Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

QLogic Corporation (NASDAQ:QLGC)

F2Q09 Earnings Call

October 21, 2008 5:30 pm ET

Executives

Jeanie Herbert Senior Director, Investor Relations

Simon Biddiscombe Senior Vice President and Chief Financial Officer

H. K. Desai Chief Executive Officer

Analysts

Brian Cho – Goldman Sachs

Kaushik Roy – Pacific Growth

Aaron Rakers – Wachovia

Thomas Curlin – RBC Capital Markets

Clay Sumner – FBR

Anthony Luscri – JP Morgan

Doug Ireland – JMP Securities

Joel Inman – Robert Baird

John [Punk] – BMO Capital Markets

Operator

Welcome to the second quarter fiscal year 2009 QLogic earnings announcement conference call. (Operator Instructions) At this time, I would like to turn the conference over the Ms. Jeanie Herbert, Senior Director of Investor Relations. Please go ahead ma'am.

Jeanie Herbert

Welcome to QLogic second quarter fiscal year 2009 earnings conference call. On our call today are H. K. Desai, Chief Executive Officer, and Simon Biddiscombe, Senior Vice President and Chief Financial Officer. Simon will begin the call with a review of the second quarter financial results. Then H. K. will follow with an update on the business in the second quarter and progress on our strategic initiatives. Afterwards, we will open the call for questions.

Certain of our comments today will include forwardlooking statements regarding future events and our projections of the financial performance of the company based on their current expectations. These comments contain significant risks and uncertainties that could cause our actual results to differ materially from those expressed in these forwardlooking statements. We refer you to the documents QLogic files with the SEC, specifically, our most recent Forms 10K and 10Q. These documents identify important risk factors that could cause our actual results to differ materially from expectations. We do not intend to update the forwardlooking statements that we make today.

In our second quarter earnings press release issued early today, we reported both GAAP and nonGAAP results. The difference between the results in fiscal year 2009 is due to stockbased compensation, acquisitionrelated charges, impairment of marketable securities, and the related income tax effects and evaluation allowances for deferred tax assets. The reconciliation of GAAP net income to nonGAAP net income and a summary of our nonGAAP adjustments are included in our earnings press release.

All of the references we will make on our call today relate to nonGAAP results unless otherwise stated. Now I will turn the call over to our CFO, Simon Biddiscombe.  

Simon Biddiscombe

Our revenue in the second quarter ended September 28, 2008, was a record $171.2 million, an increase of 22 percent from the same quarter last year. This revenue was within our forecasted range of $168 million to $172 million provided during our first quarter earnings conference call.

Our second quarter revenue from Host Products, which are comprised primarily of Fibre Channel and iSCSI host bus adapters and InfiniBand host channel adapters, was $119.7 million and increased 15% from $104.4 million recorded in the second quarter of last year. The increase in our revenue from Host Products was primarily driven by Fibre Channel HBAs.

During the second quarter, our revenue from Network Products, which are comprised primarily of Fibre Channel and InfiniBand switches, was $29.8 million and increased 36% from $22 million recorded in the second quarter of last year. The growth was primarily driven by our Fibre Channel blade and edge switches and InfiniBand switches.

Our second quarter revenue from Silicon Products, comprised of protocol chips and management controllers, was $15.7 million and increased 36% from $11.5 million recorded in the second quarter of last year. The growth was due to stronger demand for iSCSI and Fibre Channel protocol chips. During the second quarter, we also made our final shipments of management controller products.

Our revenue from royalty and service was $6.1 million which included a onetime nonrecurring royalty of $3.5 million associated with the license of Trico Technologies.

Our second quarter gross margin of 71.3% increased from 68.3% recorded in the second quarter of last year. The increase in our gross margin was primarily due to manufacturingrelated efficiencies, the onetime royalty revenue, and product mix.

Next, I would like to cover our second quarter operating expenses. Total operating expenses were $58.4 million, up 6% from $55 million reported in the second quarter last year. Engineering expenses in the second quarter of $29.2 million decreased 4% from a year ago and declined as a percentage of revenue from 21.5% to 17%. We expect future engineering expenses as a percentage of revenue to be in the range of 18% to 21%.

Sales and marketing expenses in the second quarter of $21.8 million increased 20% from a year ago and declined as a percentage of revenue from 12.9% to 12.7%. We expect that future sales and marketing expenses as a percentage of revenue will range from 11% to 14%.

G&A expenses in the second quarter of $7.5 million increased from $6.6 million a year ago and were 4.4% of revenue in the current quarter. We expect that future G&A expenses as a percentage of revenue will be approximately 4%.

Operating profit in the second quarter increased 56% to $63.7 million versus a year ago and increased as a percentage of revenue from 29.2% to 37.2%.

Interest and other income was $3 million in the second quarter due to lower yields on our cash and portfolio of marketable securities. The income tax rate for the second quarter of 32.3% was slightly below the annual forecasted tax rate of approximately 33% provided during our first quarter earnings conference call.

Our second quarter net income was $45.2 million or $0.34 per diluted share, an improvement from $35.2 million or $0.22 in the prior year. This represented a net profit margin of 26.4% in the quarter. Our second quarter net income per diluted share exceeded our forecasted range of $0.30 to $0.31 provided during our first quarter earnings conference call. This represent the 53rd consecutive quarter of profitability for QLogic.

Turning now to our balance sheet. Our financial position continues to be very strong especially with regard to cash flow. During the second quarter, we generated $55.2 million in cash from operations. The company's cash and marketable securities were $421 million at the end of the second quarter. Our strong cash position, combined with the fact that we have no debt, provides financial stability and flexibility in these uncertain times.

During the quarter, we purchased $39.2 million of the company's common stock pursuant to our stock repurchase program. Since 2003, we have repurchased over $1.1 billion of the company's common stock under programs authorized by our board of directors.

Receivables of $77.9 million at the end of the second quarter decreased from $86.7 million at the end of the June quarter. DSO at the end of the September quarter was 41 days and improved from 47 days in the June quarter. Based on hub arrangements at OEM customers and our current customer and channel mix, we expect DSO in the future will range from 45 to 55 days.

Annualized inventory turnover in the second quarter was 5.9 turns compared to 8 turns in the June quarter. Inventory at the end of the second quarter was $33.3 million and increased sequentially from $26.2 million at the end of the June quarter.

Turning now to our nearterm outlook. While we are pleased with our performance for the first half of the fiscal year, it is clear that as we enter our second half, environment is increasingly uncertain. We believe that toward the end of the second quarter, the credit crisis and its impact on the global macro economic environment began to affect IT spending. There is incremental uncertainty around enduser demand, resulting in cautious outlooks from our OEM and channel customers. In response to this uncertainty, we are proactively tightening our operating expenses without impacting our key development programs.

In addition, as a result of the uncertainty, we are also providing a broader range for our third quarter revenue outlook. We expect total revenue for the December quarter to be in the range of $160 million to $170 million. Due to the potential variation in product mix, we expect gross margin for the December quarter to range from 68% to 69%.

Based on this outlook, combined with the planned operating expenses of approximately $58 million and a projected annual tax rate of approximately 33%, we expect to achieve nonGAAP earnings per diluted share of approximately $0.28 to $0.32 in the December quarter. Actual results from future periods may differ materially due to a number of factors included those outlined during the course of this conference call, in the company's filings with the SEC, and in the disclaimer statement at the end of our earnings press release. I will now turn the call over to H. K. Desai, our Chief Executive Officer.

H. K. Desai

We are pleased to share with you another quarter of solid financial performance despite significant challenges posted by macro economic environment. Revenue in the second quarter was a record $171.2 million, an increase of 22% from the same quarter last year and within our previously forecasted range of $168 million to $172 million.

Our second quarter net income was $45.2 million, an increase of 39% over the yearago quarter and resulted in earnings of $0.34 per diluted share. This exceeded our previously forecasted EPS range of $0.30 to $0.31.

Revenue from Host Products for the second quarter was $119.7 million, relatively flat from the prior quarter. In the quarter, we continued to ramp revenues of our 8 gig Fibre Channel HBAs and also realized initial revenue for FCoE converged network adapters.

Revenue from Network Products for the second quarter was $29.8 million, also relatively flat with the prior quarter. In the quarter, we experienced sequential growth in revenue from InfiniBand switches. Revenue from Silicon Products was $13.7 million leaving the second quarter flat sequentially.

During the second quarter, QLogic remained well positioned in the fastgrowing markets including blade servers, virtualizations, and high performance computing.

