When LSI (NYSE: LSI) announced first-quarter earnings, it treated its external storage systems business as a discontinued operation. That made it easier to see a semiconductor company poised to reward investors with a higher semiconductor-like multiple.

LSI has long been challenged by diworsification. In addition to the ESS business, it has a semiconductor business. That makes the company difficult to analyze and value. Investors who like one business often don't understand or want to own the other. They shun the stock for more pure plays. Potential customers may view the company as a competitor and/or think the lack of focus can result in inferior products or service.

That isn't news to LSI. In 2004, management went as far as filing Securities and Exchange Commission documents to spin off the ESS division in an IPO. The IPO didn't take place. In March, LSI announced an agreement to sell its ESS business to NetApp (Nasdaq: NTAP). The deal is expected to close in May.

Looking beyond ESS, LSI is No. 1 in server and storage SAS components, direct attached storage RAID adapters and software, and SAN custom solutions. It's No. 2 in hard disk drive and networking processors. It claims to be an emerging leader in flash-oriented solutions for enterprise applications. The company's impressive customer list backs up its claims of being an industry leader in so many segments. Customers include server OEMs such as IBM (NYSE: IBM), Dell (Nasdaq: DELL), Cisco (Nasdaq: CSCO), and Oracle (Nasdaq: ORCL); HDD makers such as Seagate (Nasdaq: STX); and wireless equipment makers such as Ericsson and Nokia Siemens.

Excluding ESS, first-quarter non-GAAP EPS was $0.10, in line with expectations. Revenue of $473 million was flat with the year-ago quarter. Management cited market share gains, gross margins, and operating expense control as positives during the quarter.

According to the CEO, LSI is "now well positioned to ... establish a new, richer business model as we transition to becoming a leading, pure-play provider of semiconductors that enable growing storage and networking applications." Wading past the PR-speak, that says LSI is morphing into a semiconductor company that serves the storage and networking markets -- and a play on cloud computing and the rapid growth in demand for bandwidth.

Foolish takeaway
As LSI becomes a pure semiconductor company, it should get a higher profile in the investment community and a higher semiconductor-like multiple. Currently the industry trades at a P/E ratio of 18.2 times, compared to an adjusted P/E of only 15.4 times for LSI. To help you watch how this turnaround is turning, The Motley Fool recently introduced a free My Watchlist feature. You can get up-to-date news and analysis by adding companies to your watchlist now: