Emulex Q4: Carpe Diem

In the Dead Poet's Society, Robin Williams asks his students about a famous poem written by Horace. "Why does the poet write these lines?" He answers himself with a flourish. "Because we're only going to experience a limited number of springs, summers, and falls." To drive home this point Williams makes the students look at old photographs of former students that decorate the hallways.

A year ago Emulex CEO Jim McCluney obviously felt the company was going to experience a limited number of springs, summers, and falls if market share gains by QLogic continued. He brought in Jeff Benck as COO and defined a new go-to-market strategy focused on server OEMs. I can picture the Emulex CEO asking Jeff why he brought him on-board, then walking Jeff down the hallway with photographs of former Emulex executives to drive home his point. I can almost hear him saying, "If you get very close, you can hear them whisper. Go ahead, lean in. Hear it? (whispering) Carpe Diem, Seize the day."

Last week Emulex announced results for its fourth fiscal quarter ended June 28, 2009.  Emulex posted a slight increase in overall top line performance, while QLogic, their nearest competitor in their core host bus adapter (HBA) business reported a decline in total revenue. Drilling down, QLogic delivered flat quarter-over-quarter revenue for their core adapter business in the June quarter. Emulex, assisted by a reported interruption of QLogic blade server mezzanine cards shipments to Dell, delivered a 6% quarter-over-quarter increase. After backing out estimated revenue for non-Fibre Channel products for both companies, IT Brand Pulse estimates that Emulex gained 3 points of Fibre Channel HBA market share in the June quarter.

Given that Emulex gained Fibre Channel HBA market share in the December quarter, this marks the second time in the last 3 quarters that Emulex has gained market share. It appears that Emulex has indeed seized the day as well as put a stake in the ground in the competition for Fibre Channel HBAs.

Short term, Emulex guidance for next quarter shows a range, being slightly down to moving up by 3%. QLogic guidance ranged from being flat to moving up 3%. This serves as an indicator that Emulex is today at parity with QLogic in the competition for HBAs.

Looking out further, Emulex and QLogic are now trying to establish early incumbency in the competition for 10 Gigabit converged network adapters (CNAs) that in the next 2 years will have a material effect on both company's success. IT Brand Pulse estimates that Emulex has 55% revenue market share in last quarter's $2 million market for CNAs that are deployed almost exclusively with Cisco Nexus switches.

Word on the street is Emulex's success in the field is helped by a Cisco sales force preference for Emulex CNAs. This is because unlike QLogic, they don't compete with Cisco for Fibre Channel switches. Emulex is also succeeding in establishing value in the minds of end users for their Universal Converged Network Adapter (UCNA) technology. According to an IT Brand Pulse Leader Survey, IT professionals perceive Emulex as the market leader for FCoE adapters as well as the leader in five other categories.

See the FCoE adapter leader survey results at: http://itbrandpulse.com/featuredsurveys.aspx