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Technology Stocks : The New QLogic (ANCR) -- Ignore unavailable to you. Want to Upgrade?

To: Gus who wrote (27489)	7/14/2000 7:05:23 PM
From: Gus	Respond to of 29386

More on Microsoft and SANs.... A recent market research study by Enterprise Management Associates (EMA) interviewed 100 IS professionals from medium-sized to large corporations. The survey participants were asked to name all the operating systems they will include in their SAN. Ninety percent are using or will be using the Microsoft Windows NT® operating system. In addition, the study reports the top three issues driving the majority of the companies interviewed to look at SANs: 1) scalability requirements (72 percent) 2) faster data access (66 percent) 3) higher data availability (66 percent) mcdata.com The emerging performance metrics for storage networking borrow heavily from the relatively price-insensitive mainframe-based datacenter. SAN QoC encompasses three metrics that characterize how well a SAN will service enterprise applications. These metrics are: - availability of connection - performance degradation - bandwidth scalability Availability of connection alone is inadequate, as it describes only the presence or absence of a service. Quality of Connection is a complete characterization that describes how a service will operate under both normal and adverse failure conditions, and how effectively it will scale bandwidth with connectivity. mcdata.com Going by applications.... Table 6 – Recommended SAN QoC Class for Common Applications eCommerce 4 or 5 eBusiness 4 or 5 Enterprise Resource Planning 4 or 5 Data Warehouse 4 or 5 Decision Support 4 or 5 Financial 4 or 5 Transaction Processing 4 or 5 Customer Service 4 or 5 Web Serving 3 or 4 eMail 3 or 4 Imaging 3 or 4 Technical 2 or 3 Application Development 2 or 3 File Serving 1 or 2 Message 14035748 Directors and Redundant Directors are optimum for QOC 3, 4 and 5. Against that backdrop, the Ancor acquisition allowed QLGC to broaden its product line from its dominant position in HBAs. 1999 2003 HBA 49% 38% Switches, Directors 10% 30% Switches, fabric 19% 22% Switches, Loop 3% 4% Hubs, managed 10% 3% Hubs, entry 3% <1% Storage Routers 6% 3% 1999 - $506 million total market 2004 - $4.5 billion total market Director switches are expected to grow at 127% CAGR. Source: IDC Another way to look at the opportunities for QLGC is through the prism of Mcdata, which had 99% of the 1999 early stage Director switch market. Ports Hub & Switch Revenues 1999 500,000 $200 milion 2000 1,100,000 $600 million 2001 1,900,000 $1.1 billion 2002 3,200,000 $1.8 billion 2003 5,200,000 $2.6 billion Ports (75% CAGR) Revenues (85% CAGR) Source: IDC Mcdata has shipped over 700,000 ESCON, FICON and FC ports in its lifetime with over $1 billion in revenue contribution to EMC over the last 5 years during which it was also the exclusive ESCON supplier to IBM. FICON is the bridge card technology jointly developed by IBM and Mcdata to provide FC connectivity to IBM's large ESCON installed base. ANCOR/Inrange Directors will have to be interoperable with that installed base to capture the high-end switched fabric expansion market during the narrow qualifying windows (1x or 2x/year) at the high-end. Inrange (soon to be a spin out from SPX) remains the preferred non-Mcdata second source for ESCON. Mcdata's last 5 quarters show the pre-Y2k growth in the ESCON switch, FICON bridge card and the early stage FC Director switch market. March 1999 - $13.2 million June 1999 - $21.0 million (59%) Sept 1999 - $22.7 million (8 %) Dec. 1999 - $38.4 million (69%) Mar. 1999 - $47.1 million (23%) As the second source to Brocade in the switch market and to McData in the Directors market, the ANCR/Inrange part of QLGC's business will probably exhibit similar growth patterns after adjusting for the Y2K surges. It now looks like QLGC collapsed after the deal was announced because of fears about dilution. What I think will become more visible over the next few quarters is that QLGC is one of the best managed companies in technology as reflected by its margins: Gross Margins Operating Margins 1996 36.1% 2.2% 1997 44.7% 13.6% 1998 58.1% 22.7% 1999 63.7% 36.0% 2000 68.4% 36.5% At a CAGR of 127%, the Director switch market is also expected to be the least price-sensitive part of the total Hub and Switch market so the tremendous leverage of QLGC's fabless model will become more visible in the quarters to come; although, I don't see how anyone can miss seeing it now.