A leading supplier of high performance network infrastructure
QLogic Corporation (
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
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. (
for $125.0 million in cash.
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
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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