Mixed 4Q for QLogic - Analyst Blog
May 04 2012 - 6:00AM
Zacks
A leading supplier of high
performance network infrastructure solutions, QLogic
Corporation (QLGC) reported fourth
quarter 2012 earnings of 29 cents, beating the Zacks Consensus
Estimate by four cents. Reported earnings include stock-based
compensation expense ($7.3 million) but exclude amortization
related expense ($0.2 million).
However, earnings declined 15.0%
year over year, primarily due to weak revenue growth and operating
margin contraction in the reported quarter.
Quarter
Details
Total revenue decreased 7.5% year
over year to $135.1 million, which missed the Zacks Consensus
Estimate of $138.0 million. However, total revenue was slightly
ahead of the lower end of management’s guided range of $134.0
million to $140.0 million. The year-over-year decline was primarily
attributed to weak growth across most of its segments during the
quarter.
Host Products decreased 3.1% from
the year-ago quarter to $105.6 million (78.2% of the total revenue
in the quarter). Network products declined 22.4% year over year to
$16.3 million (12.1% of the total revenue in the quarter). Silicon
products were down 18.6% from the year-ago quarter to $13.1 million
(9.7% of the total revenue in the quarter).
Total operating expense increased
2.4% year over year to $62.4 million, primarily due to higher
engineering and development cost (up 1.8%) and sales &
marketing expense (up 5.3%). Operating expense exceeded
management’s expectation of $56.0 million and hurt the company’s
operating profit during the quarter.
Operating profit in the fourth
quarter declined 25.3% year over year to $29.2 million. Operating
margin decreased from 26.8% a year ago to 21.6% in the reported
quarter. Non-GAAP net income was $29.7 million compared with $37.0
million in the year-ago quarter.
As of April 1, 2012, QLogic had
cash and short-term investments of $538.0 million versus $395.8
million in the previous quarter. At the end of the quarter, the
company had no debt on its balance sheet. During the quarter,
QLogic completed the sale of its InfiniBand business to
Intel Corp. (INTC) for $125.0
million in cash.
Guidance
QLogic expects first quarter 2013
revenue in the range of $130.0 million to $135.0 million.
Management expects host and network products to increase 1.0%
annually. Revenue from Silicon Products is expected to be
approximately $9.0 million.
Gross margin is expected to be
approximately 68.0%, while QLogic expects to incur operating
expenses of $59.0 million. Non-GAAP earnings are expected in the
range of 26 cents to 28 cents for the first quarter.
Recommendation
We believe that QLogic will benefit
from major OEM customer wins and increased focus on its key
strategic initiatives (post the InfiniBand sale) over the long
term. Moreover, QLogic has gained significant traction in the fiber
channel adaptor market and the 10 Gb Ethernet adapters market,
primarily driven by strong customer demand over the last 12
months.
However, we believe that the fourth
quarter beat was already factored in the stock. We believe that
QLogic’s top-line growth will take some time to rebound and is
quite dependent on the ramp of Intel’s Romley servers. Meanwhile, a
slowdown in IT spending can hurt QLogic going forward.
We continue to maintain a Neutral
recommendation on a long-term basis (6–12 months). Currently,
QLogic has a Zacks #3 Rank, which implies a Hold rating on a
short-term basis.
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QLOGIC CORP (QLGC): Free Stock Analysis Report
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