We sold these markets with high quality products, robust volume relationships, and leading edge technology. These attributes, along with the progress on our strategic initiatives, allow us to best serve our customers and navigate through these uncertain times.

Now I would like to give you an update on the strategic initiatives under way in the areas of InfiniBand, Fibre Channel, and Fibre Channel over Ethernet or FCoE.

Within our InfiniBand initiative, the QLogic TrueScale DDR host channel adapters that began shipping in June are gaining acceptance by the HPC community. Our TrueScale high message rate, low scalable latency HCAs achieved world record performance in the SPEC MPI 2007 Benchmark Suite.

The Benchmark measures the performance of computing systems and clusters, learning, message, passing interface applications. The QDR version of the TrueScale HCA family remains on plan for revenue contribution in 2009.

QLogic's InfiniBand switchboard portfolio has continued its market momentum with QLogic leading in industry for InfiniBand solution interoperability. A successful QLogicled collaboration of 40 HPC vendors related to network interoperability. The results are published in the QLogicHPC interoperability guides.

To further expand the traditionally Linuxonly HPC market, QLogic also recently announced availability of QLogic InfiniBand switches and adaptors for the Microsoft Windows, HP Server 2008. Microsoft HPC Server 2008 makes full computing most accessible to end users, allowing them to seamlessly harness the power of distributed computing to a family of Windows environment without requiring specialized skills or training.

Turning to Fibre Channel, we continue to demonstrate strong performance and lead the market with both our 4 gig and 8 gig HBA solutions. The Dell’Oro second quarter 2008 SAN reports showed that our Fibre Channel HBAs continue to be the revenue market share leader at 53%, a full 15point lead over closest competitor and a 4point increase from the previous report. The demand for our Fibre Channel HBA products continues to be fueled by successfully addressing key customer requirements, including optimizations for standardsbased security, standardsbased virtualizations, and standardsbased management as well as power and place capabilities. All major OEMs have completed qualifications and are now shipping [inaudible] for 8 gig HBAs.

We recently competed work with HP to extend the previouslyannounced range of products that are qualified to be part of the simple SAN connection portfolio. HP storage was MSA 2000 Fibre Channel erase, and HP blade system servers are now part of the qualified simple SAN connection portfolio, which is based on QLogic 8 gig switches and 8 gig HBAs. This provides HP's customers the first endtoend 8 gig Fibre Channel solutions in the market.

QLogic also recently announced an important standardbased collaboration with Cisco on virtualization technology using QLogic Fibre Channel on HBAs. It allows users to realize the benefits of quality of service, service capabilities in standardbased virtualization fabric environments.

Now let me turn to our Fibre Channel over Ethernet program. FCoE continues to present a major market expansion opportunity for us beyond storage into data networking while building on and leveraging the success we have achieved in the Fibre Channel and iSCSI HBA markets. The technology is moving quickly, having gone from standards introduced and available in 2007 to the general availability of products with important industry certifications in only 18 months, a very rapid pace for a new technology.

QLogic achieved general availability for previously announced 8000 series converged network adapter and began customer shipments in the second quarter. The availability was quickly followed by an impressive list of partner certifications, including VMware ESX, Oracle Enterprise Linux, NetApp, and most recently MCE left tested. Customers rely heavily on certifications when choosing solutions.

Another very significant milestone was the recent announcement by NetApp of the first native FCoE tourist system. Based on QLogic FCoE target technology, NetApp's announcement marked availability of the first true endtoend FCoE solutions, a milestone many argued was years off.

Last month, the FCI sponsored a plug fest at the University of New Hampshire. Fifteen companies participated in a highly successful interoperability event with all of the FCoE initiatives being able to communicate across the FCoE fabrics to both FCoE and Fibre Channel targets.

This is an unprecedented level of success for the first plug fest and is indicative of the market readiness of the products. QLogic played a leadership role in the plug fest with multiple instances of its 8000 series VNS in successful operation.

While the pace of FCoE development is rapid, the customer options may be gradual because the technology allows either fullscale implementation or incremental change while protecting investment in existing technologies. In our opinion, there are many factors that will good under actually pace of production but there is no doubt that FCoE is here to stay and will be a major force in the data centers of the future.

