Full Transcript of QLogic’s F2Q06 Conference Call - Q&A (QLGC)

Nov. 4.05 | About: QLogic Corporation (QLGC)

Here’s the entire text of the Q&A from QLogic’s (ticker: QLGC) Q3 2005 conference call. The prepared remarks are here. We recognize that this transcript may contain inaccuracies - if you find any, please post a comment below and we’ll incorporate your corrections. And please note: this conference call transcript is a Seeking Alpha product, so feel free to link to it but reproduction is not permitted without the explicit permission of Seeking Alpha.

Q& A

[Operator]: Harsh Kumar, Morgan Keegan.

[Q - Harsh Kumar]: Hi guys. Couple a question actually think, Anthony question maybe for you first. Can you give us some clean revenue numbers, or maybe an EPS estimate for the March '05 and December '04, for the existing business as it is?

[A - Tony Massetti]: Prior periods Harsh, so we are looking at March, let me pull those together. Why don't we go on to the next question, and then I'll come back to you with those.

[Q - Harsh Kumar]: Fair enough. Actually, that's fair. Question for H.K. Your company bought back $247 million worth of stock, roughly 7.5 million shares or so, current price, when I look at your share count in the September quarter, it's only down very modestly, like 2.5 million. What am I missing there?

[A - Tony Massetti]: This is Tony, Harsh that was skewed toward the end of the quarter. So, if you recall, we announced the share repurchase with the Marvell transaction, which was August 29th. And then we waited 48 hours, as we normally do, on material information. And then we started to repurchase stock. So you had the benefit of that only through part of the quarter. So the average is only 90 million or so shares.

[Q - Harsh Kumar]: So therefore, the next quarter, I mean the December quarter, when you report results, your share count should be substantially lower?

[A - Tony Massetti]: Yes. You can use about 82.5 million shares for modeling purposes.

[Q - Harsh Kumar]: And thank you very much, and then Troika can you give us a sense of it's breakeven, dilutive, accretive or some sense of numbers, etc.?

[A - Tony Massetti]: Sure. For the December quarter, we have included in the guidance about a $0.01 impact to EPS for Troika expense, very minimal revenue. And then, looking into the March quarter, a $0.01 to $0.015 impact to EPS again, due to incremental expense and probably minimal revenue.

[Q - Harsh Kumar]: Fair enough. And just a question for H.K. I think you said that the SAN infrastructure market is growing 20% to 25% revenue-wise; is that correct?

[A - H.K. Desai]: Correct.

[Q - Harsh Kumar]: When I look at your numbers, you're growing about 13% to 14% sequentially. So I guess, what am I missing here? Or should I assume that one of the number sets is incorrect?

[A - H.K. Desai]: So, if you look at this thing, the 20% to 25%, when we say it, we talk about Fibre Channel, iSCSI, HBA, blade switches, switches, plus we also include the Fibre Channel to iSCSI router, and also the virtualization platforms. So you don't see those revenue, at least for a while, on some of this new product anyway. So you don't see the growth, what the growth rate is, average, about 20% to 25%. So we will start seeing that rate in the late year like, for example, the second half of '07 and probably '08. That's when our rate will go same way as the market.

[Q - Harsh Kumar]: Well, I think I like somebody else get on and come back. Thanks.

[A - Tony Massetti]: Harsh. Let me just give you those revenue numbers that you asked for. For the December quarter, revenue for continuing operations is 116 million and EPS $0.36; and then, for the March quarter, 111.7 million and $0.34.

[Q - Harsh Kumar]:
I would like to thank you Tony very much.

[Operator]: Paul Mansky, Citigroup.

[Q - Paul Mansky]: Actually, I wanted to work through the math with you real quick. So we are talking about 82.5 million shares. You're talking about revenue growth. You got roughly consistent gross margins, roughly consistent operating expenses. And yet EPS are going to be flat to down. What am I missing in that calculation? What is your interest income assumption?

[A - H.K. Desai]: There's no (multiple speakers) flat to down.

[Q - Paul Mansky]:
32 to 35 versus the 34 percent that we just put up?

[A - Tony Massetti]: Yes. The high side would be up Paul. The missing piece there is the tax rate. We had a benefit in the current quarter. Tax rates were at 37.7% and we talked about 39 to 40 for the remaining two quarters. So the way you can look at it is that, at least for the December quarter, the tax rate would offset the lower share count from an EPS standpoint. And then, also, you have to include the impact of the Troika purchase, which, as I mentioned, was about a $0.01 impact to EPS.

