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QLogic Corporation (QLGC)

F2Q08 (Qtr End 9/30/2007) Earnings Call

October 23, 2007 5:30 pm ET

Executives

H.K. Desai - CEO

Tony Massetti - SVP and CFO

Jeff Benck - President and COO

Analysts

Min Park - Goldman Sachs

Paul Mansky - Citigroup

Keith Bachman - Bank of Montreal

Andrew Neff - Bears Stearns

Aaron Rakers - Wachovia

Jeff Brickman - UBS

Kaushik Roy - Pacific Growth

Mark Moskowitz - JP Morgan

Shebly Seyrafi - Caris

Tom Curlin - RBC

Clay Sumner - FBR

Roberta Chen - Lehman Brothers

Glenn Hanus - Needham

Operator

Good day, everyone and welcome to the QLogic Corporation second quarter fiscal year '08 earnings announcements conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. H. K. Desai, Chief Executive Officer. Please go ahead, sir.

H.K. Desai

Thank you, operator. Good afternoon, and welcome to QLogic's second quarter fiscal year 2008 Earnings Call. I am H.K. Desai, chief executive officer, and with me are Jeff Benck, our president and chief operating officer and Tony Massetti, our senior vice president and chief financial officer.

Today, Tony will begin with the review of the second quarter results, and I will continue with the general discussions of the current state of our business. After that, Jeff will discuss strategic initiatives, and then we will open the teleconference for questions. Tony?

Tony Massetti

Thank you, H. K., and good afternoon. By now, all of you should have seen our press release and associated financial information. In additional to reviewing our financial results, some of the comments today will include forward-looking statements regarding future events and/or projections of the financial performance of the company based on our current expectations.

These comments contain significant risks and uncertainties that could cause our actual results to differ materially from those expressed in these forward-looking statements. We refer you to the documents that QLogic files with the SEC, specifically our most recent Forms 10-K and 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 any of the information contained in any forward-looking statements that we make today.

Today's conference call is being webcast, and a replay will be available for 12 months on the QLogic website at www.qlogic.com under "investor relations."

Please be aware that if you decide to ask a question, it will be included both in our live transmission as well as any future use of the recording. Copyright law and international treaties protect this conference call report. Unauthorized reproduction or distribution of this report or any portion of it may result in civil or criminal penalties. Any recording or other use or transmission of the text or audio for today's call is not allowed without the expressed written permission of QLogic.

In our second quarter earnings press release issued earlier today, we reported both GAAP and non-GAAP results. The difference between the results is primarily due to stock-based compensation expense, acquisition related charges, special charges and the related income tax effects. An accounting of this difference is included in our press release. The difference in our non-GAAP as compared to our GAAP results is $0.06 per diluted share in the second quarter or $0.22 per diluted share non-GAAP versus $0.16 per diluted share on a GAAP basis.

All of the references we will make today relate to our non-GAAP results unless otherwise stated.

Our revenue in the second fiscal quarter, which ended September 30, 2007, was $140.3 million, which is at the higher end of our forecasted range of $137 million to $141 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 $104.4 million an increase of 4% from $104.4 million recorded in the second quarter of last year.

The increase of our revenue from Host Products was primarily driven by HBA revenue growth of 4% in the comparable quarter last year. During the second quarter, our revenue from network products, which are comprised primarily of Fibre Channel and InfiniBand switches, was $23 million an increase of 8% from $20.2 million recorded in the second quarter of last year.

The increase in our revenue from network products was primarily driven by the revenue from our InfiniBand switch portfolio, which was added with our acquisition of SilverStorm Technologies, partially offset by a 16% decline in revenue from Fibre Channel switches from the second quarter of fiscal year 2007.

Our second quarter revenue from Silicon Products, which are comprised primarily of protocol chips and management controllers, was $11.5 million and decreased 43% from the $20.2 million reported in the second quarter of last year. The second quarter revenue of Silicon Products exceeded our expectations due to last time buys of protocol chips. Revenue from silicon products declined from the prior year as expected.

Other revenue which is comprised primarily of royalties and services revenue was $2.4 million is second quarter. Our second quarter gross margin of 68.3% decreased from 70.4% recorded in the second quarter of last year. The decrease in our gross margin was primarily due to product mix, including the addition of InfiniBand products, and increased manufacturing related costs. However, the gross margin performance during the second quarter exceeded our forecast of approximately 66% provided during our first quarter earnings conference call.

During the second quarter, we experienced an ASP reduction, our like-to-like products in our HPA portfolio of 1.9%, which was within our expectations. Next, I would like to cover our second quarter operating expenses.

Total operating expenses were $55 million in second quarter, up 6% from $51.7 million reported in second quarter last year. This increase was primarily due to our investment in InfiniBand products. Engineering expenses in the second quarter increased 7% to $30.2 million versus a year ago and increased as percentage of revenue from 19.4% to 21.5%. We continue to make investments in existing and new technologies, including Fibre Channel, InfiniBand and Fibre Channel over Ethernet. As a result, we are targeting engineering expense as a percentage of revenue to be in the range of 18% to 21%.

Sales and marketing expenses in the second quarter of $18.1 million were consistent with a year ago and increased as a percentage of revenue from 12.4% to 12.9%. 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 $6.6 million increased from $5.5 million from a year ago period, and we are at 4.7% of revenue in the current quarter. We expect that future G&A expenses as a percentage of revenue will be approximately 4%. We continue to focus on improving efficiency in our operating expenses, while investing in critical development programs for existing and new technologies.

During the second quarter, QLogic generated an operating profit of $40.9 million, which resulted in a 29.2% operating margin. Interest and other income was $5.8 million in the second quarter and was consistent with a year ago.

The income tax rate of 30.5% for the second quarter was lower than the annual forecasted tax rate of 33% provided during the first quarter earnings conference call. We are now forecasting a lower annual tax rate range of 32% to 33%. Our second quarter net income was $32.5 million or $0.22 per diluted share and represented a net profit margin of 23.1%.

Our second quarter net income per diluted share of $0.22 exceeded the high enough, the forecasted range of $0.17 to $0.19 per diluted share, provided during our first quarter earning conference call. This represents the 49th consecutive quarter of profitability for QLogic.

Net income on a GAAP basis for the second quarter was $22.6 million or $0.16 per diluted share.

Now let me summarize the results for the first six months of fiscal year 2008.

Revenue for the first six months of fiscal 2008 was $280.1 million, compared to $282 million, the same period last year. Our revenue from host products for this period was $208.6 million, up 9% in the comparable period last year, and our revenue from network products was $46.4 million, up 20% in the comparable period last year.

