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Executives

Jean Hu - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Simon Biddiscombe - Chief Executive Officer, President and Director

Analysts

Vlad Rom - Crédit Suisse AG, Research Division

Aaron C. Rakers - Stifel, Nicolaus & Co., Inc., Research Division

Daniel F. Garofalo - Piper Jaffray Companies, Research Division

Scott Schmitz - Morgan Stanley, Research Division

Rajesh Ghai - Craig-Hallum Capital Group LLC, Research Division

QLogic (QLGC) Q4 2013 Earnings Call May 2, 2013 5:00 PM ET

Operator

Good day, everyone, and welcome to the fourth quarter fiscal year 2013 QLogic earnings announcement. Today's call is being recorded. At this time, I would like to turn the conference over to Jean Hu, Senior Vice President and Chief Financial Officer for QLogic.

You may begin.

Jean Hu

Thank you, operator. Good afternoon, and welcome to QLogic's Fourth Quarter and Fiscal Year 2013 Earnings Conference Call. Joining me on the call today is Simon Biddiscombe, our Chief Executive Officer. I'll begin the call with a review of the fourth quarter and the full year financial results. Simon will follow with a recap of the fiscal 2013 highlights and his customary business update. We'll then open the call for questions.

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

In our fourth quarter earnings press release issued earlier today, we reported both GAAP and non-GAAP results. All of the references that we'll make on our call today relate to non-GAAP results unless otherwise stated. Our reconciliation of the non-GAAP to the GAAP financial measures is available on our website in the Investor Relations.

Turning now to our financial results for the fourth quarter ended March 31, 2013. Our revenue in the fourth quarter was $115.9 million compared to $135.1 million recorded in the same quarter last year. This revenue was at the high end of our guidance range of $112 million to $118 million provided during our third quarter earnings call.

The strength in revenue relative to our guidance was driven by higher-than-expected revenue from Host Products, which had a sequential performance that was better than normal seasonality. Our fourth quarter revenue from Host Products, which are comprised primarily of Fibre Channel, converged and 10-gig ethernet adapters, was $89.6 million compared to $105.6 million recorded in the fourth quarter of last year.

Fourth quarter revenue from Network Products, which are comprised primarily of Fibre Channel and the converged switches, was $18.2 million, up from $16.3 million recorded in the fourth quarter of last year. Our fourth quarter revenue from Silicon Products, comprised primarily for Fibre Channel converged with the host and switch and 10-gig ethernet chips, was $9.1 million and consistent with our expectations. Our fourth quarter gross margin of 68.3% was consistent with the fourth quarter for last year.

Next, I'd like to cover our fourth quarter operating expenses. As a reminder, we continue to invest in engineering in order to address increased opportunities and expand our served market while aggressively managing sales, marketing and the G&A costs.

Total operating expenses was $62.2 million, up from $55.6 million reported in the fourth quarter of last year. Operating expenses were consistent with our expectations. Engineering expenses in the fourth quarter of $37.1 million increased from $31.4 million last year.

Sales and marketing expenses in the fourth quarter were $18.9 million and increased from $17.8 million last year. G&A expenses in the fourth quarter of $6.2 million decreased from $6.5 million last year. Operating income in the fourth quarter of $17.7 million was 15.1% of revenue. Interest and other income was $1.1 million in the fourth quarter.

Our income tax rate for the fourth quarter was 16.8%. This non-GAAP tax rate excludes certain special income tax benefits associated with adjustment to certain tax positions previously subject to an IRS examination and a retroactive reinstatement of the federal research tax credit, both of which were recorded in the fourth quarter. These special income tax benefit totaled $19.3 million and are included in our GAAP results.

We have now completed and settled all open IRS examinations and are no longer subject to federal income tax examinations for any year prior to fiscal 2010. Our fourth quarter income from continuing operations of $15.6 million represented a net profit margin of 13.4%. This is the 71st consecutive quarter of profitability for QLogic. Our fourth quarter income from continuing operations per diluted share of $0.17 was at the high end of our guidance range of $0.13 to $0.17 provided during our third quarter earnings call.