[Q - Paul Mansky]: Okay. And then, maybe now that we have the controller business out, how many 10% customers do you have presently? Continuing operations?

[A - Tony Massetti]: We don't typically talk about that, only in the K. So we don't talk about that during the quarters.

[Q - Paul Mansky]: Without naming names, you don't want to provide at least --?

[A - Tony Massetti]:
Just for consistency purposes, we don't report that.

[Q - Paul Mansky]: Okay. Thank you.

[Operator]: Aaron Rakers, A.G. Edwards.

[Q - Aaron Rakers]:
Yeah, thanks. I still am a little bit confused, in terms of Paul's question in regards to the math in the quarter. If I basically assume a 40% tax rate in the December period and even take your other interest income line, let's say, down to 5 million or so, I'm still coming up with EPS is still $0.01 ahead of your bottom-line high-end guidance. And I'm still a little bit confused. Can you help me a little bit further, maybe, where I'm missing the comments in terms of guidance for the December quarter?

[A - Tony Massetti]: Sure. So, you should be thinking in terms of around 4 million for interest income going forward. So we've been running 6; with the stock repurchase, we should be around 4. And then, conservatively, we're assuming a slight decline in gross margins. So if you roll in those two factors, you should get more to the 34 range.

[Q - Aaron Rakers]: Okay, fair enough. And I guess the next question is actually on the switching business, flat sequentially despite some healthy year-over-year growth. I think you guys had guided for revenue to be up 1 to 4% sequentially. Maybe you can talk a little bit about what you are seeing in that business and when you see this transition essentially playing out. Is it next quarter? Is it two quarters from now that we expect to see a resurgence in sequential growth in that business? And also, if you can quickly comment on this relationship with a Tier-1 OEM in the switching business, when you expect that to start to or essentially be announced?

[A - H.K. Desai]: So if you look at the, what we said in this thing is that the key really is that even though we have tremendous growth in the port count for both blade and the 5000 series of products and even the 3000 series of products, I think the key really is that the pricing per port on our legacy SANbox2 8 and 16 compared to the new products is about 50%, anyway. So that's the reason even the port count is up; the unique items went up higher than the ports count, probably. And this is the reason, but I think that transition will probably be complete by December quarter. So, then, we will start seeing the normal growth rate with the port SAN unit. So that is the transition, really, which is there. Now, if you look at the market-wise, I said we have a lot of traction in the embedded switches, which is we won the IBM design, we also announced about the HP and Dell for the 2-Gig. We also work with some of this customer on the 4-Gig solutions, so we don't have all the design we need yet. We also are getting a lot of traction on the 5000 series of the product. On the channel, particularly, we have tremendous growth in the channel. We expect one OEM to finish the, actually, two OEMs already qualified the 5000 series. There is one more coming to the December quarter, and then there is one more probably coming to the March quarter, anyway. So we are getting a lot of traction for the new product, and most of the qualifications should be done with the OEMs. So I think probably FY '07, particularly even the December quarter might be good for the suite and then FY ’07 probably be really good for the suite.

[Q - Aaron Rakers]: And then again, just kind of following up, I think last quarter you had mentioned your expectation of landing an additional or new Tier-1 OEM relationship in switches. Any update there?

[A - H.K. Desai]: Yes. So we get one more, which will be finished the qualification by December quarter, by December end.

[Q - Aaron Rakers]: By the end of quarter, thank you very much.

[A - H.K. Desai]: Sure.

Andrew McCullough, CSFB.

[Q - Andy McCullough]:
Thanks just couple of questions. First, can you run us through the trends at your top 10 Fibre Channel customers that you saw on a sequential basis in the quarter?

[A - H.K. Desai]: I don't have, really, data for the Fibre Channel. But if you look at when I used to give some data before on the Fibre Channel versus SCSI and so on, if you look at the continuing operations now we have about 60% are for revenue, 55% of revenue came from five customers. And then almost all of them are the Tier-1 OEMs. So I think there's a difference between what we used to have before versus now. And the second is also the trend is changing for us, the contribution from the OEM is because we also have a 26% of our revenue came from channel. So there's a lot of traction going in the channel area. So I think the customer mix is changing now, and we will see probably more trend and we will know more about it next couple of quarters, because this is a first transition quarter for us.