These increases in revenue during the first six months of fiscal year 2008 were offset by the decline in revenue from silicon products. Non-GAAP, net income of $62.7 million or $0.42 per diluted share for the first six month of fiscal 2008 represented a net profit margin of 22.4%. Net income on a GAAP basis for the first six month of fiscal 2008 was $41.6 million or $0.28 per diluted share.

Our financial position continues to be strong, especially with regard to our cash flow. During the second quarter, we generated $67.2 million of cash from operations. The company's cash and marketable securities were $392.1 million at the end of the second quarter.

During the second quarter, we purchased $144.7 million of our common stock pursuant to our stock repurchase program. In addition during the third quarter, we continued to execute against our current stock repurchase program, and we've purchased more than $30 million of our common stock.

Since fiscal year 2003, we've repurchased over $1 billion of the company's common stock under programs authorized by the Board of Directors.

Receivables of $72.2 million at the end of the second quarter decreased from $77.3 million at the end of the June quarter. The DSO rate in the September quarter was 47 days compared to 50 days in the June quarter. Based on hub arrangements with our OEM customers and our current customer channel mix, we expect DSO in the future to range from 45 to 55 days.

Annualized inventory turnover in the second quarter of 5.1 turns was comparable with the 5 turns in the June quarter. Inventory at the end of the second quarter was $35.1 million and decreased sequentially from $38 million at the end of the June quarter. We expect that inventory levels at the end of the December quarter to be flat or slightly down from the September quarter.

The long term outlook for our core business remains favorable. Based on current customer forecast, we expect total revenue for the December quarter to be in the range of $147 million to $151 million. Due to the potential variation of product and technology mix, we expect gross margin for the December quarter to be approximately 67%.

Considering the above revenue and gross margin expectations combined with planned operating expenses, infrastructure investments and a projected annual tax rate should be between 32% and 33%. The current outlook is to achieve non-GAAP earnings per diluted share of approximately $0.23 to $0.25 in the December 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 and the company's filings with the SEC and the disclaimer statement at the end of the second quarter fiscal 2008 earnings press release.

I would now like to turnover this conference call to H.K. Desai our chief executive officer, H.K.

H K. Desai

Thank you, Tony. QLogic executed well in the quarter, exceeding EPS expectations and delivering strong cash flow from operations. Revenue in the second quarter was $140.3 million, which was at the higher end of our guidance range.

Our earnings per diluted share for the second quarter of $0.22, was well above our guidance range. This is the 49th consecutive profitable quarter for QLogic. According to the Dell'Oro second quarter 2007 SAN Report, QLogic was once again ranked number one in overall Fibre Channel HBA market share.

The report indicated that the QLogic HBA revenue share increased from 43.4% in the March quarter to 44.4% in the June quarter. Our market share of HBA ports increased from 45.8% in the March quarter to 48.5% in the June quarter.

Dell'Oro also reported a QLogic gain in market share in every major Fibre Channel HBA category for the March to June quarter. Second quarter revenue from host products, which are comprised primarily of Fibre Channel HBAs, iSCSI HBAs and InfiniBand HCAs, grew 4% from the year ago quarter.

Fibre Channel HBA units shipped were up 22% from the year ago quarter, which was driven by a more than 200% increase in the Fibre Channel Mezzanine Card unit shipments. This strong growth in the Mezzanine Card is consistence with the continued growth in the blade server market. As with last quarter, the higher Mezzanine product mix impacted our overall HBA revenue.

Our second quarter revenue from network products, which are comprised primarily of Fibre Channel and InfiniBand Switches, grew 8% from the year ago quarter. This increase was primarily driven by our InfiniBand Switch product line, partially offset by our decline in revenue from Fibre Channel switches.

Fibre Channel switch revenue was down 16% from the year-ago quarter, and the primary driver was impact from the end of life McData blade switch products. For the first six months of fiscal year 2008, revenue from Host Products was up 9% and revenue from Network Products was up 20% over the comparable period last year.

Our Silicon Products are comprised primarily of protocol chips and management controllers. As we have previously discussed, we expect our revenue from silicon products to decline overtime. Second quarter revenue of $11.5 million was down 43% from the prior year. Sequentially, revenue from Silicon Products was up, driven by some last time buy for protocol chips for Tier-2 customers. We expect revenue from silicon products to decline sequentially next quarter by approximately $500,000 to $1 million.

In summary, fiscal year 2008 is a transition period. As the impact of the declining revenue from silicon products diminishes and we launch major strategic initiatives in 8-gig, InfiniBand and Fibre Channel over Ethernet or FCoE, we expect the overall revenue growth rate to improve in the future.

I am now going to turn the call over to Jeff Benck, our president and chief operating officer to discuss these initiatives in more detail. Jeff?

Jeff Benck

Thank you, H.K. Good afternoon. I want to give you an update on how we are progressing in our network [concerns]. Our mission is to apply our expertise in storage, data and server networking to help enterprises to transform their data center into an efficient computing environment that is consolidated, virtualized, and simpler to manage. In terms of the market, we believe networking infrastructure will continue to consist of three distinct technologies; Fibre Channel, InfiniBand and Ethernet.

However, we see a transition and a new way of network consolidation beginning. We've already seen the benefits of storage consolidation in the SAN and server consolidation driven by dense server, multi-core processors and virtualization. We anticipate the next phase of evolution in the IT industry will be the consolidation of storage and data network onto a single converged fabric of FCoE.

Based on our broad networking experience including Fibre Channel, InfiniBand and Ethernet technologies, we believe QLogic can lead our customers through this transition.

Last week, at the Storage Networking World Conference, or SNW, we hosted a press conference where we unveiled an array of technologies and products for high performance networking and convergence that will enable the data center of the future. With continued server consolidation due to virtualization, there will be greater demand for bandwidth in the data center. We believe that 8-gig Fibre Channel will represent a technology refresh required to meet the increasing performance requirements of the new data center.

To SNW, QLogic introduced the industry's first end-to-end family of 8-gig Fibre Channel HBAs and 8-gig switches available to OEMs. Unlike the transition to 4-gig, when the technology was pushed by manufacturers, we see the pulse of this new 8-gig technology from end users due to I/O aggregation.

We are currently sampling 8-gig HBAs and expect OEMs to start shipping our 8-gig products in the first quarter of 2008. In fact, we already have our 8-gig products deployed with end users.

In the area of high performance computing, InfiniBand continues to be the preferred server networking solution and is the fastest growing networking technology based on its low latency, affordable cost and initial standard option

IDC projects a nearly 40% revenue cadger for the combined InfiniBand switch in the HBA market through 2011.

