HBA Sales Quicken Industry Pulse

Early returns from HBA vendors indicate storage sales were seasonally strong at the end of 2004. Analysts say if HBA sales are up overall, it follows that storage system sales also sharply increased at the end of 2004.

After all, those HBAs are hooked into something, right?

QLogic Corp. (Nasdaq: QLGC) today significantly raised its revenue guidance for last quarter, following similar announcements last week by its major HBA rival Emulex Corp. (NYSE: ELX) and by LSI Logic Corp. (NYSE: LSI). (See QLogic Raises Revenue Forecast, Emulex Raises Guidance, and LSI Logic Lifts Guidance.)

Financial analysts see rosy guidance from QLogic and Emulex as a good sign for the entire storage industry, which often benefits from a year-end "budget flush." What's more, as the two vendors increasingly move toward delivering HBAs and switches aimed at the low end, their results suggest the SMB networked storage market is beginning to materialize (see HP and QLogic Aim Low and HP SMB SAN Integrates QLogic). Together, QLogic and Emulex have about 80 percent of the HBA market share.

Strong demand for storage products [last quarter] appears to have aided vendors across the board,” analyst Les Santiago of U.S. Bancorp Piper Jaffray wrote today in a research note. “Our checks indicate a strong demand for low-end switches, and may indicate the first ramp of lower-end SAN system storage products into the SMB market.”QLogic and Emulex will make their earnings announcements next week. QLogic revised its quarterly forecast to revenue in the range of $148 million to $150 million, up from previous guidance of $136 million to $143 million. It bumped up its expected net income to $0.46 to $0.48 earnings per share, compared to the $0.38 to $0.41 previously forecast. The new revenue range represents at least 10 percent sequential growth from the $134.6 million reported in the previous quarter, and is up from $137.1 million posted for last year's corresponding quarter.

"Our strong revenue performance was driven by double-digit sequential growth for both HBAs and switches. In addition, our hard disk controller business had high single-digit sequential growth," QLogic CEO H.K. Desai said today in a statement.

After a two-quarter slump, Emulex also reported stronger demand for its product line of HBAs, embedded switches, and chips for the fourth quarter of 2004 (see Emulex Drops Revenue Again and Emulex Cuts Guidance, Jobs. Like QLogic, Emulex expects to beat previous estimates by a wide margin. Its new guidance is for revenue of approximately $90 million to $91 million and EPS of $0.19 to $0.20 -- up from previous forecasts of $81 million to $85 million and $0.13 to $0.15. Emulex’s new forecast is way up from the $73.2 million in revenue from the previous quarter, while down a bit from $94.4 million in the final quarter of 2003.

LSI revised its forecast upwards, saying its storage components and HBA business had a strong quarter, along with its Engenio Information Technologies Inc. systems subsidiary.

Also, systems vendor Xyratex Ltd. (Nasdaq: XRTX) reported its revenue grew 25 percent over the previous year (see Xyratex: Not Sorry Now).Not all storage vendors did well at the end of 2004. Tape library vendor Overland Storage Inc. (Nasdaq: OVRL) says its revenue will likely fall 10 percent below its previous guidance of $60 million (see Overland Storage Revises Guidance ).

“The last two weeks of the quarter kind of went flat on us,” says Overland CFO Vern LoForti, who is quick to point out revenue from the company’s disk-based Reo backup appliances is on the upswing.

— Dave Raffo, Senior Editor, Byte and Switch