A leading supplier of high performance network infrastructure
QLogic Corporation (
reported second quarter 2013 earnings of 13 cents, which beat the
Zacks Consensus Estimate by 3 cents. Reported earnings include
stock-based compensation expense ($7.0 million) but exclude
amortization related expense ($0.2 million).
However, earnings plunged 50.6% year over year, primarily due
to weak revenue growth and operating margin contraction in the
Total revenue decreased 13.5% year over year to $118.0
million. Reported revenue was in line with the Zacks Consensus
Estimate. Total revenue was well above the mid-point of
management's guided range of $115.0 million to $120.0 million.
The year-over-year decline was on the back of weak growth across
most of its segments during the quarter.
Host Products, Network Products and Silicon products decreased
13.4%, 7.3% and 22.6% year over year to $89.6 million, $17.6
million and $10.7 million, respectively, in the reported
Gross profit fell 15.1% year over year to $79.1 million in the
reported quarter. Gross margin contracted 130 basis points
("bps") to 67.1%, primarily due to unfavourable product mix.
Total operating expense increased 5.6% year over year to $66.0
million, primarily due to higher engineering and development cost
(up 8.4%) and sharp rise in sales & marketing expense (up
6.6%), which fully offset lower general & administrative
expense (down 8.1%). Operating expense exceeded management's
expectation of $60.0 million, which hurt the company's operating
profit during the quarter.
Operating profit in the second quarter declined 57.0% year
over year to $13.2 million. Operating margin decreased from 22.6%
a year ago to 11.2% in the reported quarter.
Non-GAAP net income was $11.9 million compared with $26.7
million in the year-ago quarter.
As of September 30, 2012, QLogic had cash and short-term
investments of $484.4 million versus $496.3 million in the
previous quarter. At the end of the quarter, the company had no
debt on its balance sheet.
QLogic expects third quarter 2013 revenue in the range of
$112.0 million to $118.0 million. Gross margin is expected to be
approximately 57.0% to 58.0%, as QLogic expects to incur
operating expenses of $60.0 million. Non-GAAP earnings are
expected in the range of 14 cents to 19 cents for the third
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
Mellanox Technologies (
will hurt profitability going forward.
We continue to maintain a Neutral recommendation on a
long-term basis (6-12 months). Currently, QLogic has a Zacks #4
Rank, which implies a Sell rating on a short-term basis.
MELLANOX TECH (MLNX): Free Stock Analysis
QLOGIC CORP (QLGC): Free Stock Analysis
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