As HPC work loads continue to expand into commercial accounts and new HPC applications are developed, we believe QLogic is well positioned to participate in this growing market.

At SNW, we introduced the industry's first mid-range InfiniBand director switch based on Double Data Rate or DDR with gateways to Fibre Channel storage networks and Ethernet data networks. This product enables high performance Oracle RAC clusters built on inexpensive x86 computer notes.

Additionally, we introduced the DDR InfiniBand HBA with the world's lowest latency and fastest messaging rate, which sets the standard for performance in HPC clusters.

And finally, as we look to the next generation of technology that will enable the consolidation of storage and data network, QLogic introduced the industry's first converged network adaptor based on 10-gig Ethernet technology.

Our first FCoE product is capable of supporting both Ethernet and Fibre Channel protocols on a single adaptor enabling significant savings through consolidation. FCoE will also provide investment protection for existing customers. Due to the fact that our Fibre Channel software stack remains unchanged, this will allow for seamless integration with legacy stores network.

At SNWs, QLogic also facilitated a demonstration of a native FCoE network environment with strategic partners. The demonstration included converged network adaptors from QLogic, FCoE technology, from Nuova Systems and FCoE storage from Network Appliance. We are presently sampling our converged network adaptors and believe we have a significant time-to-market advantage.

We are very excited about our investments and the resulting new products we have introduced based on 8-gig Fibre Channel, InfiniBand and FCoE technology. These technologies will not only enable the next wave of IT, they are the foundation of our future growth.

We look forward to reporting on our progress on the next earnings call. This is the end of our prepared remarks today. Operator, we will now open lines for questions.

Question-and-Answer Session

Operator

Thank you. The question-and-answer session will be conducted electronically. (Operators Instructions). We will take our first question from Min Park with Goldman Sachs. Please go ahead.

Min Park - Goldman Sachs

Yes. Thank you. Just a couple of questions, please. First, can you help us better understand the dynamics in your Host Products business? It seems like, even though you will gain share on the port size that, the revenue of 4% seems to be a little lower than what we are expecting? And is that an indication of the overall revenue growth as it accelerates to a lower single-digit? Or did you just experience a negative mix shift versus your competitors?

H. K. Desai

Well, like we said in last couple of calls, that we expect our Host revenue to grow about mid-single-digit to high-single-digit. And if you look at for the first six months, for the two quarters for the fiscal 2008, we grew our revenue by 9% year-over-year anyway.

So, we are right on way where we said we will be anyway. So, you can really look at the first quarter and then see the trend. And if you look at our numbers also, overall for our top five customers, five OEM reached about 62% revenue and four of them grew by a double-digit sequential growth in the quarter anyways. So, we are very happy with what's happening in the market.

Min Park - Goldman Sachs

And then just following up on that, given your Fibre Channel HBAs actually grew 4%, it suggests your InfiniBand HCAs growth to accelerate this quarter. But can you help us understand what's going on there particularly given the chance there in IP Switches?

H. K. Desai

We don't have really too much business on the InfiniBand HCA. Now, we are not shipping that much revenue on the HCA. So, I think all over growth is coming from the Fibre Channel.

Tony Massetti

If that's still an insignificant number, Min.

Min Park - Goldman Sachs

Okay, great. And then lastly, your sequential gross margin is up quite a bit and is that mainly related to mix or did you see unusually benign pricing in the market? Is that all the end-of-life Silicon? Can you help with what's going on?

H. K. Desai

Sure. The gross margin in the September quarter was at 68.3%. So, it is up about 200 basis points sequentially. We saw a favorable mix in the quarter as you pointed out, more HBAs, more silicon, as well as improvement in manufacturing-related costs, both the bond costs and in our other manufacturing costs which contributed to the sequential increase. So, we're forecasting gross margins to be approximately 67% in the December quarter, Min, and that's attributed to mix.

Min Park - Goldman Sachs

Great, thank you

Operator

We will take our next question comes from Paul Mansky with Citi. Please go ahead.

Paul Mansky - Citigroup

Yeah. I just wanted to follow-up on that gross margin question, and then I had a couple of follow-ons. Is specifically the InfiniBand margin profile, I know you are not breaking InfiniBand out or InfiniBand switches any longer, that's fine. But, can you talk to us directionally what that margin profile looks like?

Tony Massetti

Sure. We did see sequential improvement in the InfiniBand gross margins, Paul. On our previous earnings calls, we've talked about the drivers for the gross margin improvement, our manufacturing supply chain integration, and we did see a good progress on that in the quarter. Volume ramp for better absorption of our fixed cost, and then the component cost, primarily, switch silicon cost. And we did see some progress there, but we still need better cost on silicon for IB switch products in order to get the gross margins to where we think that they should be. So overall, we saw sequential improvement in InfiniBand products, and particularly in InfiniBand switch.

H.K. Desai

Yeah, I can add on -- I think what Tony says, is right. I think we see progress on everything, the supply chains, the manufacturing variance and so on. I think, the rate from the component, I think, the rate we haven't see yet, really, the benefit what we are expecting from the silicon cost and the IB, and we are concerned about that, because we are not seeing that much progress on the silicon pricing on the IB switches.

Paul Mansky - Citigroup

Alright. On the 8-gig front, when do you think that you'll start receiving some concrete indication relative to design wins, room for competitive displacement, et cetera, et cetera. Is that sort of Q1 '08 event, Q2 '08 events or later in the year?

H.K. Desai

So we have a -- we have made a tremendous progress in the 8-gig, we are sampling the product right now. We expect some OEM to ship the product in the March quarter. We also have installed some of the product at the end user, anyway so, our technology is working really well, and I think we feel that what the data we are getting from industry and the OEMs, there we are way ahead of our competitors in both the HBA and the switches.

Tony Massetti

And in fact, we already have design wins, we are not going to talk about specifically about where, but you will see more as we start to shift.

Paul Mansky - Citigroup

Sure, and then lastly on the pricing front, relative to the entry point for 4-gig, how do you feel 8-gig is going to shape up?

Tony Massetti

On the technology transition, Paul, we typically see a one or two quarter price premium, which is just temporary and then pricing gets pretty much down to where the previous technology was.

Paul Mansky - Citigroup

Okay, so no material changes in your approach to pricing?

Tony Massetti

No, we are not planning for any changes.

Paul Mansky - Citigroup

Okay, great. Thank you very much.

Tony Massetti

You're welcome.