Turning now to our balance sheet. Our cash and marketable securities were $456 million, or more than $5 per share, at the end of the fourth quarter. We continue to maintain a very strong cash position and have no debts.

During the fourth quarter, we made income tax payment totaling $32.8 million in connection with our settlement of certain issues pursuant to the IRS examination. These payment was significantly less than previously accrued liability for income taxes. Excluding this income tax payment, we generated $28.5 million of cash from operations during the fourth quarter.

Also during the fourth quarter, we established a $125 million revolving credit facility that matures in March 2018. This unsecured credit facility carries very attractive interest rates and can be used for working capital and general corporate purposes. While we have no immediate plan to draw upon this facility, it does provide us further financial flexibility to support our long-term corporate objectives. We then committed to stock buyback and during the quarter, we purchased $20 million of company's common stock.

Receivables were $66.1 million at the end of the fourth quarter. DSO at the end of the fourth quarter improved to 51 days from 53 days at the end of the third quarter. Inventory was $20.2 million at the end of the fourth quarter. Annualized inventory turns for the fourth quarter was 7.3 compared to 6.7 turns achieved in the third quarter.

Now let me summarize the results for the full fiscal year 2013. Revenue for fiscal 2013 was $485 million. Operating income for fiscal 2013 of $89 million was 18.4% of revenue. Income from continuing operations for fiscal 2013 was $76 million, or $0.81 per diluted share. The net profit margin for fiscal 2013 was 15.7%.

During the fiscal year, excluding the effect of a special fourth quarter tax payment, we generated free cash flow of $83 million and have purchased $130 million of company's common stock. Since 2003, we have purchased $1.9 billion of company's common stock.

Turning now to our near-term outlook. For the first quarter of fiscal 2014, we expect revenue to be in the range of $110 million to $116 million and the gross margin to be in the range of 67% to 68%. Operating expenses are expected to be approximately $63 million. When combined with the projected tax rate of approximately 16% and the diluted share count of approximately 90 million shares, we expect to achieve non-GAAP earnings per diluted share of $0.11 to $0.16 in the first quarter. Actual results for future periods may differ materially due to a number of factors, including those outlined during the course of this conference call, in our 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 Simon. Simon?

Simon Biddiscombe

Thanks, Jean. My comments today will include a brief recap of our fiscal year 2013 and fourth quarter results, followed by my customary business update. On the financial front, we delivered revenue of $485 million for fiscal 2013. During fiscal 2013, we achieved a gross margin of 67.8% and operating margin of 18.4% and a net profit margin of 15.7%.

I am very pleased with our financial performance in the fourth quarter. Our revenue was $116.9 million, at the high end of our guidance range and better than normal seasonality for the March quarter. In addition, we achieved income from continuing operations per diluted share of $0.17, which was also at the high end of our guidance range.

As we look into fiscal 2014, the impact of weak economic conditions and restrictions on IT spending across large enterprises has contributed to a lack of meaningful growth in the server market. Despite what is clearly a challenging server market for some of our largest OEM customers, I continue to believe that we will benefit from the exciting new product cycles that were the focus of our investments over the last couple of years.

During our last earnings call, we provided a brief update on our exciting server-based cache technology project named Mt. Rainier. We have made significant progress since our last call in moving from a technology project to a shipping product. It's a game-changing move for us, with perfect leverage of our core competencies, technology and customer relationships. It's the right product at the right time, and I'll come back to Mt. Rainier in a few minutes.

We continue our traditional focus on Fibre Channel SAN, ethernet and converged network technologies for server, storage and network connectivity markets. Looking at fiscal year 2014, we will see continued ramp of our new products from design wins in these markets as qualifications complete, including 16-gig Fibre Channel and 10-Gig ethernet for both convergence and networking. We also have good design win momentum across all the traditional markets we serve, positioning us for longer-term growth and success.

I'll now move to my customary business update, starting with our traditional business and finishing up with Mt. Rainier. This past quarter was marked with a continuation of significant achievements to further strengthen our market position and capitalize on important revenue opportunities. We announced previously that several tier 1 OEMs were shipping our newest FlexSuite 2600 Series 16-gig Fibre Channel Adapter products, including HP, Dell and IBM. We continued to complete additional qualifications of the product line and this quarter added EMC, a long-term QLogic customer for host and storage connectivity products.

