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

To: trendmastr who wrote (28784)	7/25/2001 11:35:48 AM
From: trendmastr	Read Replies (1) \| Respond to of 29386

QLGC/MEETS ESTIMATES BUT LOWERS GUIDANCE; GOOD BUYING OPPORTUNITY/STRONG BUY SG COWEN Mark Grossman/Peck/Romaine/Parmigiani 617-946-3700 July 25, 2001 QLogic (QLGC-$40.70) Rating: Strong Buy (1) Meets Estimates But Lowers Guidance; Good Buying Opportunity ===================================================================== Quarterly EPS FY Mar Old EPS New EPS P/E Q1 Q2 Q3 Q4 2001A* $1.02 $0.21 $0.25 $0.28 $0.28 2002E* $0.99 $0.82 49 $0.23A $0.19 $0.20 $0.21 2003E* $1.45 $1.20 34 $0.23 $0.27 $0.33 $0.37 ===================================================================== * Ex-one-time charges with revenue and EPS on a "gross" basis Key Points: 1. QLGC reported EPS of $0.23, In-Line With Consensus Estimates 2. Strength In Fibre Channel Was Offset By Weaker Than Expected SCSI Sales 3. Cutting Estimates For F02 From $0.99 To $0.82 And Reducing F03 Estimate From $1.45 To $1.20 4. EPS Still Well Above Most Comm. IC Names, Many Of Which Are Reporting Losses 5. QLogic Remains Well Positioned To Take Advantage Of Several Huge Growth Opportunities In The Storage Market; Maintaining Strong Buy Summary QLogic reported EPS of $0.23, a penny better than we had estimated and in-line with consensus. Revenues of $92.1MM (down 8.4% Q/Q) were just below the range qLogic previously provided and slightly above our forecast. Fiber Channel revenues (61% of sales) grew 10% Q/Q and were better than expected, but this was partially offset by weaker than expected SCSI sales (39% of sales, down 28% Q/Q). The company guided for sales to decline slightly (0-5% Q/Q) in the current quarter with modest growth in the December and March quarters. We reduced our F02 estimate from $0.99 to $0.82 and lowered our F03 estimate from $1.45 to $1.20. This earnings power is still significantly higher than most of the other communications IC firms, many of which are expected to report losses well into C02. In addition, we believe that qLogic is well positioned to take advantage of many of the trends in the storage industry, and should begin to benefit from a number of significant incremental growth drivers (SBus HBAs at Sun, InfiniBand, iSCSI, etc.) over the next several quarters. As a result, we are maintaining our Strong Buy (1) rating. EPS Of $0.23 In-Line With Consensus QLogic reported revenues of $92.1MM (up 19% Y/Y and down 8.4% Q/Q), which was slightly below the 3-8% Q/Q decline management had previously guided to but was better than the 9.9% Q/Q decline we had in our model. SCSI sales (39% of revenue) dropped 27% Q/Q, a greater than expected decline. This was more than offset, however, by stronger than expected Fibre Channel sales (61% of revenue), which grew 10% Q/Q, whereas we had expected little growth. The company noted that both the Fiber Channel switch business and the rest of the Fibre Channel business grew at about 10% Q/Q. Gross margin of 62.7% was down slightly from the previous quarter and just above our 62.5% forecast. Operating expenses ($16MM in R&D and $13.9MM in SG&A) were in-line with our model. This resulted in diluted EPS of $0.23, a penny better than we had estimated and in- line with consensus. Inventory levels remained about flat ($46.9MM versus $46.5MM in the previous quarter) but inventory days increased from 114 to 124 on lower sales. DSOs were up slightly, from 48.5 days to 51 days, but were below the December quarter level of 53 days. Cash and equivalents increased from $355MM to $380MM. Reduces Guidance, But Has Significant Earnings Power Even In Downturn QLogic guided for sales to decline 0-5% in the September quarter, with modest growth in the Fibre Channel business offset by a 10-15% Q/Q decline in SCSI due to inventory issues associated with SCSI peripherals. This would result in EPS in the $0.20-0.23 range. Management noted that it had little visibility, however, and as is the case with most Qlogic quarters, the company needs about 50-60% turns business to make its revenue guidance. As a result, our estimates are slightly below management's guidance. The company expects modest sequential growth in the remaining quarters of F02. We've reduced our F02 estimate from $0.99 to $0.82, and lowered our F03 estimate from $1.45 to $1.20. Our C2002 estimate is $1.04. Well-Positioned For Strong Growth Over Time; Maintaining Strong Buy Rating Demand for storage and Fibre Channel should continue to grow rapidly over the next several years, and we believe qLogic is one of the best positioned firms to take advantage of this growth. In addition, many of the industry trends (increasing focus on lower cost solutions, shift from boards to "chip on motherboard" products etc.) play into qLogic's strengths and should enable the company to gain share. QLogic also has a number of significant incremental growth drivers that should kick in over the next several quarters (SBus business at Sun, iSCSI, InfiniBand, etc.). We also believe that, as a result of its acquisition of Ancor, qLogic will eventually become the leader in Fibre Channel Switching semiconductor chips, which could become a huge market in a few years. In contrast to many of the traditional communications IC firms (PMC-Sierra, AMCC, Vitesse, TranSwitch, etc.) which are expected to report significant losses in C02, qLogic is still expected to earn over $1.00 in C02. As a result, we continue to like the story and maintain our Strong Buy (1) rating.