Operator

We will take our next question from Keith Bachman with Bank of Montreal. Please go ahead

Keith Bachman - Bank of Montreal

Hi, thank you very much. I want to back to gross margins for the December quarter. If I look at September, it looks like mix was the -- its not completely the lion share, because your Network Products fell off pretty hard sequentially, and your Silicon Products were much better than I thought. Tony or H.K., is there a way that you can give us some color on how you are thinking about the composition of the various piece parts in the December quarter to help get us to the 67% gross margins?

H.K. Desai

We gave a guidance for the December quarter which is a 147 to 151, it's approximately 5% to 8% sequential growth and we also say that we expect Silicon Product to decline $500,000 to $1 million in the December quarter. So that means that we will see a growth both in our HBA business, Fibre Channel, iSCSI or we also see a growth in our Network Products, and I think compulsion is really going to come from HBA and the switches.

Keith Bachman - Bank of Montreal

Okay. So H.K., can I just press you on that. Is the Network Product, do you think going to have -- it sounds like what you saying as the Host Products will have a faster sequential growth in the December quarter which also would be a positive mix for the margin. Am I reading that right?

H.K. Desai

I think we'll have a sequential growth in the both Host Products and Network Products. But, I think we kind of take a mix considers and what is the forecast right now, but you know, actual results can vary. We don't know exactly where it's going to end up, but I think from what we felt, the mix what we are seeing from our forecast is about 67% margin.

Keith Bachman - Bank of Montreal

Okay. Let me try another one. H.K., you mentioned that the Fibre Channel switch business was down, I think 16% year-over-year. Any kind of current updates, I know there has been some discussions on potentially, I was at SNW as well this past week, and any kind of comments on any other OEM design wins. And then the related question is, if there aren't any design wins in the next period of time, however you define that, how do you think about the Fibre Channel switch business?

Jeff Benck

So, this is Jeff. Let me take a shot at this. We continue to work with Tier 1 OEMs on our Fibre Channel switch business. As we've kind of said before, we're working closely there and we see that as a growth driver for us to close more Tier 1 OEM business. We think we've got a great set of products, we continue to believe we've got leadership from a product category, not just in the blades, but in our scalable modular switches including our 9000 family of switches. So, it's an area that we continue to focus on, but like you would expect in any business we are looking closely at the profit and growth of the profile of the businesses and we'll continue to look at our strategy in that context.

Keith Bachman - Bank of Montreal

So Jeff, just going to say it's still an open, and we know, I mean, you guys will evaluate as approximate but doesn't gain traction and there are other consideration for the businesses, kind of..?

Jeff Benck

I guess, it's always there, right as you look at any business, but right now we are very focused on working with OEMs on growing the switch base for us.

Keith Bachman - Bank of Montreal

Okay. Final one, if I can sneak one in, 8-K Broacade also talking about shipping their 8-gig HBA in the March quarter and intimating that they have some OEM design win thereafter pending, how do you think the dynamics of HBA business will change if at all during the course of calendar year 2008? Thanks.

H.K. Desai

Well, I mean, historically, if you look at either it's a iSCSI HBA or the Fibre Channel HBA, my experience is that normally there are the two suppliers and particularly even competitive to iSCSI HBA, the Fibre Channel HBA it is extremely difficult because of networking support and the multiple OS support VMware, you name it, we have about there is two suppliers, we are very strong. Financially, these two strong suppliers, they have a tremendous experience in the Fibre Channel HBA or 10 years either its software stack to the multiple software support or also the qualification of OEMs. So, I think, it's going to be very difficult for the third guy to come in and I have seen in every place that when the two guys, if they are solid, then I think third guy will be in a difficult position. So, I don't expect there really any change in dynamic for the 8-gig HBA.

Keith Bachman - Bank of Montreal

Okay, thank you guys.

H.K. Desai

Sure.

Operator

We will take our next question from Andrew Neff with Bears Stearns. Please go ahead.

Andrew Neff - Bears Stearns

I just want to get some general comments about, as you look at the enterprise margin, looking customers, any sense in terms of the total demand that you see any hesitation or anything like that, just give us a general sense, where it seems to me just been given customers?

H.K. Desai

So, I mean, if you look at what we've seen in our forecasts and the guidance we have given, seasonally December is the strong quarter for OEMs, and that's what we have seen. We have also seen the same in the September quarter, like I said before, we were strong growth from the four of the five OEMs. It should double-digit sequential growth. And we are now really, at least for most of our business income, 62% of which is from the five OEMs, anyway, so we really not close to the end users. We don't exactly understand, but from what we seeing from our OEM forecast, and from what we have seen so far in this month anyway, I think we can expect that for the December quarters positive things seems to be fairly sure outcome.

Andrew Neff - Bears Stearns

Is that all goes and anything, any just little comments?

H.K. Desai

I mean, we have, if you look at our number for our September quarter, we see a growth, more growth in Europe and Asia compared to the North America. So, I mean, that's a general trend, it means, everybody has seen, we saw the same thing in our September quarter.

Andrew Neff - Bears Stearns

Thank you, H.K.

Operator

Anything thing further, Mr. Neff?

Andrew Neff - Bears Stearns

No.

Operator

Thank you. We will take our next question from Aaron Rakers with Wachovia. Please go ahead.

Aaron Rakers - Wachovia

Yeah, thanks guys. A couple of questions, as well. I want to go back to the InfiniBand business and I know, you guys aren't breaking it out but kind of backing into the numbers a little bit, given what you've disclosed, it looks like even the switch business was down sequentially, so my question is: first of all is that true? And second, is it still the target for the company to get to roughly $30 million in InfiniBand revenue for fiscal '08?

H.K. Desai

Yeah, if you look at, we don't breakdown the number between IB and Fibre Channel, but I think you would also agree, if you had a look at what is IB switch business. So, particularly it's a lot more than our end user sales currently versus OEM, anyway so the sales cycles are extremely long. We have lot of deals going on. So, I don't think you can really miss the true picture if you attempt to judge from only one quarter but if I look at the two quarters, something over a longer period of time, if you look at the September/December quarter, I think, we are growing the same as what we had expected, which is about $30 million in revenue. So, I think, we are on the right track on the business.

Jeff Benck

I am sorry. I was just, that's the annual guidance we gave at the beginning of the year Aaron to $25 million to $30 million and I think at this point we are tracking towards the higher end of that on a full-year basis.