In early March, we announced that our 2600 Series 16-gig Fibre Channel Adapters were available through the EMC's Select program for EMC storage platforms. EMC customers can implement our 16-gig Fibre Channel technology for high-performance storage environments, including VMAX, VNX and VPLEX storage arrays.

In late February, Storage Magazine and SearchStorage.com awarded our 2600 Series 16-gig Fibre Channel Adapters the Gold Cup, its highest award and 2012 Product of the Year in the networking equipment category. This recognition is independent validation of the significant value of our 2600 Series Fibre Channel and 8300 Series 10-gig converged network adapter products supporting Fibre Channel, Fibre Channel over Ethernet and iSCSI protocols. We were very pleased to announce that for the ninth consecutive year, we've continued to lead the Fibre Channel adapter market, a string that began in 2004.

For calendar 2012, QLogic achieved a total revenue share of 53.4% according to Dell'Oro Group, resulting in a lead of 11.5 share points over our nearest competitor. Tier 1 OEMs have been shipping our 16-gig Fibre Channel FlexSuite adapters since 2012, and we expect to further strengthen our position as the clear leader in Fiber Channel adapters in the coming year and beyond.

Our market leadership in the converged network market also continues. According to both Dell'Oro Group and Crehan Research, we led the non-captive Fibre Channel over Ethernet market for the third consecutive year. This continues to indicate a strong preference for the value of the QLogic storage stack and converged products.

With additional FlexSuite OEM qualifications expected to complete this year, our Dual Personality adapters fit seamlessly into current installations as 16-gig Fibre Channel Adapters or 10-gig Ethernet-based converged network adapters. Industry recognition, as well as OEM and end-user acceptance of our new FlexSuite products, continues to be very positive, reinforcing the value these products bring to end users.

Our switch strategy of enabling OEM customers with uniquely available Fibre Channel and converged products has resulted in important new partnerships and opportunities. For example, recently announced switch products from Dell and IBM targeted at the enterprise and cloud markets have embedded QLogic converged switch technology. In past calls, I shared with you our increased focus on the target ASIC market for storage connectivity. This allows us to leverage our core Fibre Channel, ethernet and converged development to address the storage connectivity market, resulting in an expansion of the addressable markets for our products.

Gartner recently published an updated forecast for the external disk storage market. Gartner expects the market to begin accelerating in 2014 with a CAGR of 8% through 2017. As the external disk storage market grows, the storage connectivity market will also grow, and we see this as a great opportunity.

We continue to expand on our design wins with the leading storage vendors in the market whose block and mass-level storage subsystems represent a vast majority of the revenue for the market. Active programs continue to progress with every leading storage provider.

One such example is our March announcement that our FlexSuite technology has been embedded and is shipping in Fujitsu's ETERNUS disk storage systems. Our technology enables Fujitsu to leverage a multi-protocol converged storage platform to deliver high-performance 16-gig Fibre Channel storage solutions. Fujitsu is a longtime QLogic customer, deploying multiple generations of products, one Fujitsu's customers have come to rely on for secure and highly reliable solutions.

Now back to Mt. Rainier. In March, we announced the release and general availability of our first product based on Mt. Rainier Technology, the FabricCache 10000 Series adapter, or FabricCache for short. FabricCache revolutionizes enterprise application performance by combining our market-leading Fibre Channel adapter and intelligent, adapter-based caching with connectivity to a high-performance server-based PCIe flash card. FabricCache unleashes the power of server-based caching and defines a new solution category for enterprise application I/O acceleration.

Server-based caching continues to take a leading role in accelerating the performance of business-critical applications because it brings hot data inside the server, significantly closer to the application. FabricCache's unique approach to server-based flash acceleration addresses numerous shortcomings of existing server-based SSD and flash caching solutions. It solves the problem of where to add flash cache within a storage network and dramatically simplifies deployment and management to reduce overall cost, providing the benefits of server-based flash caching for more applications and workloads.