[Q - Andy McCullough]: Okay, and just second question, now that the HDC business is going away and going to be off the books here shortly, how should we be thinking about seasonality in the March quarter, with a new look to the business model?

[A - H.K. Desai]: I think that's a good question. So what we expect that we will see, we have seen this is seasonality always as strong in the March quarter, before. But also, the March quarter is normally strong for the disk control business in the past, because of the year-end for Fujitsu and in the past with Hitachi, anyway. So we still have a strong March because of the year-end from the disk control business. And I think that's going to go away now. So I think we will probably be seeing a normal seasonality with our large OEMs and system business. So we might see probably flat to slight decline in the March quarter compared to the December quarter.

[Q - Andy McCullough]: Okay, thanks.

[Operator]: Kaushik Roy, Susquehanna.

[Q - Kaushik Roy]: Even with the 40% tax rate, I'm still getting above $0.35. So, Tony can you give us any color on your OpEx expectations?

[A - Tony Massetti]: We already talked about the $0.01 impact for the Troika acquisition, and then we're expecting probably 1 million to 2 increase sequentially in just ongoing business, mostly in the engineering and some in the sales and marketing line.

[Q - Kaushik Roy]: So what would be your headcount with the Troika?

[A - H.K. Desai]: I think we will probably give it next quarter, because we still have our PPG employees, so I think it's very difficult for us to give, anyway. But I think the key really is that I think what Tony is saying is there is an offset coming from a tax break we got in the September quarter. And we're going to lose about $0.02 because of that, and that is going to go offset by the lower share count. And then we have $0.01 more expense because of the Troika, anyway. So I think, if you look at this number and then also slight declines in the margins because the guidance we gave you, the 69% to 70% versus 70.4%, anyway. So if you look at all this number and if you look at the high end of the revenue, then I think we will see about $0.35.

[Q - Kaushik Roy]: And H.K when do you expect the virtualization products to DA (ph)?

[A - H.K. Desai]: I think what we say and the key really for us on the virtualization, we are not really acquiring the business; we are acquiring the technology. We are more interested in the technology going forward, so we can probably put, we can use this technology on a different platform, so either you can use as appliance or you can use in the switch, or the switchblade, anyway. So I think we are more acquiring the technology, and whenever the revenue in the business will come, really, it will be part of this business unit.

[Q - Kaushik Roy]:
Okay, thanks

[Operator]: Keith Bachman, Banc of America.

[Q - Keith Bachman]: Could you talk about pricing trends in the HBA business and also channel inventory at an industry level?

[A - Tony Massetti]: The pricing environment has been very stable. This quarter, when we look at like-for-like HBAs, we saw sequential declines of 1.5%. If I recall correctly, last quarter it was about 2%. The quarter before that, it was about 2.5. So it's been in that 2 to 3% range for many quarters, and,

[Q - Keith Bachman]: So this quarter it actually moderated a bit?

[A - Tony Massetti]: About the same. We don't think 0.5 point or 1 point is a big change. Looking forward, we're expecting in that 2 to 3% range.

[Q - Keith Bachman]: And how about any comments the channel is becoming a bit more important to the industry. Is there any comments on any inventory levels that you are hearing about?

[A - Tony Massetti]: Well, from a rev-rec standpoint, we retain the inventory in the channel. So that is our inventory and our books. And there has been no change in that from our standpoint.

[A - H.K. Desai]: Our inventory levels remain really the same because it's all inventory (indiscernible) 38.54 the model, so no change. And the good news is that we have a very strong sequential growth in our channel business in the September quarter, which is about 13%. And if you look at for the continuing operations, even the June quarter, if you look at the number, our growth was about 13%, 13.5% sequential growth, anyway. So we have strong growth in the last few quarters on the channel side.

[Q - Keith Bachman]: H.K., I want to come back to something you said before, because I'm not sure I got it right. You talked about what you saw for the HBA business, the long-term growth. I want to just make sure I capture that right. And specifically, what would you think the industry growth rate is? Now that you have stripped out the HDC business, what do you think the sequential growth is, would be, on the HBA side?