Aaron Rakers - Wachovia

Very good. And then, a follow-up, if I can, with regard to the gross margin structure in that business, we have now heard two quarters in which you have improved sequentially. But we have also heard H.K. you talked about that you still not getting the Silicon gross pricing breaks that you'd hope to get. And I guess, first question on that is that do you still expect over the course of the next, I guess, it would be three quarters to get the InfiniBand gross margin to corporate like levels. And second on that at what point downward, we potentially hear you guys talked about spending around Silicon and InfiniBand inside on the switch side?

H.K. Desai

I mean I tell you before, I mean, we have two goals. We have to make sure that, we are going to continue to two points what we do on the Silicon, we are not getting the price but we'd be like to be and we got some price but we are not seeing what we suppose to be anyway. So, what our goal is that if the business continue growing what we are seeing and if the growth is there either we have to go and if we don't give the price from the current suppliers, we have two choices either we go and partner with some other Silicon supplier, either we go and partner with some of our own competitors and do the silicons or we do our own silicons anyway. But I think that in next few months or so, we need to figure out whether we get the price or not. Our goal is eventually, like I said about three to four quarters, we want to make sure our IB switch margin is comparable to the Fibre Channel switch margin.

Aaron Rakers - Wachovia

Okay, very good. And then last question from me and I apologize if I missed this. But did you guys say what the like-to-like ASP erosion was in the Host Bus Adaptor business? And that's it. Thanks.

Tony Massetti

Yeah. We did Aaron. We said it was 1.9% like-for-like sequential decline.

Aaron Rakers - Wachovia

Okay. Thank you.

Tony Massetti

You are welcome.

Operator

We will take our next question from Jeff Brickman with UBS. Please go ahead.

Jeff Brickman - UBS

Hi. Great. Thanks. Last quarter, you commented your thoughts server virtualization might be slowing server growth and may be resulting some weakness in your HBA sales. Can you provide any additional commentary are you still seeing that now and do you still think that dynamic exists?

Jeff Benck

So, this is Jeff. I'll answer that. We continue to see virtualization to be a driver of HBA business. We did say in prior calls that we are sensitive to the fact that when you have consolidation going on that it is not necessarily all upside because you have potentially less servers that you have slots that you are plugging HBAs into. But when we look at 8-gig technology with high growth in virtualization, we actually see sort of an opportunity here that's coming out of the virtualization play that our customers are adopting. Where their bandwidth concern is there and they look at 8-gig as a need versus current technology. So, we see an opportunity to drive 8-gig technology and really virtualization is likely to be a killer app for 8-gig.

But that being said, we always just take a balance view in the sense that when you virtualize servers that potentially have less loss depending on the environment you are coming from.

Jeff Brickman - UBS

Okay. Thanks. And from an acquisition perspective, are you looking at any particular areas that you want to talk about or are you happy with your current position?

Jeff Benck

Well, we are in pretty good shape in the Fibre Channel technology. We almost done with 8-gig products. So, for the FCoE technology, you need to have expertise in Fibre Channel and Ethernet and we have lot of expertise in both because we did iSCSI products. So, we understand the Ethernet technology real well too so.

So, we are all set for FCoE technology from that perspective. We have also acquired the IB technology both for HCA and the switches. I think currently, we are in a pretty good shape. But at the same time, we always go and look about something, and if something is available, we always get to the (inaudible). So, we always leave our eyes open for anything which going to enhance our and match our strategy, we will go and acquire.

Tony Massetti

The strategy hasn't change in terms of our smaller technology kinds of acquisitions to broaden the IT portfolio and provide future revenue streams. So, the strategy is consistent at this point. We also want to stay focused with the Silicon companies we acquired last year. We have been focused on integration and driving consistency both in development, execution as well as manufacturing, supply chain. Which is were, we need to continue to focus to improve the margins as we talked about. So, we are, particularly sensitive to be in focus on acquisitions we have made and make sure there's good prospects.

Jeff Brickman - UBS

Okay. Great and then just last one for me. If I do the math, it looks like you have about $25 million or so less than the repurchase program, based on what you have already done this quarter. Should we expect for you to may be go back to Board and get a grant for an additional chunk here, or how are you looking at that?

Tony Massetti

Sure. In the prepared remarks, Jeff, we talked about repurchasing a $144.7 million in the quarter which is about 10.7 million shares. The average repurchase price was $13.52 and over 30 million subsequent to the end of the quarter. So, that leaves approximately 40 million left on the $300 million repurchase program approved by the Board in April. And we do have a Board meeting coming up in early November.

Jeff Brickman - UBS

Okay. Great. Thanks guys.

Tony Massetti

You are welcome.

Operator

We will take our next question from Kaushik Roy with Pacific Growth. Please go ahead.

Kaushik Roy - Pacific Growth

Thanks. I have a question on the networking product. Last quarter, you had motioned that networking products may grow 20%. Has anything changed from there?

H.K. Desai

Yeah. We said that we gave a color for the FY 2008 and we said that we expect that our Host Product will grow year-over-year from a mid-single-digit to high-single-digits and Network Products will grow about 20% and I think we are sticking to that number right now.

Kaushik Roy - Pacific Growth

And then on the Fibre Channel's fixed business, can you comment on your plans going forward? Are you going to have FCoE switches and if so when?

Tony Massetti

When we look at FCoE right now, we are looking at with out technology that we have today, as H.K. mentioned, we'll have in both Fibre Channel and some Ethernet technologies. But then also our partners are going to play a key role in this space as we go through this transition and the convergence that's going to happen there. So we are not, we are not going to talk about any specific switch announcements but we are going to continue to work with partners in this space in this new transition.

Kaushik Roy - Pacific Growth

So, do you think FCoE may have a negative impact on Host Products or switch sales? I am trying to understand the transition process.

Jeff Benck

When we see FCoE, you know we are pretty bullish, and we've invested pretty early here. And I even started to introduce our first Host Product at SNW this month. But, we also recognize, this is a new technology with very front end of it, and it's going to take a while for customers to understand it, and get into the technology adoption phase.

So, that's why I think you see us talk a lot about 8-gig Fibre Channel because of the needs for customers to do that refresh, and we see that sort of proceeding as expected, and not having FCoE really play a role there. But we do some incremental opportunity that will start to develop as customers look at converged fabric and what that will mean for us. So, when we look at next year, we don't see a big pickup from revenue coming for FCoE. But we will start to have products in the market, and we'll see how this new technology develops.

Kaushik Roy - Pacific Growth

And one last question for Tony. For modeling purposes, what should we use for share counts for December?

Tony Massetti

For the December quarter, Kaushik, you can be thinking in terms of about a 140 million shares.

Kaushik Roy - Pacific Growth

Okay. Alright, thanks. That's all.

Tony Massetti

You're welcome.