Clustered and highly virtualized servers continue to expand their footprint in the data center, resulting in some of the most performance-challenged environments in the enterprise. Current server-based storage I/O acceleration offerings create a discrete cache pool in each physical server, resulting in a non-shareable cache unavailable to multi-server clustered and virtualized applications. Our FabricCache adapters break this server-captive cache model by utilizing existing SAM infrastructure to create a shared cache resource distributed over multiple servers. This eliminates the single-server limitation and delivers scalable performance benefits and lower latency to a wide range of enterprise applications that rely on shared SAM storage.

FabricCache adapters are exceptionally simple to deploy unlike alternative offerings that require separate installation, management and maintenance of complex server-based software and drivers for the I/O adapter, PCIe flash card and caching. With FabricCache, intelligent cache processing is completely offloaded from the server to a dedicated cache processing hardware on the adapter. FabricCache implementations use a single standard driver per operating system, simplifying installation and support. In addition, we have implemented a common driver stack for each of the most widely used operating systems, supporting FabricCache and currently shipping 4, 8, and 16-gig Fibre Channel adapters. This provides users the same trusted, enterprise-proven, OEM-hardened Fibre Channel driver stack that are shipped with more than 13 million QLogic fiber channel ports.

The first commercial orders and shipments for FabricCache adapters immediately followed our announcement in late March. We continue to be deeply engaged with end users, strategic enterprise application partners and major OEMs and look forward to delivering additional breakthrough solutions that revolutionize enterprise application performance. We expect FabricCache adapter revenue to be modest in fiscal 2014. As proof of concepts and qualifications continue to take place, revenue will become more significant over the course of the year. It is truly an exciting and innovative product.

In closing, despite a challenging server market for some of our largest OEM customers and a weaker enterprise data center-spending environment, I continue to believe that we will benefit from the exciting new product cycles that were the focus of our investments over the last couple of years, including 16-gig Fibre Channel, 10-gig and converged host and switch opportunities, Mt. Rainier and the target market. We believe these investments position us well to deliver long-term growth and shareholder value.

This concludes our prepared remarks. Operator, we will now open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first do Vlad Rom with Crédit Suisse.

Vlad Rom - Crédit Suisse AG, Research Division

[Technical Difficulty]

Operator

Hearing no response, we'll go to our next caller. That will come from Aaron Rakers with Stifel.

Aaron C. Rakers - Stifel, Nicolaus & Co., Inc., Research Division

A couple of questions real quickly. Simon, when you look at your guidance that you've laid out for the current quarter, maybe you can help us in thinking about particularly the Host segment, what your assumptions are, how that might compare to what looks to be kind of a historical flattish trend for the June quarter. It would appear that you're guiding below that. Maybe talk a little bit about the drivers to that.

Simon Biddiscombe

Yes. I think your math is just about perfect there, Aaron. So we delivered a slightly better than seasonal number. If you look at the performance in the March quarter, the Host business was roughly flat. And typically, you'd expect that Host business to be down approximately 5% in the March quarter. I think you're right. If you look forward into the June quarter, typically, we'd be flat to slightly up. And at the midpoint of the guidance, what we're essentially saying is that we expect it to be down around, somewhere around 3% or 4%. I don't think there's anything specific to call out other than the overall dynamics within which the business is operating at this point in time. And as we said, if you look at some of the challenges that some of our biggest go-to-market partners have relative to their server businesses at this point in time, I would clearly -- don't want to get too far ahead of ourselves. So if you look at the numbers that Gartner published last week for our biggest customers, clearly, there was significant sequential and year-over-year declines, and that causes me to be a little more cautious than otherwise.

Aaron C. Rakers - Stifel, Nicolaus & Co., Inc., Research Division

And then if I can, the -- when you guys gave the Analyst Day back in September of last year, you talked about a long-term model framework around operating margin being north of 20%. Can you reiterate, when do you expect -- or what would it take to get us back into that level? Or for that matter, if you're still comfortable with that level here as we think about the model?