[A - H.K. Desai]: So what we say is that the HBA number, yes, from the Dataquest to the IDC from the Gartner is a 19%, which include Fibre Channel HBA and the (indiscernible) 39.51 iSCSI HBA. So what we have done is we have lumped the both HBA, because both are really interconnect solutions. So it's a 19% over next few years.

[Q - Keith Bachman]: And what do you think is on a sequential basis HBA? I'm not sure if you said the HBAs specific in terms of your guidance.

[A - H.K. Desai]: Well, if you look at the couple of quarter we are normally growing about 4% sequentially, anyway. So that's really for the year for about 16%, 17%.

[Q - Keith Bachman]: Okay finally I want any comments on how one of your large accounts, how that business is splitting up? Any comments on one of your competitors was called there and how that business may be unfolding?

[A - H.K. Desai]:
Splitting up, you said?

[Q - Keith Bachman]: Well, how Sun is losing any comments on your share at Sun?

[A - H.K. Desai]: We're doing great with Sun.

[Q - Keith Bachman]: Any loss of share there?

[A - H.K. Desai]:
No. And we don't expect to lose any share there.

[Q - Keith Bachman]: Thanks.

[Operator]: Mark Moskowitz with JP Morgan.

[Q - Mark Moskowitz]: I wanted to know with respect to the acquisition announced yesterday, Troika Networks, in terms of any wiggle room, I think they have around 45 to 50 employees. Do you know at this point, do you anticipate to keep all those employees? Or what type of leverage opportunities are there?

[A - H.K. Desai]: No, they don't have 40 to 45. They have about 30 to 35 employees, approximately. And we expect to keep around 30 employees.

[Q - Mark Moskowitz]: Okay great. And then, as far as your switch business, how does the revenue break out with respect to switches, SAN versus the Company average in terms of OEM versus distribution? And have there been any major changes in that in the last quarter?

[A - Tony Massetti]: We don't break that out, Mark.

[Q - Mark Moskowitz]: Okay. And then, just lastly, if I could, as far as the HDC business and I know the divestiture is almost closed here, so I don't want to talk about it too much. But I just want to get a sense of cash flow generation going forward. I think, in quarters past, the hard disk drive controller piece was about 30% or more of your cash flow, if I'm not mistaken, by my estimates. How should we expect your cash flow to look going forward?

[A - Tony Massetti]: Sure. We generated $31 million cash from operations in the September quarter. I think for modeling purposes, you could estimate between $20 and $30 million. $25 to $30 million, I think, is reasonable.

[Q - Mark Moskowitz]: Okay. And lastly, as far as the share buyback, have you announced a new plan there, given that you have already exhausted the 350?

[A - Tony Massetti]: We have gone through the 350. And now, we haven't announced a follow-on buyback. But we will discuss that with the Board at the next Board meeting, and it's up to the Board.

[Q - Mark Moskowitz]: Great, thank you.

[Operator]: Adam Harkness from Mark Kelleher.

[Q - Mark Kelleher]:
Thanks. I want to talk a little bit about IBM and the blade servers and your Fibre Down initiative there. IBM had some great numbers out of their blade servers a couple days ago. How does the competition work there between you and your largest competitor, in terms of how you get on systems? How does that break out, and do you have any estimate of what your market share is on those platforms?

[A - H.K. Desai]: If you look at IBM, we had a really good quarter with IBM in the September quarter and a lot of this growth came from the blade server side. It's silicon or the switchblade or also our HBA. So we have a really good quarter, and I don't think on the blade server we haven't seen any competitions yet as far as the HBA is concerned.

[Q - Mark Kelleher]: And you said that the designs are moving from putting chips on motherboards to data cards?

[A - H.K. Desai]: Correct. So the way it is working right now is that all the blade servers, we provide the silicon, and they build their own mezzanine cards. So they are not changing the reform factor. They are still building the mezzanine cards for the 2-Gig. So what we have done in the 4-Gig is that we have taken over this design and instead of supplying them the chips we will be supplying them the mezzanine card ourselves. So we will build the card for them. And we have about three design wins from the major OEMs for that, for the 4-Gig.

[Q - Mark Kelleher]: Okay great thanks

[Operator]: Tom Curlin, RBC Capital.

[Q - Tom Curlin]: Hi good afternoon.

[A - H.K. Desai]: Good afternoon.

[A - H.K. Desai]: The single-channel HP-UX business, assuming that that is your opportunity of 4-Gig, can you give us an indication of what you think the mix of single versus dual-channel adapters is for HP-UX, and also the attach rate that is typically seen in those environments?