Operator

We will take our next question from Mark Moskowitz with JP Morgan. Please go ahead.

Mark Moskowitz - JP Morgan

Yes, good afternoon. A few questions, Tony, could you first start and help us out, did you say anything as far as the channel revenue exposure this quarter versus last?

Tony Massetti

No, we didn't talk about the breakout of the channels business. Typically, the September quarter is a seasonal quarter for the channels business with, there is not a lot of strength coming out of Europe with the vacation schedules and what not. So, the channels business was not really a revenue driver. As H.K. mentioned earlier, it was more of the OEM business which grows the sequential growth in the HBA business.

Mark Moskowitz - JP Morgan

But didn't you guys earlier say that Europe and Asia was particularly strong for you or was I misinterpreting that?

Tony Massetti

No, that's through our OEM partners as well, right. So, we get revenue of course through our OEM's through those geographies.

Mark Moskowitz - JP Morgan

Okay, that's fine. And then, Jeff, could you help us to understand the verticals right now, where you are seeing a strength obviously with InfiniBand, you're still in the early stages. But what verticals are really warming up? Is it still your traditional HPC folks like research academic or financial institution?

Jeff Benck

Well, I think when you look at InfiniBand, it's kind of interesting, it's not just scientific in academia now that's deploying these HPC solutions, we see. Our financial segment is particularly strong, petroleum is pretty strong when you look at -- we've had a strong presence in a number of petroleum-based cluster solutions, so they've actually got money to spend, and are looking at the next oil field in those kind of applications. So, we see strength there.

And then, digital media and entertainment is also an area of growth, of course with all the animation and things like that going on. Many of those customers are leveraging high-performance clusters for that work load. So, we see the growth in new applications and work loads there beyond the traditional public sector and academia deploying InfiniBand technology.

Mark Moskowitz - JP Morgan

And just as a follow-up there, Jeff, as far as the financial institutions, obviously, the last week and a half or so has not been too kind to the companies that have reported their earnings. Has there been a sort of tone change at some of these the Wall Street banks in terms of how they view InfiniBand in the near term?

Jeff Benck

Well, a lot of the discussions that I've had, that they still remain very interested in InfiniBand. In fact, I've seen some pressure on native InfiniBand stores, some request to that its not products that we developed, but we have seen people asking for that, still a lot of interest there. I think when they're under financial pressure, they continue to want to look at non-proprietary technologies, and we'll allow them to easily go back to the CIO and CFO and justify the spend.

So, that actually may put to our benefit, because InfiniBand sort of fits the bill as being a good value industry-standard technology, but also very high performance low latencies. So, I haven't seen a big change there, even though there has been some challenges in the performance of some of those firms.

Mark Moskowitz - JP Morgan

Okay, and then just two quick more questions here, I have one for Jeff and one for Tony. Jeff, can you maybe just walk us through, how we should think about the Fibre Channel director business. Do you need to spend more either on the R&D side or the education side working with the OEMs to really jumpstart this initiative here in the next call 6 to 9 months?

Jeff Benck

Well, when you look at the technology, I mean, I think we've got the right investment and product. We've got a leadership product there. We have got a number of sales reps deployed out with end users looking what their needs and demands are, and we continue to share that information and our insights with our OEM clients.

At this point, the OEMs have to decide what they want their portfolio, the mix to be, and how they see things play now. I think we have a disruptive product from a cost standpoint that can bring some significant benefit to those clients. And we will continue work with them on opportunities where they exist in the Fibre Channel switch portfolio. So, we've said before, the 9000 is a segment where it is a longer sales cycle with customers, and we noticed that from our channel business and obviously it is a more complex product offering. But that being said, it is a big market and there is a lot of opportunity for us to go to pursue both with OEMs and with the channel. So, that's kind of what I'd say about the Fibre Channel business, the Switch business right now.

Mark Moskowitz - JP Morgan

Okay. And then, for Tony, just lastly here. Tony, answering Mr. Bachman question earlier about the potential for a price premium, these and early stages what the 8-gig that that of that the optics module, in terms how that's been the lot more expensive versus 4-gig, whereas the 8-gig optics module even miss you any more?

Jeff Benck

I think I can answer that. I think the optic, I think what Tony was talking about that in generally when you see these things the 2-gig, 1 to 2 or 2 to 4, you will see that, you see a little price premium for a couple of quarter before the volume ramp start. He was not talking about the optics and optic is going to be a different story on this one. Hopefully, optics also will come down eventually to same level 4-gig, but there might be a little higher pricing because of the 8-gig optics initially.

Tony Massetti

Yeah, we see that on the front end 8-gig optics is going to be more expensive, some of environments I have placed, so we don't need all the optics, there is an opportunity for, yet to be more consistent with 4-gig but we also saw 4-gig optics come down fairly quickly. Yes, as production moves there, volume moves there, that will move too.

Mark Moskowitz - JP Morgan

So you don't see any relative to the margin profile than from optic fees?

Tony Massetti

No, not at this point.

Mark Moskowitz - JP Morgan

Okay, thank you. Good afternoon.

Tony Massetti

Okay, you also, thanks.

Operator

We will take our next question from Shebly Seyrafi with Caris. Please go ahead.

Shebly Seyrafi - Caris

Yes and thank you very much. So, there has been a lot of chatter about the accounted third quarter being little tough on the storage space, is it fair to say that there you did see the market being difficult in the first part of calendar Q3 and did it improve for example in the month of October, is that why you are getting more positive about the growth rate sequentially in calendar Q4?

H.K. Desai

No, I mean, I think we have, simply if you look at, what we have seen in our business for the last many, many quarters that because of the offset of some of the OEMs like HP and Dell and NetApp we always have a stronger first month of every quarter then it's kind of level off in the second month. And then, we expect a stronger third month and that's the trend we have for I don't know how many quarters now anyway. So, I think, we have seen same thing in September quarter and we started the same way in December quarter.

Shebly Seyrafi - Caris

Okay. And can you talk about the competitive dynamics, I know, pricing was stable but do you think you gained or loss share against your major competitor?

H.K. Desai

I mean, if you look at, if you listened to my script, I said on that that we gained, we had, if you look at the Dell'Oro report, we gained market share from our March quarter to June quarter both in a revenue wise and also the port count wise. But if you look at Dell'Oro report said in the second quarter report that in the revenue share we increased from 43.4% to 44.4% and the port count is 45.8% to 48.5%. We also look at some of the un-audited number unofficial number we got from our OEMs then the data they gave us that IBM for example, we gained our share in a September quarter in the Mezz Card for example we are flat on the standard HBA. At the HP, we got a share both of standard HP and the Mezz Card. On the Dell we got a share both of standard HBA and the Mezz Card anyway. So, if you look at those OEMs, I think all our dealers either its Dell'Oro or the dealer from our OEM customers, we are going to share in the September quarter.