Simon Biddiscombe

Yes. So Jean and I are both comfortable that 20% is still the right target for the business. We've always characterized it as being a combination of revenue growth that we expect to see through the investments that we've made over the course of the last couple of years. So you've got the 16-gig Host Products that started shipping last year and currently continue to ramp, where we do enjoy something of a premium. You've got everything associated with convergence and the 10-Gig ethernet market that continues to grow. You got the target market, where we've invested aggressively over the course of the last couple of years; and we've talked at length about the number of design wins we have in that market; and certainly, believe that we have, by far and away, the majority of that market to enjoy as we move forward; and then we've got all things associated with FabricCache as well. So there's 2 elements to it, clearly, Aaron. Right? Element number one is our expectations for growth associated with the investments that we've made over the course of the last couple of years. But it is not lost on Jean and I that ultimately, we have to recognize that this is all about delivering on EPS and EPS growth. And we've been relatively disciplined in terms of the OpEx management. We've done a very good job keeping G&A and sales and marketing dollars under control, allowing us to make the investments that we've been able to make in R&D over the course of the last couple of years. But we recognize that ultimately, we have to deliver on the model; and we recognize that ultimately, we have to deliver on improving EPS. So I think we're going to keep driving towards it.

Aaron C. Rakers - Stifel, Nicolaus & Co., Inc., Research Division

Okay. Final thing for me. You mentioned the target wins on 16-gigabit Fibre Channel. 43 design wins were referenced to the past. How many are shipping today? And for that matter, when do you expect the majority of those to start shipping?

Simon Biddiscombe

Yes. So they're going to ramp steadily over the course of an extended period, Aaron, right? So I think I alluded on the last call to -- when I was appointed CEO 2.5 years ago, one of the very first things that we won was a significant storage win. That's not going to go to production until June of next year would be the current estimate, right? So these take an extraordinarily long time to ramp. I don't have the precise number in front of me as to how many are ramping or contributing at this point in time but suffice to say, the vast majority of the launches and the ramp associated with currently shipping products and the launched products in the future is still ahead of us.

Operator

Our next question will come from Andrew Nowinski with Piper Jaffray.

Daniel F. Garofalo - Piper Jaffray Companies, Research Division

It's Dan Garofalo on for Andy. I just wanted to probe a little bit around Mt. Rainier. Some of the anecdotal chatter we've heard from the channel suggests a premium pricing model. Obviously, it's exciting technology with a potential large market. But I'm just wondering if you can share your approach on balancing pricing versus more of a penetration strategy?

Simon Biddiscombe

Sure. So let's start at a higher level as opposed to picking on the individual price elements of the solution, okay? So the go-to-market model associated with the product is a combination of our channel and -- more sophisticated channel partners who have been long-term QLogic partners, okay? So we have engaged with a subset of our traditional channel partners who we believe have the technical wherewithal to execute to Mt. Rainier-type engagements. Okay? And not everybody can do it because it is a relatively sophisticated sales process. Okay? And then the second part of the go-to-market model is obviously associated with our traditional OEM customers, and there's a tremendous amount of engagement associated with those OEM customers at this point in time. Okay? We have picked a pricing strategy that we believe is most appropriate relative to many factors, including the value we believe the technology brings, the competitive solutions that were in the market that we were competing against, particularly from a PCIe cache perspective at that point in time. And we think we've got it right. Right? We think we've got the pricing strategies associated with it, right? We think we've got the go-to-market model associated with the channel and the OEM partners right. One of the things we've always been fairly clear about is we really don't necessarily want to be in the SSD market. Okay? We've got a belief system around the SSD market that prevents us wanting in the long term, having that SSD capability as a core competence within QLogic. We recognized some extended period ago that most of our major OEM partners are in a far better position to buy SSD capabilities than QLogic ever would be based on the volumes that we would expect to see versus some of the volumes that our biggest OEM customers see through various parts of their business. Okay? So look, we think we've got it right. It's a fantastic technology. The level of engagement is absolutely extraordinary at this point in time across the OEM customer set. We've done dozens and dozens and dozens of field trials and proof of concepts with different applications in different environments, and we're thrilled with what we're seeing across both our channel partners and the OEM engagement at this point in time.

Daniel F. Garofalo - Piper Jaffray Companies, Research Division

Great. And then just switching gears a bit, last night, Brocade pre-announced and commented on a SOC overall storage environment from OEMs. Just wondering how the OEM storage market looks to you from the adapter side of things?

