QLogic Continues to Click
The Q Train keeps chugging, beating Q2 expectations with healthy Fibre Channel sales
October 17, 2003
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Storage networking industry watchers have come to expect QLogic Corp. (Nasdaq: QLGC) to surpass their expectations, and the companys fiscal second quarter 2004 results, reported yesterday, didn’t disappoint (see QLogic Posts Record Results).
Citing increased sales of Fibre Channel and high-end products, the Aliso Viejo, Calif., company posted record second quarter earnings and revenues yesterday, handily beating the Street consensus.
“QLogic has shown consistent positive results… despite continued uncertainty concerning the economy,” said H.K. Desai, QLogic's chairman, president, and CEO, on a conference call after markets closed yesterday. “QLogic is one of best-performing companies in the storage infrastructure [sector]. We believe that our market share in FC will continue to grow.”
QLogic reported net profit of $34.2 million, or $0.35 a share, which is a 49 percent increase over the $23 million, or $0.24 a share, reported for the year-ago quarter. Excluding non-cash merger-related charges, the company posted earnings of $0.37 a share, beating the $0.35 consensus of analysts polled by Thomson First Call.
Meanwhile, revenues for the September quarter ticked up to $132.3 million -- a 23 percent hike from the $107.1 million QLogic posted for the same period last year, and nearly $2 million above Wall Street expectations.“I continue to be impressed by the improvement in that company’s profitability,” says Punk Ziegel & Co. analyst Steve Berg.
Most impressive, perhaps, was the improvement in QLogic’s gross margins over the quarter, which ended Sept. 28. The company’s margins climbed to 68 percent in the second quarter, from 66.7 percent in the previous quarter, and up from 63 percent for the second quarter last year.
A number of factors converged to help edge up the company’s profits, analysts say, including a continued shift from SCSI sales to Fibre Channel sales. Fibre Channel–related revenue for the quarter grew 8 percent sequentially to $101 million, or 76% of total revenue. About 87 percent of QLogic’s Fibre Channel sales were 2-Gbit/s products.
SCSI-related sales, meanwhile, dropped 3 percent quarter-over-quarter, to $32.1 million.
“The SCSI business is declining [as a percentage of revenue],” says Merrill Lynch & Co. Inc. analyst Shebly Seyrafi, who raised his rating on QLogic’s stock rating today from Neutral to Buy. “I would argue that that is a good thing... Fibre Channel offers higher gross margins.”Also helping QLogic’s gross margins during the quarter was greater-than-expected sales of the company’s high-end, dual-port HBAs.
For the current quarter, analysts caution that the company’s product mix may not prove as strong, so margins could slip a bit. “They benefited from a mix shift this quarter, [and] that’s capable of reversing,” Berg says. “Still, their results are amazingly impressive.”
For the current quarter, QLogic says it expects to report 2 percent to 5 percent sequential revenue growth, or between $135 million and $139 million in revenues. The company also said it expects to post earnings of between $0.34 and $0.38 a share.
The market may have come to expect smashing results from QLogic, but it doesn’t seem to be taking those results for granted. In morning trading today, it rewarded the company for its efforts, sending its stock price shooting up 2.27 percent to $52.65 a share.
— Eugénie Larson, Senior Editor, Byte and Switch
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