Shebly Seyrafi - Caris

Okay. And I have a broader strategic question. It looks like with the network products segment is one where you are evaluating whether you are going to close a bit or make modifications? The silicon products segment is declining naturally, as management controllers decline overtime, I mean, is there a scenario that whereby in the future you are basically a Host Products company, you are backed being an HBA kind of you are not diversifying, your are worst diversifying?

H.K. Desai

No, I mean, like Jeff said we always look at this things, in every business we have is, I mean, if you look at our track record, we are extremely profitable company for last 49 quarters and we haven't lost our money single time. We have great margin profile, so we look at our business and we always look at business from a profitable perspective, are we profitable in the business or not?

And we always invest in new business, we always have invested because it takes time for the profitability. We are very profitable in some business in an investment stage and that's why we continue our strategy. So, like we acquired a company in the IB side and we won't be profitable for one or two or a few quarters anyway. But our strategy is always to continue the diversified approach and you look at the every segment, if you are not successful for a longtime then you always rethink and relook at it, where you are going to invest. And we are still gaining, our growth is still there for example in the blade switch side, I mean, we have a switch blade design with IBM and we have the Virtual Connect for example with HP.

Some in we are doing in a certain segments, it's a very well, the areas we are not performing well to our expectations on the Fibre Channel switch side particularly on the 9000 products and it's a long, long sale cycle. So, we are going to wait till FY '09 and see how it goes. I think, it's also fair to say, we are a more diverse company. If you look at us, today, then a year ago or two years ago, not only with the investments in InfiniBand, both Switch and Host, but also with our iSCSI products and with the range of Fibre Channel offerings we have. We have got really a pretty broad range, pretty broad set of offerings that we go to market with.

H.K. Desai

But, I think the key point I may have said in my prepared text that I mean 2008 is a transitioning year for us. I mean if you look at the Silicon business declining for the whole year which is of few reasons. One, we got out of the management control a few years ago and as I think it's the end of life for that. The protocol silicons, which has transitioned from Silicon business to the Mezz Card. So, we had a 100% Silicon business. When you tie it with the Mezz Card, you are going to decline the Silicon business.

We decided not to invest in the 4-gig Silicon for the target, Silicon for example. So, all this is going to come to the end in FY08 and we expect because of the 8-gig because of InfiniBand investment we have and also with the FCoE, we are way ahead of our competitors. So, I think we expected our growth will come back.

Unidentified Analyst

Thank you.

Operator

We will take our next question from Tom Curlin with RBC. Please go ahead.

Tom Curlin - RBC

Hey. Good afternoon. Can we talk a little about the March quarter in terms of seasonality? So, the last few years that's been anywhere from flat to down 6% or 7%. And I am just trying to understand, hopefully, if you can give us some thoughts on at least the best case scenario for sequential trend in March or how you would want that modeled, especially given, the up and down side with the Silicon product segment? Do you worry that you are going to have another surprise show up in the March quarter there, given some of this end of product buying behavior? How do you think about the March quarter with respect to that segment just overall?

H.K. Desai

I mean I think we never give a guidance to the March quarter. We will guidance only to the December quarter. But I can give you a little color on these things. If you expect March is a seasonal quarter, all of our OEMs will be declining in the March quarter. It is a seasonally slow quarter for all of them. And I think we said before too, Tony said before that we expect maybe 2% to 3% sequential decline in the March quarter. That is what we expect right now. It's too early to say that because it sometimes depend on the product cycles, sometime depend on the new technology. We introduce some new products and things can change. Two years ago, we were up sequentially. So, you can really try it now, as Tony said that. But if you look at history probably, it's 2% to 3% sequential decline.

Tom Curlin - RBC

Okay. And specifically there on the Silicon products, how much of that mix is this legacy, while you've got, we'll call it, legacy stuff and then you've got I guess the existing Fibre down or all blade server, chip based designs. What piece of that is really risky if you will, if just disappearing and like we saw in the March quarter?

Tony Massetti

I think we have said, Tom, and as always we cannot predict what will happen in the future anyway. If I predict everything, I won't be talking to you guys. But if you look at we said Silicon business will probably decline a $500,000 to $1 million a quarter anyway. This quarter was a little unusual because of the end of last time buy anyway. We expect same thing in December quarter and for you we will expect same thing in the March quarter. It's too early to say that.

Jeff Benck

The customer base is generally tier 2 customers. There are many customers in that $11 or so $12 million comp. We did see a sort of a step down in the revenue from March to June that was anticipated and that happened but we don't see that kind of tier step function in the revenue in the March quarter or beyond that

Tom Curlin - RBC

What is the legacy management controller revenues still more than, say, $3 million a quarter?

Tony Massetti

No. It was below $1 million as expected in the September quarter.

Tom Curlin - RBC

Okay. And the rest is more just Fibre down, ships on blades versus Mezzanine that kind of stuff?

Tony Massetti

Also the target scenario for the tier 2 customers.

Tom Curlin - RBC

Okay. All right. That surprise me.

Tony Massetti

And also the iSCSI targets silicon.

Tom Curlin - RBC

Okay. Now, in terms of some of the OpEx efficiencies and this kind of relate to the go-forward strategy on switches. I think there has been a rift in the Minneapolis Group, specially marketing and stuff like that. Is that Fibre Channel switch focused? And what's the thinking on the Fibre Channel Switch go-to-market strategy in that context?

H.K. Desai

Whatever we do on, this is not based on the long term strategy, whatever you have seen it. Many times we make adjustments. Every business units has to perform according to their plan anyway, and I think they make a lot of decisions based on that. And also we came out with a tremendous investment in the R&D and marketing on the 8-gig product. And I think we are done with the 4-gig and 8-gig anyway. We have tremendous investment on the switch on the 9000 products, which is last two to three years anyway. So, lot of these things is like coming to the fruit anyway. So, we always make adjustment on the spending based on when they are in the product cycle.

Tom Curlin - RBC

And finally, are you developing your own 10-gigbit Ethernet silicon for the FCoE strategy on the Host side, just given the changes with, I guess what was the Roseville group. Had that been pulled back to headquarters or -- what's your silicon strategy for that?

H.K. Desai

Our Ethernet expertise in Roseville, they are there, and they will be always there.

Tom Curlin - RBC

Okay. So that's ongoing silicon work for Ethernet?

