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Strategies & Market Trends : LindyBill's Ballroom -- Ignore unavailable to you. Want to Upgrade?

To: Mathemagician who wrote (146)	10/4/2001 11:05:37 PM
From: stockman_scott	Respond to of 248

Here's some info. on one of my favorites... 08:11am EDT 4-Oct-01 Dain Rauscher Wessels (Montague, Robert (901)744-5671) QLGC:SB-Aggr; UPGRADING TO STRONG BUY; CHANNEL SURVEY INDICATES STRONG SAN DEMAND Dain Rauscher Wessels a division of Dain Rauscher Incorporated Channel checks indicate that revenue impact of the September 11, events on September/October quarter was moderate. Channel checks also suggest accelerating interest in SAN deployment among previously untapped customers. We see the potential for upside results by the March/April quarter relative to the most likely guidance scenarios. We therefore are upgrading the leading SAN equipment vendors, including Cerus, to Strong Buy-Aggressive. QLogic Corporation Nasdaq:QLGC Rating: Strong Buy Risk: Aggressive Price Target: $ 35 , ____________________________________________________________________________ _ Price: $23.96 \| Fiscal Yr Prev EPS P/E 52-Wk Range: $130-$17 \| Mar/2001A $1.02 23.5x Tr. 12 ROE: 20.00% \| Mar/2002E $0.82 29.2x 3 Yr EPS Gr: 40.00% \| Mar/2003E $0.98 24.4x Shares Out: 94.86 million \| 2002 Q2 $0.19 Book Value: $5.79 \| Market Cap: $2.27 billion \| ____________________________________________________________________________ _ Calendar Yr Prev EPS P/E ____________________________________________________________________________ _ __________________________________________________________________________ SYSTEM AREA NETWORKS Robert Montague (901) 744-5671 rmontague@dainrauscher.com Steve Denegri (901)744-5670 sdenegri@dainrauscher.com QLGC:SB-Aggr; UPGRADING TO STRONG BUY; CHANNEL SURVEY INDICATES STRONG SAN DEMAND Since the close of the third quarter we have surveyed 22 distributors and integrators, with combined annual SAN hardware, software and service revenue of approximately $600 million. Our channel checks indicate that the revenue impact of the September 11, terrorist attacks on the September/October quarter was moderate. They also suggest that a subsequent increase in demand for disaster recovery and backup solutions is driving accelerating interest in SAN deployment among previously untapped customers. In sum, the view from the trenches is remarkably positive, in stark contrast to consensus Street expectations for the December/January quarter. The following data points summarize the psychology on the front lines of the SAN sector: * Over the past three days, we have followed up with 14 of 20 companies surveyed last quarter. Of these companies, four were below forecast, two above, and eight in line with their third-quarter revenue forecast. * Pricing for SAN components remains steady in spite of the precipitous drop in pricing for primary storage. In addition, inventories of SAN gear are at low levels throughout the channel. * Companies surveyed without exception cited backup as a "HOT" technology for the next 12-18 months. In addition, numerous companies indicated that many customers that had delayed SAN deployments in the past were now moving ahead with projects. * The arithmetic mean and revenue-weighted average projection of surveyed companies calls for 25% and 19.2% sequential fourth-quarter SAN revenue growth respectively. This compares to mid-single-digit sequential growth projections in our survey completed a quarter ago. We would note that this strong sequential forecast is not the result of a few outliers. This is demonstrated by the fact that of 22 companies surveyed, only one company projected a sequential decline in revenue while 10 projected sequential revenue growth in excess of 20%. These data points indicate that our revenue outlook for the leading SAN players over the next two quarters may prove too conservative. However, we continue to believe that companies will take a conservative stance on guidance until the evidence of a brighter outlook is converted to revenue. We, therefore, see the potential for upside results by the March/April quarter relative the most likely guidance scenarios. Given the gap between Main Street and Wall Street expectations for SAN trends in the next six months, we feel a more aggressive near-term stance is warranted. We, therefore, are upgrading the leading SAN equipment vendors to Strong Buy- Aggressive. Our due diligence suggests that QLogic finished close to our revenue and EPS estimates for the September quarter. Looking forward, several catalysts are emerging to drive the 2002 opportunity, including: * New disk drive programs at Fujitsu; * The Spider switch blade program at EMC Corporation (NYSE: EMC; Buy-Aggr; $11.15); * Incremental adapter business at Dell due to pending Dell/EMC relationship; * An additional switch blade design win at a major storage OEM; * A 2 Gbps SANBox switch selection at a third storage OEM; * Emerging Sbus Fibre Channel adapter programs with at least two OEM customers; and * Compact PCI design wins on Sun's new midrange and high-end offerings. Stock Opinion We are upgrading QLGC shares to Strong Buy-Aggressive. We believe stronger industry trends along with QLogic's market breadth and growing market share provide the company with significant growth catalysts over the next few quarters. QLogic holds $379 million, or approximately $4 per share, of cash and investments on the balance sheet. Net of the cash, QLGC shares trade at less than 22x our calendar 2002 earnings--a significant discount to the growth outlook for its segments. Our six-month price target of $35 reflects a 40 multiple of our CY2002 EPS estimate of $0.91.