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LSI 9260-4i connects up to 128 SATA/SAS devices?

It's achieved by using expander cards or if you buy a storage rack (example 24 bay Norco) they typically have expanders built into the backplane. The expander cards just feeds the data to the LSI card, all the RAID, parity calculations done by the 9260 card.
 
a port expander is used to connect to extra drives. Think of it like a network switch but for SATA/SAS.
 
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