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

To: trendmastr who wrote (28783)	7/25/2001 11:34:48 AM
From: trendmastr	Read Replies (1) \| Respond to of 29386

08:07am EDT 25-Jul-01 Dain Rauscher Wessels (Montague, Robert (901)744-5671) QLGC:B-Aggr;A TALE OF TWO BUSINESSES Dain Rauscher Wessels a division of Dain Rauscher Incorporated * QLogic reported first-quarter EPS of $0.23 on revenue of $92.1 million. This was in line with our EPS estimate of $0.23, but slightly below our revenue estimate of $93 million due to weaker-than-expected sales of SCSI products. * Sales of fibre channel products grew by 10% sequentially due to strong demand for both HBAs and switches. * We continue to view QLogic as a core long-term holding in the storage networking arena. QLogic Corporation Nasdaq:QLGC Rating: Buy Risk: Aggressive Price Target: $ 55 , ____________________________________________________________________________ _ Price: $40.74 \| Fiscal Yr Prev EPS P/E 52-Wk Range: $130-$18 \| Mar/2001A $1.02 39.9x Tr. 12 ROE: 20.00% \| Mar/2002E 1.05 $0.90 45.3x 3 Yr EPS Gr: 40.00% \| Mar/2003E $1.17 34.8x Shares Out: 94.86 million \| 2002 Q2 $0.25 $0.21 Book Value: $5.79 \| Market Cap: $3.86 billion \| ____________________________________________________________________________ _ Calendar Yr Prev EPS P/E 2001E $0.94 43.3x 2002E $1.09 37.4x ____________________________________________________________________________ _ __________________________________________________________________________ SYSTEM AREA NETWORKS Robert Montague (901) 744-5671 rmontague@dainrauscher.com Steve Denegri (901)744-5670 sdenegri@dainrauscher.com QLGC:B-Aggr;A TALE OF TWO BUSINESSES QLogic reported first-quarter EPS of $0.23 on gross revenue of $92.1 million. These results were in line with our EPS estimate of $0.23 and slightly lower than our $93 million revenue estimate. Fibre Channel revenue increased by 10.3% sequentially to $56.2 million, representing 61% of total revenue. This strong performance was well ahead of our $50.2 million estimate. SCSI revenue declined by 27.6% sequentially to $35.9 million, below our estimate of $42.8 million. Operating margin declined by 390 basis points sequentially to 30.2% due to an increased percentage of lower margin switch revenue, ongoing investments in the development of new Fibre Channel, InfiniBand and iSCSI products, and the marketing programs associated with the rollout of the company's new 2Gbps product family. This effect was largely anticipated, and should stabilize as cost improvement programs take hold on the acquired switch products. The Bad... Management had cautioned that the extraordinary SCSI growth of late in FY2001 would lead to declines in the SCSI business for this first quarter. However, the trend was more severe, and appears to be more protracted than originally planned. We believe the primary driver is economic impact on storage system demand, as the vast majority of QLogic's SCSI revenue is for peripheral (disk and tape drive) controllers. Due to seasonal summer trends and higher inventories at disk drive manufacturers, management anticipates revenue will be down again for the September quarter. The Good... The strength of QLogic's Fibre Channel offering shined in this tough economic period, growing 10% sequentially. Growth was balanced between adapters, chips, and switches. We believe the product rollout with Sun Microsystems is helping drive industry leading growth. The company began initial shipments of Sbus HBA's into the channel. We expect demand for the company's Sbus product line to accelerate later this year as Sun begins to OEM the product. In addition, the company also began shipping its 2 Gbps switches to the channel. The company's customer mix is fairly consistent with 71% of Fibre Channel revenue coming from six customers, versus 78% from six customers in the prior quarter. QLogic's balance sheet remains very strong. The company's operating margins are among the best in the fibre channel space, which enabled the company to again generate strong cash flow, increasing cash and investments by $24.3 million sequentially to $379.7 million. Days sales outstanding were 50 days versus 48 days in the prior quarter. Inventory turns declined sequentially to 2.9 days versus 3.2 days, due in part to lower than anticipated sales of SCSI products. Our estimates reflect a decline of approximately 15% for SCSI product revenue and 4% sequential growth for Fibre Channel revenues in the current quarter for total revenue of $88.5 million. Due to the greater than anticipated decline in SCSI revenue, our FY2002 EPS estimate now stands at $0.90 on revenue of $376.6 million. Stock Opinion Though industry trends and visibility remain soft, we are seeing some signs that the decline in SAN spending trends may have bottomed. We continue to maintaining our Buy-Aggressive rating as we monitor for a fundamental turn in storage spending. We believe QLogic's unique approach to the storage networking opportunity warrants core holding status for long-term investors. We are maintaining our 12-month price target of $55, which reflects a 45 multiple of our CY2002 EPS estimate of $1.09. We believe this valuation is warranted given that sales of fibre channel products, which are expected to account for in excess of 70% of the company's revenue by year end, are projected to grow at compounded annual growth rates in the ranging from 50%- 90% during the next four years. Company Description QLogic Corporation is a leading developer and supplier of high-performance I/O solutions to the system area network marketplace. The company has a legacy of securing leading share in the I/O market based on a broad multi- protocol focus, a strong software migration strategy, and an intense cost focus. ____________________________________________________________________________ __