Adaptec Wants Channel Change

Misses revenue guidance due to weak channel sales

July 30, 2004

2 Min Read
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Judging from its latest earnings report and forecast, it looks as if Adaptec Inc. (Nasdaq: ADPT) bought Snap Appliance Inc. more for its channel presence than its NAS product line.

Adaptec cited disappointing channel sales for missing previous guidance on revenue reported today, although it beat guidance and analysts estimates on net income.

Adaptec reported revenue of $115.5 million and net income of $6.4 million or $0.06 earnings per share. First Call forecast was for $117.9 million and $0.04. Adaptec’s previous guidance was for $116 million to $119 million in revenue and $0.03 to $0.04 EPS.

Adaptec’s revenue was up from $107.3 million from the same quarter last year, but down from $121.3 million sequentially. Its net income rose from from $3.6 million last year, but dropped from $6.6 million last quarter.

CFO Marshall Mohr told analysts on a conference call that ”demand was inconsistent during the quarter, particularly in the channel. We attribute that to delays in Intel's new server products, which had the effect of freezing channel demand.”Apparently, it wasn’t a one-quarter thing. Adaptec lowered its guidance for the year, citing lower system sales through the channel than expected. Adaptec’s new guidance for the fiscal year, which started last quarter, is for revenue from $545 million to $555 million and EPS of $0.19 to $0.21. Previous guidance was for $0.22 to $0.24 EPS.

Perhaps the Snap acquisition will help. When Adaptec announced it acquired Snap for $100 million earlier this month, company execs cited Snap’s NAS product line and said its channel presence complemented Adaptec’s strength in selling through OEMs (see Adaptec's $100M Snap Decision).

Adaptec's acquisitiveness appears to have had a near-term upside not related to channel sales. Adaptec raised revenue guidance for the current quarter to $124 million to $127 million, up from $116 million to $119 million, citing $8.5 million in revenue from Snap and $5 million from a business unit acquired from IBM Corp. (NYSE: IBM) in June (see Adaptec, IBM Get Cozier).

Adaptec also said the IBM deal cost about $49 million but is expected to return $150 million in revenue over three years.

On today's call, CEO Bob Stephens also said Adaptec has two Tier 1 OEM wins for its new iSCSI ASIC. The company showed a decline in revenue from systems and components, though SATA revenue rose to $6.1 million from $1.8 million in the previous quarter.— Dave Raffo, Senior Editor, Byte and Switch

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