QLogic Rolls in Dough

After the pummeling Emulex Corp.'s (NYSE: ELX) stock took last week after the company announced weaker-than-expected guidance, some may have feared other companies in the space would follow. But Emulex's archrival, QLogic Corp. (Nasdaq: QLGC), soared beyond expectations in announcing its most recent quarterly results today (see Is Emulex Slowing Down? and QLogic Reports Record Q4).

QLogic reported better-than-expected earnings on rising revenues both for its fiscal fourth quarter and full year 2003. The host bus adapter (HBA) vendor announced net profit of $29.9 million, or 31 cents per share, up 60 percent from its year-ago profits of $18.7 million, or 20 cents a share. The companys earnings also increased by 9 percent over its December quarter, when it cashed in $27.5 million. Analysts polled by Thomson First Call had on average expected QLogic to post earnings of 30 cents a share.

Analysts seemed enthused with the results. “Too bad the Lakers couldn’t be that good,” one analyst said on the conference call following the earnings release.

The company expects to continue its upward trend for the current quarter, which ends June 30. “We are cautiously optimistic in regards to the outlook for our June quarter,” QLogic CFO Frank Calderoni said on a conference call this evening. The company is forecasting 2 to 5 percent sequential revenue growth and pro forma earnings per share of 30 to 35 cents.

Wall Street analysts also say they expect QLogic to continue growing in the current quarter. "Sun Microsystems Inc. [Nasdaq: SUNW], Fujitsu Ltd. [OTC: FJTSY] (enterprise HDD units), and IBM Corp. [NYSE: IBM], which collectively account for around 40% of QLogic’s revenue, will likely grow in the double-digits sequentially,” A.G. Edwards analyst Shebly Seyrafi wrote in a note before QLogic announced its earnings today. He noted that by itself IBM’s BladeCenter, which includes QLogic FC chips, is likely to add 2 to 3 percent of incremental sequential revenue growth for QLogic.On today’s conference call, QLogic president and CEO H.K. Desai said that Fujitsu and Sun each make up 18 percent of the company’s Fibre Channel sales, while Hitachi accounts for 11 percent. In addition, he added, out of IBM, Hewlett-Packard Co. (NYSE: HPQ), and Dell Computer Corp. (Nasdaq: DELL), the company expects two out of three to become 10 percent customers next year. “We are expanding our customer base,” he said. “Slowly, we’ll get more 10 percent customers.”

Not all of QLogic's outlook was positive, however. Following what it called significant margin growth over the past two quarters, the company said it expects its gross margins to decline over the coming quarter. For the March quarter, the company saw its gross margins increase from 62.5 percent to 65.9 percent.

Revenues for the quarter also rose, jumping to $120.6 million compared with $90.8 million for the same quarter last year. Before charges -- which were primarily non-cash related expenses in connection with sales discounts for stock warrants and mergers -- QLogic reported fourth quarter earnings of $31.3 million, compared with its pro-forma earnings a year ago of $21.1 million.

For the full year 2003, QLogic’s earnings nearly doubled to $103.5 million, or $1.09 per share, from $70.7 million, or 74 cents a share for 2002. Revenues for the year jumped 28 percent to $440.8 million from $344.2 million a year earlier.

Desai said on the call that all of the company’s major product segments experienced growth during the quarter. Fibre Channel sales did especially well. Accounting for 71 percent of QLogic’s total revenue during the fourth quarter, this segment increased 44 percent to $86 million compared to the year-ago quarter.The company’s SCSI revenues also increased by 3 percent compared to the previous quarter, but QLogic says it expects those revenues to remain flat during the current quarter. Executives also said that iSCSI won’t bring it significant revenue before the end of 2004.

The company also increased its cash holdings during the quarter by $27.6 million, to a total of $643.2 million.

— Eugénie Larson, Reporter, Byte and Switch