroelectronics (NYSE: STM) and Marvell Technology Group (Nasdaq: MRVL) in the process. Storage products have always been important to LSI, but those operations are now outgrowing the networking portfolio. It's what management likes to talk about in their conference calls, it's what you'll find the most information about on LSI's corporate website, and where I expect LSI to invest its research and manufacturing dollars.

It's always cool to be big in an important sector like disk controllers, but it would be even better if the disk industry wasn't in a state of sudden oversupply. Having more manufacturing capacity than end-user demand puts pricing pressure on the drive builders, who then naturally would like to negotiate cheaper component contracts from suppliers like LSI.

Under these circumstances, it is no surprise to see LSI's sales growing at a muted 9% clip year-over-year to $629 million, or to see GAAP earnings cut in half to $0.04 per share. Management acknowledges that low demand levels in its end markets may linger, but looks to new product ramps and healthy sell-through partnerships with leading systems builders including IBM (NYSE: IBM) and Teradata (NYSE: TDC) to keep LSI on its feet until market demand picks up again. The company has a healthy and debt-free balance sheet to lean on, is actively repurchasing shares to boost shareholder value, and generally looks to be in fine shape to make it through this rough patch.

Storage systems will always be important, and LSI is busy cementing its place in the supplier firmament. That should pay off handsomely later on.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. The Fool owns shares of IBM and Marvell. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.