RE: Emulex
Biggest OEMs:
IBM - 30%
Compaq -26%
EMC - 22%
1) ....EMC spokesman Mark Fredrickson said any problems experienced by Emulex "is no reflection on our business or our demand."
2) ....Emulex said that, if deferrals continued to mount, its fiscal third-quarter earnings could fall 3 to 5 cents short of its previous guidance of pro forma earnings of 25 cents per share. The company said third-quarter revenues could be sequentially flat at $69 million, compared with previously stated expectations of $79 million to $80 million.
The company would still meet targets if the current level of deferrals does not worsen, executives said. Chief Financial Officer Mike Rockenbach said the company would have a better idea of its financial outlook in three to four weeks.
Emulex shortfall:
Revenues - $69M/$80M or 13-14%
EPS - $0.03-$0.05/$0.25 or 12-20%
Let's see. Compaq, IBM and EMC all posted similar 37% sequential quarterly growth in bookings at Emulex during the last quarter.
Presumably due to a slow January, IBM has aggressively sweetened the terms of its products for February and March, and this is going to increase its DSO. Sounds familiar?
At the start of the year, Compaq planned to go from 1,000 SANs a quarter in 2000 to 2,000 SANs a quarter in 2001 with about 70% going through the channel. The sales cycles are expected to lenghten considerably because they are going from simple SANs with a maximum of 4 switches to more complex SANs with a maximum of 20 switches.
Compaq now expects that overall company sales will post ZERO growth during the first quarter and only 5% for the entire year. When it initially warned in late December, Compaq indicated that it had 4 weeks of inventory in the channel for its enterprise products. I recall reading recently that this had gone up to 5 weeks due to a slow January.
Between IBM (30%) and Compaq (26%) with their respective channel inventories, you have the most probable causes of the 13-14% revenue shortfall and 12-20% EPS shortfall that Emulex reported.
Here's why I think EMC's claim is credible:
EMC had about $667M in work-in-process inventory at the end fo 4Q2000. EMC carries inventory at cost using the FIFO (first in, first out) method and its final assembly/testing process takes 21-25 days so assuming gross margin of 50%, that work-in-process inventory was converted to about
$1.3B in storage hardware sales during the first few weeks of January. Add 17% more due to software, or $221M, and the ballpark figure is that EMC probably booked around $1.52B in sales during the first few weeks of January, which leaves them with more than 2 months to meet their internal targets and which explains why they continue to claim that the quarter is proceeding according to plan. |
