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QLogic (QLGC) to Report Q2 Earnings: What's in Store?

QLogic Corp.QLGC is set to report second-quarter fiscal 2016 results on Oct 22. In the last quarter, the company delivered in-line earnings. The company has delivered a four-quarter average surprise of 9.91%. Let's see how things are shaping up for this announcement.

Factors to Consider

QLogic's earnings in the last reported quarter came in line with the Zacks Consensus Estimate while revenues missed the same.

QLogic focuses on serving the high-end enterprise data center market, which is expected to grow significantly due to rapid adoption of cloud computing. We believe that this increasing spending level will boost the company's top line over the long term.

QLogic continues to gain market share due to its strong product portfolio. The company has been a leader in the fiber Ethernet connector market for the past 11 years with a market share of 59%, according to a market share report from Dell'Oro Group. Furthermore, the company continues to upgrade its existing product portfolio as well as launch new products. We believe that given the significant increase in demand for Internet, the company is likely to benefit from the resulting demand for Ethernet infrastructure.

QLogic has strategic relationships with large original equipment manufacturers or OEMs such as Hewlett-Packard Company HPQ , International Business Machines Corporation IBM , NetApp, Oracle, Cisco, Dell, and EMC Corporation. The company mainly derives its revenues and related income from OEM agreements with two of its important customers, IBM and Hewlett Packard. We believe that these strategic partnerships will drive QLogic's top line going forward.

However, sluggish demand in traditional enterprise server and storage markets remain concerns. Moreover, in the last quarter, management noted that slower-than-expected server transition in enterprises led to additional inventory accumulation at few of the company's OEMs. However, the company expects its strength in data centers to revive growth in the long run. Additionally, the company is taking measures to streamline its operations and drive growth.

Earnings Whispers

Our proven model does not conclusively show that QLogic is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: QLogic Corp has an earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 9 cents.

Zacks Rank: QLogic Corp has a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, a 0.00% ESP makes surprise prediction difficult.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stock to Consider

Here is a company that, as per our model, has the right combination of elements to post an earnings beat this quarter:

Apple Inc. AAPL with an Earnings ESP of +1.60% and a Zacks Rank #3

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APPLE INC (AAPL): Free Stock Analysis Report

HEWLETT PACKARD (HPQ): Free Stock Analysis Report

INTL BUS MACH (IBM): Free Stock Analysis Report

QLOGIC CORP (QLGC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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