Despite the challenges caused by the current macro economic uncertainty, we continue to be very pleased with our progress and are confident that these strategic initiatives will yield positive results for the company.

We remain focused and continue to execute on delivering value to shareholders. This concludes our prepared remarks. We are now ready for the questions.

QuestionandAnswer Session

Operator

(Operator Instructions) Our first question comes from Brian Cho Goldman Sachs.

Brian Cho Goldman Sachs

Two questions. First of all, how much of your revenue in next quarter's outlook is driven by your expectation of competitive or company specific issues compared to over a macro spending trend? Second question is you guys delivered very strong gross margin for this quarter, about 260 basis points quarteroverquarter. How much of that is driven by manufacturing efficiency, how much of that is driven by royalty revenue, and how much of that is driven by product mix?

H. K. Desai

If you look for the guidance for the December quarter, it's all based on the macro level. We believe that we are in a strong position for the competitive birth positioning and executions. We have no issue at all about the competitive considerations. It's all based on the macro uncertainty.

Simon Biddiscombe

We provided the commentary in the prepared remarks where we pointed out that when the market share numbers were published partway through the quarter by Dell’Oro, they had us at 53% and with a 15point lead over our biggest competitor. We don't think that has changed in the September quarter. Although it's clearly too soon to know for sure. None of what we're implying in our guidance is related to share, it's all associated with macro environment. With regards to the gross margin question, we're not going to bring up every component of what drove the improvement the gross margin on the yearoveryear basis. Suffice to say they were in order when we read them, manufacturing efficiencies, royalty, and then product mix. I will tell you that the benefit associated with the royalty was approximately 0.6%, so it was just over half a point in benefit to the gross margin associated with the royalty, a onetime royalty, absolutely.

Operator

Our next question come from Kaushik Roy Pacific Growth.

Kaushik Roy Pacific Growth

We take out the $3.5 million out of the onetime royalty, total revenues were $168 million, which is kind of on the low end of your guidance. Can you comment where was it below your expectations, whether it was HBAs or HCAs or switches or silicon?

H. K. Desai

I think it's generally what we saw was that second half of September we saw slowdown in the business. Probably have less with the silicon because it's a long lead time, so it's booked previously. I think it's more coming from the Host and the Network Products. I think it's a mix of both.

Simon Biddiscombe

I think broad based is a little broad statement. If you go back to the guidance that we gave this September quarter, we said $168 million to $172 million off a $168.4 million number in the prior quarter. We suggested that we expected just a little growth in each. The reality is that they're all essentially close to flat at this point in time. We didn't sense anything dramatic in terms of what we saw relative to what we expected. But H. K.'s observation of the impact really being seen at the end of September there is absolutely right.

Kaushik Roy Pacific Growth

How much visibility do you have at OEMs in terms of timing? Or the lag between what they're seeing with enduser demand and what you're seeing in terms of OEM pull. Is it like a couple of weeks, is it a month? How much in terms of visibility?

H. K. Desai

It's really difficult, because we have a hub arrangement. Almost 60 plus percent of our business comes from top five OEMs and we have a hub arrangement. They can pull from the hubs. We don't agree visibility bases some forecast from them, but that can change. We don't have a longterm feel or 30 days lead time or something like that on this business. It's very difficult to predict for us. We look at the forecast. Particularly we look at the trend and see how the trend was at the end of September.

We see also slight slowdown in October also compared to the seasonality. It's supposed to be a strong month. We see some slowdown compared to what we have seen in the previous October or the first month of the quarter previously. I think that's guidance based more on what we are seeing, either the trend and then some of the customer input, which is evolving every day almost.

Kaushik Roy Pacific Growth

One last question. You mentioned you generated some revenues from FCoE. Was it like a few thousand dollars or it could be hundreds of thousands?

Simon Biddiscombe

It was hundreds of thousands of dollars.

H. K. Desai

It's not millions of dollars.

Operator

Our next question comes from Aaron Rakers Wachovia.  

Aaron Rakers Wachovia

I guess just to build on Kaushik's question, when you look at the trends that you have seen, albeit early thus far into the current quarter, did you see coming out of the second half of September trends get worse relative to what you saw in the end of September stable or have you seen any sign of a modest recovery?