Simon Biddiscombe

It's a little tricky, right? So the OEM model for the adapter is often a server attached as opposed to a storage attached, right? So we pay -- when it comes specific to the adapter, the server volumes are as, if not more important, than the storage volumes are at this point in time, which is why when we talk about our business's performance, typically we talk about the correlation to the x86 market and increasingly, to the enterprise part of the x86 markets given some of the servers that go into Facebook and Google-type environments where our technologies -- the Fibre Channel technology for storage in particular has been less relevant over time. So we don't tend to comment too much on our customers' trends. But it's very clear from the Gartner Research what's going on within the server market.

Operator

Our next question will come from Scott Schmitz with Morgan Stanley.

Scott Schmitz - Morgan Stanley, Research Division

Just to follow-up on that last question. In the past, I think you've talked about the transition to 10-gig and the cloud, and that's when you can start to participate. Where are we in that transition? Or when are you seeing some revenue in...

Simon Biddiscombe

Yes, yes, yes. So our 10-gig revenue continues to -- and you're going to combine 10-gig and converged revenues, right? So I continue to be relatively pleased with our 10-gig and converged revenues. There's an increasing level of 10-gig deployment across the most significant of the cloud customers at this point in time. One of the things that came out of a trip I had to Asia last week was a precise understanding of how much 1-gig continues to ship and how much 10-gig continues to ship. Right? So there's still a tremendous amount of 1-gig down. There's also continuing to increase amounts of 10-gig, right? So I think our positions are well understood across the set of customers who serve those markets, and I expect us to continue to benefit moving forward.

Scott Schmitz - Morgan Stanley, Research Division

Okay. And then on Ivy Bridge -- I mean, I know -- if we can go back during the Haley and Romney, is Ivy Bridge a catalyst at all? Or how do you view that from a server standpoint?

Simon Biddiscombe

So yes, any processor upgrade cycle represents a new set of opportunities, Okay? It's typically not the shrink that represents the significant new opportunities. Typically, it's the first version of the process that represents those new opportunities. So I don't think there's going to be an enormous amount of change associated with those positions as you look at the launch of Ivy Bridge versus the launch of Sandy Bridge.

Operator

We'll go next to Rajesh Ghai with Craig-Hallum.

Rajesh Ghai - Craig-Hallum Capital Group LLC, Research Division

I had a question on Rainier again. So considering that most early adopters of server-side flash are cloud customers who generally use, as you said, 1-gig ethernet, do you believe you'll have to wait until you have an ethernet-based Rainier solution before you can see material traction?

Simon Biddiscombe

No, no. I would -- I think Rainier solves the problem as to why you haven't seen traction in the enterprise, right? So your observation is absolutely right. If you look at who has deployed PCIe-based server-side flash, it has been very cloud-centric. And the limitations that those solutions place on the user have prevented the technology being broadly deployed in the enterprise and across the enterprise-class applications. So what we're solving for and very clearly have done so with the product we've introduced is the ability to introduce an enterprise-class of solution that doesn't result in essentially single-server PCIe DAS, right? What we've introduced is a multi-server solution that allows for clustering, allows for sharing, allows for mirroring and allows for backup essentially across the entire SAM. Right? So we've solved the problems that have prevented PCIe flash having a bigger position in the enterprise over the course of recent years.

Rajesh Ghai - Craig-Hallum Capital Group LLC, Research Division

Okay, interesting. On the 16-gig side, you've been shipping 16-gigs since September. When I look at your Host Products business, it's been relatively flat for the last 2 quarters. That kind of begs the question, is 16-gig merely replacing 8-gig? It's not a growth factor? Or do you think going forward you could actually see that as a growth driver?

Simon Biddiscombe

That'll be a growth driver based on SAP premiums. But don't forget, you're still at the very earliest of stages as it relates to 16-gig. You're low-single digits as a percentage of the entire market at this point in time. Right? So still very early days. I think it's -- the interesting part is going to be to see what our competitors saw by way of their fiber channel business performance last quarter. I think somebody earlier in the call asked about the Brocade-specific pre-announce of yesterday and the weakness that they talked about in a fiber channel part of the market. So if you look at their numbers -- now I think our Host business performed very solidly last quarter. Flat is better than typical seasonality in the March quarter. And much so, we're off just a little as it relates to the June quarter. I'm very pleased with the performance of my Host business at this point in time. And when I get to the bottom of my nearest competitor's numbers, I suspect that we've done a very good job executing within our Host business relative to the performance that the competition has put up.

