Emulex: HBAs Rule

During a fourth-quarter earnings announcement today Emulex Corp. (Nasdaq: EMLX) executives said host bus adapters will be key to the future of storage networking, which in turn will dominate the entire storage market within the next few years (see Emulex Posts Q4 Earnings).

"There is no question that storage networking is one of the key technological shifts over the next decade," CEO Paul Folino told analysts during a conference call today.

Folino said that host bus adapters (HBAs) will play a key role in linking NAS and SAN islands in larger storage networks. HBAs at the network edge will increasingly be outfitted with software that enables them to support applications that manage and virtualize storage, he said.

While the market will remain difficult for the foreseeable future, Emulex hopes to stay on top by providing easy-to-use, common software interfaces and application program interfaces (APIs) across all product lines for OEM customers. The vendor says these interfaces will enable customers to develop products based on newly released Emulex HBAs that support 2-Gbit/s Fibre Channel, iSCSI, and VI/IP (Virtual Interface over IP). VI/IP is a relatively new technique for speeding up the linkage between storage devices and IP networks.

When prodded by analysts, the Emulex execs also vowed support for Infiniband, the computer bus designed to replace PCIbus in servers. But they claimed Infiniband will account for less than 7 percent of all storage network interconnections by 2005.Emulex says it leads the worldwide HBA market, with 35 percent of all revenues and 32 percent of all units shipped, according to IDC.

While Folino and other execs on the call stressed their hopes and expectations for the storage networking market, they also acknowledged that the economic downturn is taking a toll. Revenues for the quarter ended July 1, 2001, were $58.4 million, up 43 percent year over year but down 3 percent sequentially. Pro forma net income, excluding deferred compensation and acquisition-related charges, was $9 million, or 11 cents per diluted share, versus $9.6 million and 12 cents at the same time last year.

When deferred compensation and other non-cash acquisition-related charges were added back in, Emulex reported a net loss of $31.3 million (38 cents per share), compared with the net income of $9.6 million (12 cents per share) for the fourth quarter of last year.

But Emulex says backlog is stable, although slightly elevated, and orders are up from its three leading customers -- Compaq Computer Corp. (NYSE: CPQ), EMC Corp.(NYSE: EMC), and IBM Corp. (NYSE: IBM).

Execs on today's call also claimed to be pleasantly surprised by the rate at which OEMs are picking up Emulex's recently released 2-Gbit/s Fibre Channel adapters.They are not surprised, however, by the ongoing popularity of Fibre Channel, which will play a key role in storage networks going forward, the company maintains.

According to Folino, for at least the next several years, Fibre Channel will account for the majority of the interconnections in storage networks, particularly for high-end storage system links in the lucrative enterprise market. iSCSI and VI/IP will be used to bring lower-end storage devices into SANs, Folino said.

- Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com