) reported third quarter 2013 earnings of 15 cents, which beat
the Zacks Consensus Estimate by 6 cents. The better-than-expected
result was driven by much improved performance from the Network
Total revenue decreased 16.4% year over year but increased
1.3% sequentially to $119.4 million slightly better than the
Zacks Consensus Estimate. Total revenue was slightly above
management's guided range of $112.0 million to $118.0 million.
The year-over-year decline was primarily due to weak growth in
the Host and Silicon products segment, partially offset by strong
growth from Network products.
Host products revenue declined 19.7% year over year but
remained flat on a sequential basis at $89.8 million. Silicon
products revenue plunged 23.1% from the year-ago quarter and
10.8% from the previous quarter to $9.6 million. However, Network
products jumped 8.4% year over year and 14.1% from the previous
quarter to $20.1 million.
Gross profit fell 17.2% year over year but increased 1.8%
quarter over quarter to $80.5 million in the reported quarter.
Gross margin contracted 60 basis points ("bps") to 67.5% year
over year, primarily due to unfavorable product mix. However, on
a sequential basis gross margin expanded 40 bps.
Total operating expense increased 4.7% year over year but
remained flat on a sequential basis at $65.9 million. The
year-over-year increase was primarily due to higher engineering
and development cost (up 12.2%). Operating expense exceeded
management's expectation of $60.0 million, which hurt the
company's operating profit during the quarter.
Operating profit in the third quarter declined 57.3% year over
year but jumped 10.9% sequentially to $14.7 million. Operating
margin decreased from 24.1% a year ago but increased from 11.2%
in the previous quarter to 12.3%.
Net income declined 52.8% year over year but increased 16.0%
from the previous quarter to $13.9 million. Earnings per share
("EPS") plunged 48.7% year over year but increased 17.7%
sequentially to 15 cents.
Balance Sheet and Cash Flow
As of Dec 30, 2012, QLogic had cash and short-term investments
of $495.2 million versus $484.4 million in the previous quarter.
At the end of the quarter, the company had no debt on its balance
QLogic expects fourth quarter 2013 revenue in the range of
$112.0 million to $118.0 million. Gross margin is expected to be
approximately 67.0% to 68.0% as QLogic expects to incur operating
expenses of $62.0 million. Earnings per share are expected to be
in the range of 13 cents to 17 cents for the fourth quarter.
We believe that QLogic will benefit from major OEM customer
wins, innovative product pipeline, new technologies (Mt. Rainier)
and increased focus on its key strategic initiatives over the
However, a tough macro-economic environment continues to hurt
server sales, which in turn may hurt top-line growth in the near
term. Increasing investments in engineering and increasing
competition from peers such as
) will hurt profitability going forward.
Currently, QLogic has a Zacks #4 Rank (Sell).
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