Rajesh Ghai - Craig-Hallum Capital Group LLC, Research Division

And my last question is do you have any plans to address the low latency ethernet market, the 40-gig market as we go forward?

Simon Biddiscombe

Yes. So the product that each of our OEMs has been exposed to moving forward, which -- I mean, the product is called QuickSilver, is a product that addresses many of the requirements of the market as you move forward.

Operator

We'll take the next question from Vlad Rom from Crédit Suisse.

Vlad Rom - Crédit Suisse AG, Research Division

So I'm trying to figure out, you guys have actually been -- this quarter, you guys have narrowed the gap between the enterprise server market and the performance of the Host Products business. So this quarter, there wasn't kind of the significant gap that you saw in prior quarters and they're actually both down around 15%?

Simon Biddiscombe

Yes.

Vlad Rom - Crédit Suisse AG, Research Division

And as you kind of...

Simon Biddiscombe

You're doing year-over-year. Right, Vlad?

Vlad Rom - Crédit Suisse AG, Research Division

Yes, yes. Exactly. Year-over-year. And so I'm just trying to figure out because if you look at the June quarter of last year, that's a lot of when the weakness started, and you're lapping on easier numbers. Do you think just the declines that you're forecasting for kind of the June quarter and maybe afterwards can be overly significant?

Simon Biddiscombe

Do I think the -- so first of all, I'm not declining. I would never suggest a forecast for more than the June quarter, right? But I -- your observation is fair to a certain extent, right? I mean, if you look at where we saw the significant step down in our business, it is was the September quarter of last year. Right? So the September -- in June of calendar year 2013, we did $130 million of revenues. Okay? And then it stepped down to about this $117 million level where the business has been since that point in time. Okay? So what we're saying now is pick the midpoint of the guidance, you're going to end up somewhere around a $113 million number. So it's certainly -- I alluded to it on the last call. It certainly feels as if the business has found a new base. It certainly feels as if the business has found stability at this kind of one mid-teens number at this point in time. And for us, it's about the 5 things that I talked about: 16-gig, 10-gig converged, 10 gig switch, the target market, Mt. Rainier, all offering us the opportunity for better-than-market performance as we move forward.

Vlad Rom - Crédit Suisse AG, Research Division

But if you kind of look at the June quarter of last year -- I mean, you had basically the Host Products business down 7% in that quarter, and now we're looking for, let's say, another high-teens number this time around. Do you think that might be too much of a decline?

Simon Biddiscombe

I think you said it. It's entirely consistent with the underlying server market we're serving. Right? So could we do better? Yes. But are we always cautious as to how we think about providing guidance relative to each of the dynamics that you build into a guidance number? Yes, we're always cautious as we think about these things.

Vlad Rom - Crédit Suisse AG, Research Division

Okay. And then on Mt. Rainier, can you talk to what you're doing with the server OEMs, the progress that you've been making there?

Simon Biddiscombe

So we -- yes. So I'm going to leave it -- let me leave it this way. The activity levels are very high, and I don't want to say anything about what each specific OEM is doing because I don't -- I've got to be very careful. No individual OEM wants other OEMs to know what they're doing. So I'm not going to comment other than to say activity levels are very high. Every major server OEM has a Mt. Rainier product.

Vlad Rom - Crédit Suisse AG, Research Division

Okay. But have -- is there a specific [indiscernible] for example, for [indiscernible]?

Simon Biddiscombe

Okay. I can't say that. I would not dream of answering that question.

Operator

That does conclude today's question-and-answer session. I'd now like to turn the call back over to management for any additional or closing comments.

Jean Hu

Thank you. That concludes our call for today. We certainly look forward to updating you on our progress next quarter. Thank you very much for your time. And goodbye.

Simon Biddiscombe

Thank you. Bye-bye.

Operator

Ladies and gentlemen, that does conclude today's conference, and we thank you for your participation.

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