4-Gig Fires Up Emulex

Emulex, which is just emerging from a major reorganization, comfortably beat analysts' revenue estimates with its second quarter results today, although the vendor's earnings felt the strain of recent acquisitions. (See Emulex Reports Earnings.)

Emulex's revenues were $121.4 million, up 10 percent on the same period last year, and above analyst estimates of $118.3 million. Despite the revenue uptick, the vendor posted a loss of 12 cents per share on a net loss of $10.1 million, compared to a gain of 19 cents on net income of $17.2 million in the same period last year.

According to execs on a conference call today, Emulex's earnings were impacted by a $22 million R&D charge associated with the vendor's recent acquisition of Sierra Logic. (See Emulex Gets Sierra Logic.) Excluding this charge and stock-based compensation fees, the vendor would have posted earnings per share of 27 cents on net income of $24.9 million. Analysts had estimated earnings of 27 cents.

Emulex CEO Jim McCluney said that strong sales of 4-Gbit/s HBAs to blade server vendors had helped push revenues up, and reiterated his desire to move the company in a new direction. "The 4 Gig adoption curve has been faster than it was for 2 Gig", he said, explaining that the technology made up 50 percent of Emulex's HBA sales. "In Q3, it could account for 60 percent."

The former Vixel CEO took over the reins of Emulex back in September, and, within less than two months, had outlined a new strategy for the firm. (See Jim McCluney, CEO, Emulex.) This has involved re-focusing the HBA vendor's energies on host server products, storage, and what it describes as "intelligent networking." (See McCluney Takes Reins, Emulex Claims HBA Spot, and Emulex 'Re-Positions'.)Embedded storage products, including SATA routers and Fibre channel solutions, accounted for a quarter of total revenues, according McCluney. These products contributed $30.1 to Q2 revenues, twice as much as the year-ago quarter.

It is still early days for Emulex's family of networking products, such as the AV150 storage processor. This part of the vendor's product line is not expected to generate "meaningful" revenues for a number of quarters, according to McCluney, although he promised that platforms supporting the AV150 will be rolled out this year.

Although the exec did not say whether more acquisitions are on the cards, he confirmed that Emulex has got its eye firmly on the 10-Gbit/s space. "We're making strategic investments in technologies that can leverage 10-Gbit/s as a transport," he said, without going into specifics.

This is certainly a time of consolidation in the switching and HBA markets. Rival QLogic, for example, thanks to its Silverstorm acquisition, has strengthened its links with Cisco. (See QLogic Inches Closer to Cisco.) Additionally, Brocade's $713 million acquisition of McData is seen as further consolidating the lower-end switch market. (See Brocade Bags McData For $713M, Brocade's Costly Victory, and McData Hops on QLogic Blades.)

Emulex has also been busy with M&A, buying Sierra Logic, which makes Fibre Channel-to-SATA bridge routers, and also grabbing chip virtualization specialist Aarohi for an undisclosed fee back in April. (See Emulex Gets Sierra Logic and Storage Do-Si-Do.)The integration of Sierra Logic's back office systems with those of Emulex has now been completed, according to McCluney, and is already starting to rack up customers. "We have four unannounced design wins for the SATA bridge product."

James Rogers, Senior Editor Byte and Switch