08:59am EDT 25-Jul-01 Morgan Keegan (Kumar, Harsh (949) 721-6620) QLGC
REPORTS FISCAL 1Q02 EPS IN LINE WITH EXPECTATIONS
Morgan Keegan & Company, Inc.
Research Notes
July 25, 2001 52 Wk Range $130.25 - 17.81
QLogic Corporation
(QLGC* - $40.74) Inst. Ownership(%) 68%
Mgt. Ownership(%) 3%
Avg. Daily Vol. 6.79 mill
Market Cap.(mill) $3,864.7
Current Chg. From Dividend Yield(%) NIL
Rating: M-M Book Value $5.79
EPS: 03/01A: $1.02 Price/Book 7.0x
03/02E: $0.87 $1.00 Cash /Share $4.00
03/03E: $1.23 $1.39 Price /Cash 10.2x
Rpt. Date Range
FYQ1:02:A $0.23 vs.$0.21 7/24/01 First Call: $0.23 vs. $0.21 $0.22-$0.24
FYQ2:02:E $0.21 vs.$0.25 10/01 First Call: $0.25 vs. $0.24 $0.19-$0.27
FYQ3:02:E $0.21 vs.$0.28 First Call: $0.27 vs. $0.28 $0.21-$0.29
FYQ4:02:E $0.23 vs.$0.28 First Call: $0.29 vs. $0.28 $0.24-$0.32
QLOGIC REPORTS FISCAL 1Q02 EPS IN LINE WITH EXPECTATION / CALLS JUNE
BOTTOM FOR THE FIBRE CHANNEL BUSINESS
ú Met expected EPS of $0.23 on slightly lower gross revenue of $92.1
million versus our expectation of $95.0 million.
ú Fibre Channel revenue grew 10% sequentially in the quarter, while
SCSI was down substantially due to inventory build-up at drive
controller customers.
ú Fibre Channel expected to grow in the mid-single digits for the
September / December quarters, with high-single digit growth expected
beyond the December quarter.
ú Switch business grew in line with the total Fibre Channel business
at 10% sequentially in the quarter.
ú We are adjusting our fiscal 2002 EPS estimate to $0.87 on revenue of
$372.6 million.
Yesterday afternoon, QLogic reported its fiscal 1Q02 results. The
Company recorded pro forma EPS in line with our estimate of $0.23 on
gross revenue of $92.1 million, versus $0.28 on revenue of $100.5
million in the sequentially prior fiscal 4Q01. The gross revenue
figure does not include the usual sales discount to Sun Microsystems
(SUNW - $14.90), which amounted to $2.16 million for this quarter.
Fibre Channel revenue grew somewhat better than expected at 10% and
offset a greater than estimated decline in the Company's legacy SCSI
peripheral I/O controller business of about 27%. While we are
disappointed for the quarter's numbers to be negatively impacted by
the greater than expected decline in SCSI, we are very encouraged by
Fibre Channel's sequential growth of 10%. During the quarter, Fibre
Channel revenue (combined HBA and switch products) was 61% of
overall sales, with SCSI products contributing 39%. Importantly, we
anticipate that the trend of Fibre Channel growth will continue and
that it represents the future of QLGC's high-growth business model.
For the quarter, QLogic indicated that it again saw what has become
something of a pattern during this economic downturn, as a large
portion of shipments were done during the final month of the
quarter. The declines that were seen in the SCSI business were
reflective of the delayed reaction that some of the Company's
customers felt to the slowdown in IT spending. On the other hand,
indications are that Fibre Channel HBA and switch revenue hit bottom
during the June quarter and have begun showing signs of rebounding.
We do not expect the ramp in Fibre Channel coming out of the summer
to be a steep one, but it will drive the Company's guidance of mid-
single digit sequential growth for the overall Company's revenue
beginning in the December quarter. Gross margin for fiscal 1Q02 was
62.7%, better than our expectation by 20 basis points and down 40
basis points sequentially, mainly due to a mix shift to some lower-
margin switch products. While the Company did expand its R&D
spending in the quarter (and increased headcount), SG&A was down
modestly on a sequential basis in absolute dollar terms.
Going forward, our expectations are for the SCSI part of the
business to continue to decline somewhat for the rest of CY2001, and
for Fibre Channel to remain relatively stronger and grow
sequentially. Going into the December and March quarters, we are
looking for Fibre Channel growth to drive overall sequential revenue
improvement in the mid-single digits (which requires Fibre Channel
to grow in the 10% range). Once SCSI controller inventory issues
with QLGC's customers are resolved (by about the December 2001 time
frame), we expect that portion of the business to recover. As seen
in the June quarter, the switch business is growing along with the
trend of the Fibre Channel segment and is poised to come back with
more robust growth as the climate improves, due to switches' higher
ASPs.
We have adjusted our revenue expectations going forward to reflect
the inventory situation on the SCSI side and the projected growth in
the Fibre Channel business. We are anticipating a flat to modest
decline in the September quarter and EPS of $0.21. We continue to
believe in the long-term growth potential of QLogic and the SAN
group, but will continue with our Market Perform rating on the stock
until we have a little clearer visibility on the improvement ramp of
the business.
Harsh Kumar (901) 579-4534 / Michael Bertz (901) 579-4435 /
Mathilde McLean (901) 579-4584
harsh.kumar@morgankeegan.com / michael.bertz@morgankeegan.com /
mathilde.mclean@morgankeegan.com |