[A - H.K. Desai]:
I don’t think, we cannot make any comment on that yet. There is nothing announced about the single-channel. But we have a good possibility of winning that business either as a silicon supplier or as our HBA. But I don't think we can make any comment right now on that.

[Q - Tom Curlin]: The dual-channel business is that adapter business or chip business?

[A - H.K. Desai]: That's adapter business. The two-channel card is adapter business, and we have the design win. We ship them for the 2-Gig.

[Q - Tom Curlin]: Okay. And without commenting on whether you have the single-channel, though, do you have any metrics on what the mix of duel versus single is within HP-UX environment?

[A - H.K. Desai]:
Even if I had the number I cannot give that out because I am giving out the customer information, which I can't.

[Q - Tom Curlin]: Alright, thanks.

[Operator]: Dan Renouard, Robert W. Baird.

[Q - Dan Renouard]: Hi, thanks, two questions, one, deal close, you said you expected that to close sometime in the middle of the quarter. Is there any potential roadblocks, or is it just standard procedures? If you could address that, that would be great. And then, secondly, just high-level uses of cash, you talk about acquisitions as being a potential use of cash when you did the divestiture call. Is Troika it, or should we be thinking this kind of, should we expect more similar kinds of deals, or is this kind of it for a while?

[A - Tony Massetti]: Sure, so the deal that you are referring to, I assume, is the Marvell deal. And we plan on that closing mid-quarter. And there has been no roadblocks there; it's gone very smoothly. So that's on track. And then, with respect to cash, I think it's really, the stock buyback has been a good use of the cash. And also, small technology acquisitions in such as Troika, I think, going forward, we would do much the same with the current cash levels.

[A - H.K. Desai]: The only thing I want to add on that one is that this is , we the Troika acquisition is something which we will indeed where the market is going plus, if you want to continue in the suites business, I think we have to provide the functionality. Somewhere down the road, we have to install a virtualization blade to the mid-range and the small businesses. And I think that's one of the reasons we are really acquiring the Troika, from that perspective, anyway. So, going forward, if you see we are missing some technology, then we will go and acquire something for us, anyway. So, just like we said on the August 29th call, that if you find some technology and we are missing, then we will go and acquire that. So the cash is really for the buyback and some technology acquisitions.

[Q - Dan Renouard]: Okay. Do you think or do you see holes or things that you would like to potentially fill, without giving any details, or you fairly satisfied, post-Troika?

[A - H.K. Desai]: I don't think I'll talk about my strategy on the conference call.

[Q - Dan Renouard]: Okay. Thanks.

[Operator]: Glenn Hanus, Neeham & Co.

[Q –Glenn Hanus]: Maybe just a quick verification. In the past, other was iSCSI royalty and services. So now, you have pulled the iSCSI out of that and lumped that in with SAN infrastructure? Is that what you are doing now?

[A - H.K. Desai]: Correct.

[A - Tony Massetti]: That's correct, yes.

[Q –Glenn Hanus]: Okay, thanks.

[Operator]: Henry Naah, Lehman Brothers.

[Q – Henry Naah]: Hi, guys. I was wondering if you can talk a little bit about what you think is impacting your revenues in the September quarter. Tony touched on it a little bit. Just looking at it in historical seasonality, it looks like the HBA market in terms of revenues was call it 19% last year in the December quarter, sequentially, and then the prior year was up about 11% sequentially. So I was wondering if you could kind of help us think that with your guidance for 1 to 5% sequential growth.

[A - H.K. Desai]: I think that's a very good question. If you look at this thing, that guidance is very conservative. If you look at the December quarter, it's supposed to be a strong quarter. And it is a strong quarter for us last two years, 2004 and 2005, December quarter. So it's a very conservative, a couple of reasons for that, one is, if you look at our turn business, we'll have mostly turn business because we don't have much silicon business anymore. So everything is going to depend on the hub full versus the PO because silicon normally are about 13 weeks or 16 weeks lead-time, and we won't have that in the December quarter, because our disk controller and the tape drive control business will be gone. The second is also there is a lot more contribution is going to come in on revenue from our top five OEMs, and if there is anything happened to the OEMs, if they have product transitions or if their performance not that, that can have a bigger impact than what we used to have in the past, anyway. So you are right; it's a very, very conservative guidance we are giving. But I think we are just looking at all the factors and see what happens.

