Emulex Short on Revenue

Misses guidance on revenue, offers lower-than-expected guidance for next quarter

April 23, 2004

2 Min Read
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Emulex Corp. (NYSE: ELX) missed its guidance on revenues for the quarter and offered lower guidance than expected for the current quarter in its earnings report today.

Emulex reported third-quarter revenue of $99 million, up 24 percent from a year ago, but just below its guidance of between $100 million and $102 million. Its income rose to $20.9 million, up 12 percent from last year, while EPS of $0.25 earnings per share rose 14 percent and hit Thompson's First Call estimate.

But guidance for the current quarter was also lower than expected. Emulex forecast sequential growth of between 1 percent and 4 percent, for revenue between $100 million and $103 million and EPS of up to $0.25. Analysts were looking for growth of between 2 percent and 5 percent, and EPS of $0.26.

Perhaps the lower guidance is due to product launches expected in the second half of the year. That could hurt sales in the current quarter as customers wait for the new product. "We're at a major expansion of our product line," CEO Paul Folino said on a conference call with analysts.

Overall, it wasnt a great quarter for HBA leaders Emulex and rival QLogic Corp. (Nasdaq: QLGC). In March, QLogic lowered its revenue forecast to about $128 million, instead of the $138 million to $141 million it projected during its January report (see Vitesse Links 6.5-Gig Backplanes). QLogic will announce its earnings Wednesday.QLogic indicated its quarterly shortfall was due to decline in orders from two OEMs. Analysts believe Sun Microsystems Inc. (Nasdaq: SUNW) was one of the OEMs, and perhaps Hewlett-Packard Co. (NYSE: HPQ) was the other. That wasn't the case with Emulex, though. Emulex's large OEMs EMC Corp. (NYSE: EMC) and IBM Corp. (NYSE: IBM) each posted strong earnings for the quarter (see EMC Earnings Up and Storage Computer Loses in Q4).

On the plus side, Emulex raised its gross margins to 64 percent, up from 63 percent last quarter. Folino attributed the increase in gross margin to a new, cheaper manufacturing subcontractor and favorable product mix.

Embedded switch products from Emulex's acquisition of Vixel last year contributed over 10 percent to the company's total revenue, which helped make up for the sequential decine of HBAs (see 2003 Top Ten: Mergers & Acquisitions). Emulex executives consider the embedded market a big growth opportunity along with the SMB market over the next few years, and say they are ahead of schedule with Vixel sales. They refused to say the exact percentage of sales from Vixel switches, though.

— Dave Raffo, Senior Editor, Byte and Switch

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