H. K. Desai

I think it's a similar trend we have seen end of September or early October. I think it's very difficult to predict whether there's any recovery or not. I think we see the trend at the end of September, we see continued the same slowdown trend in October.

Aaron Rakers Wachovia

If I take that and look at the guidance that you have laid out, how would I think about the sequential patterns across, be it HBAs, the Network Products, and then the silicon, is it skewed towards more of the sequential decline coming from the HBAs or is it any color there would be helpful.

Simon Biddiscombe

I think a lot of the difficulty in providing the range from is the trends we're seeing at this point in time. The expectation is that we will see relatively consistent performance from each of the businesses in the December quarter as we did in the September quarter. They were all flat to upward within a point essentially. I think the expectation as we said here today is that we will see something relatively consistent with that. Certainly it's uncertain at this point in time.

Aaron Rakers Wachovia

Final question from you on the gross margin line because even if we strip out the 60 basis points of benefit from the onetime item, you are still talking about something of 70 and a half and 70.7% gross margin. Clearly manufacturing efficiencies, if I make the assumptions around the Host Product gross margin and the Network Product gross margin, can you help us understand where you are seeing those manufacturing benefits come from and if you see them as being sustainable, and why we should think that the 68% gross margin isn't just conservative at this point?

Simon Biddiscombe

We gave 68% to 69% in the guidance in the context of the December quarter. We essentially have offered a full point more than we have offered in the most recent two quarters. But we said 68% to 69%. We do believe that certain of the manufacturing efficiencies that we've been able to realize are sustainable. Much of what we achieved in terms of the 3-point improvement on the yearoveryear basis, September quarter versus September quarter is attributable to that being just a far greater activity that we are spreading that benefit over today where we were a year ago. We do expect that we will continue to work the cost structure associated with our manufacturing organization and the volumes will be relatively consistent within the context of where the volumes were last quarter.

Aaron Rakers Wachovia

Can you say the InfiniBand will be at the HCAs in the switches? Are they getting close or now on par with the switch in HBA gross margin as a whole?

Simon Biddiscombe

On the InfiniBand side of business, the gross margin is still below the gross margins of the Fibre Channel part of the business. We continue to make progress particularly as it relates to the InfiniBand switch gross margin. We are still not at the same level as the Fibre Channel switch.

Operator

Our next question comes from Tom Curlin RBC.

Tom Curlin RBC

Coming back to the visibility question. How would you describe the tone of the OEMs? Is it, as you mentioned they do give you forecasts and they're not commitments but they are best guess. Are they convicted on things being worse or they just have no idea? What is that tone like?

H. K. Desai

I think what we're seeing is like what we said in the guidance we gave is more on the basis of the trend versus really the tone from OEMs. It's more a forecast versus the actual feel because of the hub arrangement. We are not seeing any negative tone from the OEMs or other forecasts. I think at the same time, the trend is not as well as what we have seen and we compare the trend by the last quarter of the previous October and so on. I think we are building more of the guidance on that versus the OEM talk.

Tom Curlin RBC

If you go to these guys, as I assume you do, and you say your trend is below norm as we speak, what do you think? What's their response?

H. K. Desai

They don't give feels, it doesn't make any difference. There's no commitment from them, from the field perspective.

Tom Curlin RBC

How many 8 gig Fibre Channel, can you give us a sense of 8 gig as a percentage of shipments and maybe latest view on when you see the 50% point for that mix from a timing perspective?

Simon Biddiscombe

As a percentage of shipments on the 8 gig side, it was still relatively small. We did enjoy significant growth on a quarteroverquarter basis, but the vast majority of the product shipping today is still 4 gig product. Eight gig is still being three or four quarters into its ramp at this point in time but still relatively small within the context of the overall Fibre Channel host business.

Tom Curlin RBC

How do you guys model the timing of that reaching 50% of the mix?

H. K. Desai

I think it's going to be now because of the macro concern and uncertainty, I think we don't know when we can predict based on the historical trend, what we have seen in the new technology. I think this time, because of this new variable coming to play, I think for us it's difficult to predict so we will manage it very closely. I think what we have done is all the OEMs is qualify our product. The mezz cards or the standard HBA single channel, twochannel cards. So I think we have done everything we are supposed to done for 8 gig. I think it's up to the OEM vending phase. I think it's going to depend on their resources and it's a likely tighter right now for them also.

