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QLogic Inc. (NASDAQ:QLGC) reported second quarter earnings that beat the Zacks Consensus Estimate by 3 cents. Revenue beat the consensus by 4.6%.

Revenue

Revenue of $131.5 million was up 7.1% sequentially and down 23.2% year over year. All product lines other than networking saw sequential increases. All product lines contributed to the year-over-year decline.

Host products generated 72% of revenue, increasing 6.4% sequentially and declining 21.4% from the year-ago quarter. Being the largest segment, it was the strongest contributor to the sequential increase.

Network products, which generated 19% of revenue, declined last quarter, following a flattish performance in the preceding quarter. The product line was down 17.8% from the year-ago quarter.

Silicon products (7% of total revenue) grew 29.6% sequentially, but declined 38.7% from the year-ago quarter. Royalty & Service revenue (3% of total revenue) increased 61.8% sequentially and declined 45.0% year over year.



The U.S. was the largest region for the company, generating 45% of total revenue. However, the business was very weak last quarter, declining 3.8% sequentially and 30.1% year over year.

Asia/Pacific, the second largest region, registered extremely strong growth. Revenue increased 28.4% sequentially and was flat year over year. Around 28% of total revenue came from the region.

Europe, Middle East and Asia (EMEA), which generated around 21% of revenue in the last quarter, saw revenue increase 5.8% sequentially and decline 33.9% from the year-ago quarter. Approximately 7% of revenue came from the rest of the world (ROW), which increased 19.3% sequentially and declined 3.7% year over year.



Operating Results


The pro forma gross margin for the quarter was 65.5%, up 1 basis point (bp) from the previous quarter’s 65.5%. However, it was down 578 bps from the year-ago quarter due to lower volumes, unfavorable product mix and the positive impact of a one-time royalty in the September quarter of last year.

Operating expenses of $52.8 million was higher than the $52.1 million recorded in the previous quarter. The operating margin was 25.3%, up 231 bps from 23.0% recorded in the previous quarter and down 1,187 bps from the year-ago quarter.

All the components of cost -- COGS, E&D, S&M and G&A -- decreased sequentially as a percentage of sales, resulting in the higher operating margin. However, COGS and E&D were significantly higher than the year-ago quarter, more than offsetting the significant decline in G&A and flattish S&M (as a percentage of sales).



Excluding the impact of acquisition-related costs, stock compensation expenses, amortization of intangibles and special charges on a tax-adjusted basis, the pro forma net income in the last quarter was $25.1 million or 19.1% net income margin, compared to $23.9 million or 19.5% in the previous quarter and $45.2 million or 26.4% in the year-ago quarter.

Including these items, the GAAP EPS was 14 cents compared to 13 cents in the June 2009 quarter and 20 cents in the September quarter of last year.

Balance Sheet


Inventories were down 22.3%, yielding inventory turns of 7.8x. Days sales outstanding (DSOs) increased from 51 to around 52. The company ended with a cash and short term investments balance of $340.4 million, up $14.6 million during the quarter.

In the last quarter, the company generated $48.6 million in cash from operations and spent $12.6 million on capex, netting a free cash flow of $36 million. It also spent $14.8 million on acquisition activity and $67.4 million on share repurchases.

Source: QLogic Q2: Earning, Revenue Beat