QLogic Touts Earnings, Fabric Plans

QLogic posted better-than-expected results for its second fiscal quarter 2008 last night, in a report that highlighted the vendor's intent to mimic Brocade, Cisco, and VMware as a purveyor of data center "fabric."

For the quarter, QLogic's net revenue was $140.3 million. Net income on a GAAP basis was $22.6 million, or 16 cents per diluted share. On a non-GAAP basis, net income was $32.5 million, or 22 cents per diluted share. The company generated $67.2 million in cash from operations during the quarter, and exited the period with $392.1 million in cash and short-term marketable securities as of September 30.

These results were up slightly from the first fiscal quarter, for which QLogic reported net revenue of $139.8 million; net income of $19 million on a GAAP basis and $30.2 million non-GAAP; cash from operations of $35.5 million; and $478.6 million in cash and short-term marketable securities as of July 1.

QLogic broke out its specific market segment figures as follows:

Some analysts questioned the unevenness of QLogic's results. "Despite September quarter financial results that beat Street estimates on both the top- and bottom-line, we are becoming more concerned as multiple parts of QLogic's business are changing in ways that are not favorable," writes analyst Laura Conigliaro and colleagues in a Goldman Sachs note today. They cite growth in QLogic's core HBA business as declining, since in June, quarterly revenues were up 14 percent year-on-year as compared with 4 percent this quarter.Analysts on last night's call also questioned QLogic's decline in switch revenues, and several asked CEO H.K. Desai whether QLogic would consider exiting the switch business if the trend continues.

Desai firmly denied any intention to exit switches, and further indicated that if the switch business grows sufficiently, QLogic may look into making its own chips for it. He also boasted QLogic's dominant and growing share of the FC HBA market, and noted that Fibre Channel mezzanine cards for blade servers were up 22 percent year on year.

Key elements in QLogic's fabric strategy are ongoing heavy investment in InfiniBand, as well as 8-Gbit/s Fibre Channel wares, which QLogic recently announced and demonstrated at the SNW trade show last week, where the vendor also demonstrated FCOE networking with NetApp and Cisco-owned Nuova Systems.

Execs claim the move to 8-Gbit/s Ethernet is being driven by customer demand for I/O aggregation. Execs said they expect OEMs to start shipping products based on QLogic's 8-Gbit/s gear in the first half of 2008.

At least one analyst firm sees QLogic's report as an overall positive. "QLogic remains a leading provider of Fibre Channel HBAs and switches while simultaneously assembling an arsenal of connectivity solutions (i.e. Fibre channel, iSCSI, InfiniBand) consistent with the market's gradual evolution toward a unified data and networking fabric," writes analyst Tom Curlin and colleagues of RBC in a note today. But they too seem to sense risk in QLogic's future: "We believe the primary risks and potential impediments to achieving our price target include the timing of significant OEM orders and product launches, the economic influences on valuation and growth, the effects of macro-economic trends on IT spending plans of enterprise customers, successful integration of recent acquisitions, and competitive price actions."For the December quarter, QLogic is guiding toward revenues of $208.6 million and net income of $46.4 million. Much of the growth, however, will be offset by ongoing expected declines in the company's silicon business.

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