Tom Curlin RBC

On InfiniBand, I believe your HCAs are out for DDR, how's the progress there, are you seeing your revenue for InfiniBand, the mix, shift a little more to the HCA side now that you have that silicon out?

H. K. Desai

We are shipping since June, it's too early for that. So we are shipping and getting some revenue, but we also continue shipping HCA and our strategy is to continue doing that. Because we want to provide endtoend solutions to the customers either based on our HCA or [inaudible] and will continue shipping [inaudible]. We are shipping both HCAs right now. We have seen some revenue. I think it's too early for us to give any number for our HCA.

Operator

We will take our next question from Clay Sumner FBR.

Clay Sumner FBR

To revisit the question about what you've seen in the beginning of October, slightly different way to ask it. Have you seen any differences by products such as higherend products slowing more than midrange or iSCSI products? Any kind of read into what's shipping into the market?

H. K. Desai

I think it's not tied to the product, not tied to one OEM or one customer. It's not tied to channels. It's all across the spectrum. I think it's a more macro impact than anything else.

Clay Sumner FBR

Do you have any plan to offer SAS target silicon or SAS initiated or silicon for the drive facing side of the rate controller?

H. K. Desai

Currently we have no plan.

Clay Sumner FBR

Then when fiber channel over Ethernet starts to catch on broadly, it seems like there might be initial interoperability issues or at least concerns there. You might agree. Brocade seems to be focusing on that with a plan to offer both the adapter and switches from the same vendor. Does that make for a potentially tighter-than-normal relationship between yourselves and Cisco in FCoE?

H. K. Desai

Our strategy is the Fibre Channel we work with HBA in the switches. We work with all the switch guys. We work with all HBA for our switches. We are not going the change that strategy on that. We will be working with the switch guys including Brocade and anybody else, we'll be working with the HBA guys. There's no change in the strategy because whatever the customer needs endtoend solutions, we will provide. We never go and try to artificially control that because that's just hard to market and they will never allow you to do that anyway. We work with everybody on that. I don't think there has been an issue on interoperability.

Clay Sumner FBR

The last one for me, Simon, in the silicon category, I think you said you had a last time management controllers in there. Did that cause a surge in that category or did it go out with a whimper?

Simon Biddiscombe

I would characterize it as having gone out with a whimper. I didn't actual say there was a last time but what we said there were final shipments. The impact of the overall business associated with the elimination of the management controller revenue stream was as we move forward is quite insignificant.

Operator

Our next question is from Anthony Luscri JP Morgan.

Anthony Luscri JP Morgan

I have a couple questions. One being market share during the quarter. Did you gain share in your Host Products group?

Simon Biddiscombe

We don't know, it's too soon to know. What we know is exactly where our revenues came in at this point in time. Obviously our biggest competitors haven't announced earnings at this point in time, therefore, we have no data point. The traditional Dell’Oro information won't get in for a few weeks at this point in time. It's too soon to know whether we gained share in the most recent quarter.

Anthony Luscri JP Morgan

In terms of the pricing environment in the quarter, did you see any change throughout the quarter of even relative to the June quarter and are you having to use price as a lever at all?

Simon Biddiscombe

We've been paying particular attention to that. As you imagine over the course of the last few weeks, but we didn't see and haven't seen anything unusual with regard to the pricing environment. It's been highly consistent on a yearoveryear basis with what we've seen in the past.

Anthony Luscri JP Morgan

Last question is just last quarter you gave us an update on your anticipated growth rate for your different product segments. Do you have an update for us there?

Simon Biddiscombe

Not at this point in time. I think as we look at beyond the current quarter, things are clearly murkier than they were when we gave those numbers a quarter ago. We are going to refrain from offering and update of what we think the full year growth rates are.

H. K. Desai

I think it's difficult to really gauge for the year now with the macro uncertainty. What we are doing and what are those strategies, what will be driving the next couple of quarters, all the expense controls, and so on. Many like to make the firing line straight EPS consensus is which $1.20. I think we want to drive the company and drive the business that we meet the consensus estimate for the EPS.

Operator

Our next question is from Doug Ireland at JMP Securities.

Doug Ireland JMP Securities

I have a couple of questions. I am not sure you gave it out, but I was wondering if I could share your head count?

Simon Biddiscombe

It was roughly 970 employees.