[Q – Henry Naah]: Okay, thanks.

[Operator]: Shaw Wu, American Technology.

[Q – Shaw Wu]: Thanks. Just back to the kind of SAS market, I realize you're out of the business, in terms of the hard disk controller side. Any interest in entering the SAS, like the RAID controllers or the SAS HBAs? Thanks.

[A - H.K. Desai]: No, we don't have any interest to enter the SAS market from the host perspective, because it's more, really, a silicon market. What we believe that the two requirements here on the server side, one is to have a connect to the internal drives, which can be serial ATA or the SAS. The other one is to connect to the network storage, and our focus is on the network storage, because we grow a lot more value there versus just the silicon business to connect to the internal drives. So key for us is the iSCSI and Fibre Channel and that was strategy.

[Q – Shaw Wu]: Okay thanks. If I may, just a quick question on the iSCSI market. Any update, in terms of do you anticipate more meaningful revenue in that area? Thanks.

[A - H.K. Desai]: Can you ask the question again?

[Q – Shaw Wu]: I am sorry. Just asking about the iSCSI market, in terms of when you expect more like an uptake in that market, where you will see a revenue contribution.

[A - H.K. Desai]: So I mean, we have seen some revenue contribution last couple of quarters, not that big number, anyway. And I think it all depends on, we have several design wins, as far as target silicon is concerned, and then we have some design wins on the iSCSI HBA or the mezz card, anyway. I think it all depends on really when the market happens. It's all, and there's a lot of qualifications we have done, too. So I think the key is really when the markets happen for that technology. We are (indiscernible) 52.24. So we cannot really predict anything on that area.

[Q – Shaw Wu]: Okay sorry just one more, will you disclose the revenue that is the HDC and tape controller businesses? Is that going to be disclosed in a filing, or can you say like how much the revenue was this quarter? Thanks.

[A - Tony Massetti]: Yes. We're not prepared to talk about that. And the footnote disclosure, we are still working with our auditors to figure out what the appropriate disclosure is there. It's all netted in disc-ops now. So that will be resolved when we file the Q.

[Q – Shaw Wu]: Okay thanks.

[Operator]: Douglas Whitman, Whitman Capital.

[Q – Douglas Whitman]: All my questions have been asked, thank you. I have one quick question, though. If you could go back on the acquisition, the numbers that you're giving, Tony, just for a housekeeping detail, does that include the effect of the dilution from the acquisition in that?

[A - Tony Massetti]: Yes, it does. Yes.

[A - H.K. Desai]: And we said that it's about $0.01 dilution in this December quarter.

[A - Tony Massetti]: Included in the guidance.

[Q – Douglas Whitman]: Okay, thank you.

[Operator]: Clay Sumner, Friedman Billings Ramsey.

[Q – Clay Sumner]: Thanks, just a couple of definition questions. In the SAN infrastructure bucket now, I understand it's HP revenues, switch revenue and then silicon. Can you say what the silicon piece is?

[A - Tony Massetti]: No. We're not breaking that out. Are you looking for the number or what they are (multiple speakers)?

[Q – Clay Sumner]: No, what it actually consists of.

[A - H.K. Desai]:
It consists of the Fibre Down silicon, which go in the blade server, for example, it's included on the RAID controller. We have some design for the initiator or the target side, so it's more the RAID controller and Fibre Down. And the Fibre Down will start declining for the 4-Gig over time, like I said in my script, over 12 to 18 months, because we're moving that from silicon to mezzanine card, anyway. So that revenue will start declining and we'll get that into the mezzanine card.

[Q – Clay Sumner]: Okay, and then, in the other bucket, and Glenn asked about it already, but is that now just royalty revenue?

[A - Tony Massetti]: Royalty and services.

[Q – Clay Sumner]: Royalty and services?

[A - Tony Massetti]: Correct.

[Q – Clay Sumner]: So the Lucent-related stuff will flow into that bucket?

[A - Tony Massetti]: Yes.

[Q – Clay Sumner]: Okay thank you very much.

[A - H.K. Desai]: And also, on the silicon, we also include the iSCSI silicon, for example, on the SAN infrastructure, which can be also the target or the down silicon.

