Emulex Cuts Guidance, Jobs

HBA vendor looks to cut costs after disappointing quarter

August 6, 2004

3 Min Read
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Coming off one disappointing quarter with another one expected, Emulex Corp. (NYSE: ELX) announced a small layoff along with its earnings report today.

Emulex announced revenues and net income that slightly beat its revised guidance issued last June but fell way below the forecast it gave last March (see Emulex Cuts Earnings Forecast and Emulex Hits the Deck). Today it reported net income of $15.9 million, or earnings per share of $0.19, on revenue of $86.4 million. On June 30, Emulex projected EPS of $0.18 and revenue between $85 million and $86 million -- a far cry from guidance last March of $0.25 and $100 million to $103 million. The consensus analysts' earnings estimate was $0.18 on $86.33 million in revenue, according to Reuters.

The companys revenues grew 6 percent from the same quarter last year but dropped 13 percent from the previous quarter. EPS fell 17 percent from last year and 24 percent sequentially.

In a conference call with analysts to discuss earnings, Emulex CEO Paul Folino said the company laid off 5 percent of its staff this week, or about 26 jobs. Company officials say they will add engineering staff

Perhaps the worst news for Emulex today was its guidance for the current quarter. The company forecast revenue in the range of $73 million to $76 million and EPS of $0.09 to $0.10. That’s down a bit from its already lowered guidance of $75 million to $76 million, and below the $84.6 million and $0.25 it posted in the same quarter last year. The consensus guidance estimate was $0.14 and $77.4 million.Folino said results this quarter will be hurt by a major OEM switching to a new inventory management process. That could hurt revenue by $10 million this quarter, but Emulex expects to make that up in future quarters.

“As we announced at the end of June, challenges at the end of our fourth quarter at two OEMs resulted in lower revenue than we had originally expected,” Folino said. “Also previously announced, due to an upcoming change in the OEM fulfillment model at one of our major customers, at the end of the fourth quarter we curtailed shipments of certain OEM products to decrease channel inventories in preparation for this transition to an inventory hub program."

EMC Corp. (NYSE: EMC) is widely considered the customer moving to a hub program, while analysts say Hewlett-Packard Co. (NYSE: HPQ) hurt Emulex with weak sales last quarter.

On the plus side, Emulex disclosed a design win with its 4-Gbit/s HBA at a large OEM, and said it has made strides in the rapidly growing blade server, Linux, and SMB markets.

Emulex’s short-term prospects don’t look great. HBA growth in the high-end market is slowing, and Emulex lacks a presence in new technology areas such as iSCSI, SATA, and SAS. Its InSpeed embedded switches acquired from Vixel are selling, but they lower the company’s margins (see NEC Selects Emulex InSpeed and Emulex Ships 2M InSpeed Ports).Folino did say on the call that Emulex has finally dropped its resistance to iSCSI (see Emulex Slaps iSCSI). "We realize we have to play in iSCSI," he said. "We'll have announcements soon."

Judging by QLogic Corp.’s (Nasdaq: QLGC) claim that its Fibre Channel HBA revenue increased 28 percent year-over-year and 8 percent sequentially, Emulex seems to be losing market share with its core product (see QLogic Qloses Quiet Quarter).

— Dave Raffo, Senior Editor, Byte and Switch

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