Doug Ireland JMP Securities

And the number of shares that you bought back?

Simon Biddiscombe

2.2 million shares during the quarter.

Doug Ireland JMP Securities

I don't know that you have it, but was wondering if you have a perspective on your market share in various verticals, retail, financial services.

Simon Biddiscombe

The answer is we don't. We did spend some time in the most recent quarter trying to do a better analysis based on any particular weakness that existed in financial services at this point in time. Given the OEM business model that we have, with an enormous percentage of the revenues going through a handful of OEMs, it's very difficult for us to get to the point where we understand what's going on within each of the verticals. We made a good attempt to get better information so that we can understand it ourselves, but I will tell you it was difficult at best and I am still not convinced that we have all of the data in the form that we expected to. That's a long way to say we don't offer a perspective and we're not sure we have the information necessary to do it.

Doug Ireland JMP Securities

The last thing I would ask is if you have any sign posts that you are looking for that will give you an indication that things are getting better, is there anything that you track looking out to see that the OEMs are going to be freed up. Is there anything with the credit market? Or with sell through?

Simon Biddiscombe

That's a good question. I don't think there are any specific sign posts that we're looking for here. I think as we put it together the guidance, the December quarter, we gave appropriate consideration to all of the inputs. That's the bookings, trends we've seen, the customer forecasts that we have in our hands at this point in time. Seasonality that we would typically see in the December quarter. We have given consideration where we think that we have information in front of us at this point in time. I wouldn't point to any one specific data point as being indicative of a trend. It may change at some point in the quarter. I think we're going to continue to work through and obviously the trends that we see from the principal OEMs that we deal with are going to be critical.

Operator

We will go next to Joel Inman Robert Baird.

Joel Inman Robert Baird

Just looking out at the CNA space, you commented that you thought that opens up new markets in the networking space, can you just talk a little bit more about how that is a new market and how it won't be cannibalistic to your core market?

H. K. Desai

I think when you look at the CNA, going to address it's going to enter the storage, which is traditionally part of the HBAs, it's a SAN storage network. Also the same adapter can be used to run the data. I any we can expand our business in the data networking and at the same time we have a competitor that can come into our space, so I think it's what we are seeing positively expandable market.

Joel Inman Robert Baird

Doesn’t it point to kind of collapse both networks into one so you have your expenses from a standpoint in terms of networking and in terms of all the cabling and that sort of thing?

H. K. Desai

You still have a number of devices. [inaudible] So it is for the data and storage.

Joel Inman Robert Baird

And the second question I have, is just on the GA line, is there any particular reason why that jumped so much this quarter over last?

Simon Biddiscombe

There was a handful of moving pieces in the most recent quarter. Nothing of any significance that I would call specifically on a sequential basis. There were a handful of things that were relatively small that we dealt with. No one individual item.

Operator

We will take our next question from John Punk BMO Capital Markets.

John Punk BMO Capital Markets

I had a question on buybacks. You guys have about $380 million in cash and with the changing our stock price, I want to know how you are looking into buybacks. Will you be little bit more aggressive here or, given the environment, would you be a little bit more conservative?

Simon Biddiscombe

I think there's a delicate balance to be achieved. I think as we look at other companies expected some buybacks somehow suspended buyback activity given the capital markets. We're in a position where we don't have any need to go to the capital markets and total cash and marketable securities within the business is $421 million at this point in time. There's that aspect to it. The other aspect is that last quarter we repurchased 2.2 million shares at an average price of 17 and a half or something close to that. Today the stock is trading way below that level. Therefore, there's an opportunity that we can go prosecute associated with that low stock price. We're being as balanced as we possibly can be as we think about the buyback activity.

John Punk BMO Capital Markets

Your main competitor has been talking about aggressively pursuing the channel. Have you seen anything different in the channel?

H. K. Desai

No. Our channel business was up sequentially in the quarter.

Operator

That does conclude our questionandanswer session. At this time, I would like to turn to call back over the Jeanie Herbert for any additional or closing remarks.

Jeanie Herbert

Thank you all for joining our call. We look forward to updating you next quarter.

Operator

That does conclude today's conference. Thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: QLogic Corporation F2Q09 (Qtr End 9/28/08) Earnings Call Transcript
This Transcript
All Transcripts