Vixel Crosses Over

Despite near-term losses, executives of Vixel Corp. (Nasdaq: VIXL) were upbeat during the company's third-quarter earnings presentation yesterday.

"While we must acknowledge the turbulent economy and tragic events of September 11, we're nevertheless pleased with the progress we've made in transitioning our business," CEO Jim McCluney told Wall Street analysts in a conference call.

He referred specifically to the company's progress in moving out of the component-level transceiver business and gaining all of its revenue from SAN-related products, including Fibre Channel switches and hubs, storage management software, and ASICs (application-specific integrated circuits) designed for storage applications.

Figure 1:

Vixel has been planning the transition since it went public three years ago. And, as anticipated, it's taken a hit as it makes the shifts required to ramp up in its chosen product areas.The company reported an actual quarterly net loss of $5.6 million, or $0.24 per share, 9 percent more than last quarter's per-share losses. Gross margins were also down to 25.4 percent of total revenue, compared with 38.4 percent for the second quarter and 36 percent for the same quarter last year.

On the plus side, the company closed the quarter with about $31.2 million in cash, and execs say Vixel is ready to cover its needs for the next 12 to 18 months.

There are other signs management's decisions are steering the ship to better waters. "Reasons for renewed optimism include initial traction of [Vixel's] 2-gig fibre channel switch products and opportunities to serve as a second source with major OEMs, [as well as] two significant OEM customers for its SAN management software and embedded systems customers such as Lucent, Network Appliance, and Vitesse," write analysts Glenn Hanus and Richard Kugele of Needham and Co. in a research note.

Indeed, Vixel, along with QLogic Corp. (Nasdaq: QLGC), has been one of the first out of the gate with 2-Gbit/s Fibre Channel products, preceding archrival Brocade Communications Systems Inc. (Nasdaq: BRCD) by months (see Is Brocade's SilkWorm Losing the Thread?). Management makes no bones about ongoing efforts to serve as a Brocade replacement, competing in the SAN OEM market on availability, features, and price.

Vixel has several contracts under its belt, including as OEM of Fibre Channel ASICs to Network Appliance Inc. (Nasdaq: NTAP) for use in a new generation of filers; and two deals to sell ASICs to Vitesse Semiconductor Corp. (Nasdaq: VTSS).Vixel also just unveiled its SAN software, which supports all the major FC switches (see SNW: Day One),and it has OEM deals for its new product with integrators Fujitsu Softek and Sagitta Performance Systems.

Based on this, management's optimistic about its long-term goals, while acknowledging some short-term difficulties. For the next quarter, it expects $4.6 million to $5 million in revenues, but a loss per share of $0.22 to $0.24. Gross margins will climb back to the high 30s, however, and by the end of 2002, management expects a return to profitability.

Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com