[Q – Clay Sumner]: Okay. So HBAs are strictly an HBA card? There's no host adapter silicon in that HBA piece?

[A - H.K. Desai]: HBA is HBA plus will be HBA, Fibre Channel HBA, iSCSI HBA, Fibre Channel mezz card and iSCSI mezz card.

[Q – Clay Sumner]: Okay and I guess one last one, do you have any plans to look at RDMA over IP investments?

[A - H.K. Desai]: Yes. We are investing in the iSCSI technology for the future, also. Yes, we'll continue investing in the iSCSI, yes.

[Q – Clay Sumner]: And you'll call that iSCSI?

[A - H.K. Desai]: Yes.

[Q – Clay Sumner]:
Fine thank you

[Operator]: Aaron Rakers. for your question.

[Q – Aaron Rakers]:
Actually, all my questions have been answered. But maybe one quick thing, did you guys give an update in terms of your expectation for tax rate now, looking out, let's say, into 2007? I know you had made some investments. Do we still expect the tax rate to decline, let's say, towards that 38, 37% range over the next year or so?

[A - Tony Massetti]: Yes, we do expect the tax rate to come down in fiscal '07. So it's too early to say how much, but I think in that range, that 37% range, is reasonable.

[Q – Aaron Rakers]: Okay thank you.

[Operator]: Paul Mansky.

[Q – Paul Mansky]: Going back to Troika, do you see this acquisition being accretive over the course of maybe the next 12 months? I'm having a little bit of a hard time getting my arms around a business case for virtualization and the SMB over the next 12 months?

[A - H.K. Desai]: So, I didn't clearly what I stated is that I cannot really, because we cannot say that we just temporarily we are talking about like next one to two quarters, so what the dilution is going to be from that. But I think that clearly, we're acquiring the technology, we are not acquiring a business. So we're really going to build a platform, which is going to go in solid technology is going to go in with our current product. For example, on the suite side, we have built the blade on the suite side, anyway. So this is really going to be part of those groups, anyway. So it will be part of the P&L and the revenue, part of the existing business, either suite side or the router, or whatever we decide to do, anyway. So it's a technology we're buying which is really going to lump in with the existing technology.

[Q – Paul Mansky]: Okay, so it isn't really fair to say, given I'm walking away from that comment, meaning that maybe you're looking at doing something for a BladeCenter, for a BladeCenter in the future. So it really isn't fair to say that this is strictly SMB technology?

[A - H.K. Desai]: No. You cannot say I can use this technology for anything. Anybody who needs some kind of virtualizations, we can use this technology, anyway. So it's like I'm acquiring around 30 engineers, for example, for that much money. And we will need this technology going forward. So it's really more a technology acquisition than the business.

[Q – Paul Mansky]: Okay, right thank you.

[Operator]: Tom Curlin.

[Q – Tom Curlin]: The foundry for Troika, is that Agere?

[A - H.K. Desai]: I know it, but I don't think I want to talk about it on the phone call.

[Q – Tom Curlin]: If we assume that, Agere is the partner that just announced with you guys for 4-Gig Fibre Channel foundry; is that correct?

[A - H.K. Desai]: Correct.

[Q – Tom Curlin]: So if it were Agere, that would allow you to rapidly integrate the technology?

[A - H.K. Desai]: I mean, the technology integration is not so difficult. And if we look at this thing, we started very heavily, anyway. So we can integrate this technology very, very easily on all different products.

[Q – Tom Curlin]: Okay thank you.

[Operator]: And it appears we have no further questions. I'll turn the conference back to you for any closing comments.

[Tony Massetti, Vice President, Chief Financial Officer]

Thank you for joining us on our second quarter fiscal 2006 conference call. We look forward to discussing our third quarter fiscal 2006 results with you at our next quarterly conference call in mid-January. Also, we have several upcoming conferences that we will be attending. In November, we'll be presenting at the Bear Stearns mid-cap investor conference, the Morgan Keegan technology conference and the CSFB technology conference. In December, we will be presenting at the Lehman Brothers global technology conference and the UBS server conference. In January, we'll be presenting at the Needham growth conference. Please refer to our investor relations website at www.qlogic.com for any updates to the conference schedule. For any of you that will be attending the conference, we look forward to seeing you there.

[Operator]: And again, that will conclude the QLogic conference call. We thank you for joining us and wish you all a great afternoon. Goodbye.