H.K. Desai

Yes.

Tom Curlin - RBC

Okay. Thank you.

Operator

And we'll take our next question from Clay Sumner with FBR. Please go ahead.

Clay Sumner - FBR

Yeah, thanks very much. Jeff, I just want to go back to what you're saying about end user pull for 8-Gigabit. Can you just put some more color around, in what kind of used cases the 4-Gig Fibre networks aren't keeping up with the need, what type of customer, what type of load?

Jeff Benck

Well, we have -- what we have is a bit of a confluence here of three events you've got denser technology with blade that's happening there, you've got multi-core processors coming out with quad-core processors are now out there, and then stacked on top of that, virtualization. So now you've got a server that's potentially representing 6 to 8 to 10 virtual machines on one platform. So, when you look at that, and you look at the data center, what used to fit in our row in the data center now fits in a rack. And if you look at the number of IO lanes coming off of there, you need to have a bigger pipe, because in many cases you're now supporting many more systems with one machine. So, many more virtual environments with one machine.

Also a higher availability is required because of now got more machines -- one machine handling multiple work loads. So, saying deployments are really the preferred choice there, and then also in a virtual world, if you want to move work loads from one server to another, you really want to have centralized storage. So, that you don't have a state fold computing on a given server.

So when you look at all that, that's why we see a real need for customers deploying it. Another example, one of our early customers is actually in the film area, and when they look at do and digital video and film playback, they are finding with 4-Gig at high resolution. They actually have some choppiness in that, and with 8-Gig it's a clean playback. So, that's a kind of application that driving the need for 8-Gig technology with our end customers that we see.

Clay Sumner - FBR

Okay. So, its suffice to say for the mass market, kind of blades and virtualization and quad-core will be sweet spot?

Jeff Benck

Yeah. That's clearly the trends that are going on there and we see it driving the demand on 8-Gig. And I think we said in our prepared remarks, there was probably a little bit of push from the manufactures on 4-Gig with 8-Gig, we see a bit of pant-up demand there.

Clay Sumner - FBR

Okay. And then on the silicon category, to just make sure I understand what you guys are talking about, I thought you said at one point during the Q&A, that the 4-Gig target silicon, you didn't choose to invest in that, and therefore target silicon is also something that's going to keep going down. Does $40 million this year go to $30 million next year? Is that the kind of transition you expect?

H.K. Desai

So let me -- I think Tony can give you the numbers, and let me tell you what's the silicon business. I think I said few times, but if you look at our silicon business, is there is a lot of components, it is a one management controller which we decided not to invest about three years ago or something. So, it's going to be end of life, pretty soon, I don't think on much there.

Clay Sumner - FBR

But that's already just a million dollars.

H.K. Desai

Right. So, then if you look at protocol silicon, there is a two-type one is a whole side. We initiate our which is really the Fibre down or we just go for the Mezzanine Card, which is converting from Silicon to the Mezz Card. So, that's another kind of second condition. The target silicon, which is really most of our business on the target silicon, is a Tier 2 or Tier 3 types of OEMs. Anyway, so we have some business and we kind of invest, we have decided not to invest too much onto that thing. So that business will be declining which we are already counting our numbers. And the fourth one is, the really target silicon for the iSCSI which will continue growing or at least this will be a flat for a while.

Clay Sumner - FBR

Okay.

H.K. Desai

If you look at the overall number

Tony Massetti

Yeah, the overall number, Clay, for modeling purposes, you can expect that to decline $500,000 to $1 million sequentially, for the balance of this year into next year.

Clay Sumner - FBR

Okay. So, I'll leave it at that. Thanks very much.

Tony Massetti

Okay, you are welcome.

Operator

We will take our next question comes from [Roberta Chen] with Lehman Brothers. Please go ahead

Roberta Chen - Lehman Brothers

Hi guys. Thanks for taking my question. I just wanted to follow-up a little bit on cost expression actually, on full year outlook, I was wondering if your viewpoint is still at more or if you said that your viewpoint -- if that moderate growth will come from InfiniBand for this [physically] or has that viewpoint kind of changed in light of recent results. And if you have any update on any OEM for expanding opportunities and where you are at with that? That would be great, too. Thank you.

Tony Massetti

Are you talking about the 20% growth for the networking model, Roberta?

Roberta Chen - Lehman Brothers

Yeah, in terms of the split between

H.K. Desai

I mean we say that most of our growth, we said before that on our Network Products, we expect to grow about 20% year-over-year and almost all the growth will come from the IB switches.

Roberta Chen - Lehman Brothers

Okay.

H.K. Desai

We said that, and we still stand by that.

Jeff Benck

And we stand by that. And did you have a second part to the question?

Roberta Chen - Lehman Brothers

Yes. That you had any updates on the OEM for spending on machines? I know you've mentioned fiscal year '09, but, if you had any additional granularity on that?

Tony Massetti

We are really not in the position to comment on the switch OEM business, until we are into position to start shipping with them. So, we haven't given any specific feedback on that other than to say, we can of course to continue to work with Tier 1 OEMs on switch business, both on the InfiniBand and then on the Fibre Channel side of thing.

Roberta Chen - Lehman Brothers

Great, thank you.

Operator

We will take our next question from Glenn Hanus with Needham. Please go ahead.

Glenn Hanus - Needham

Just a little more on the InfiniBand side. As we think about going beyond this year and I know you are not giving guidance but core growth in that market something a little beyond the 20 area a little bit more towards 30, is that there?

Jeff Benck

Well, I mean, we talked about IDC we have tagged almost 40% CAGR in that space. So, when you look at our profile next year, I think, InfiniBand is going to play a role in our growth. I mean there is no question about that. And I think given our position and capabilities that QLogic has with now both host and switch and our support structure and the backing that couple like QLogic have put in InfiniBand. We think we are positioned to gain share there.

Glenn Hanus - Needham

Thank you.

Operator

At this time, there are no further questions. I will now turn the conference back over to Mr. Massetti for closing comments.

Tony Massetti

Okay, thank you. I'd just like to point out that this afternoon, we did make available on the QLogic website under Investor Relations the historical revenue breakout for fiscal year '07 for your use and modeling and that's the breakout in the current revenue categories host networks, Silicon and others. So, please let us know if you have any questions of that revenue breakout.

So, thank you for joining us on our second quarter fiscal year 2008 conference call. I want to note several upcoming conferences that we'll be attending. In November we'll be at the JP Morgan's Small and Mid Cap Conference in Boston and the UBS, Global Technology and Services conference in New York. And then in December, we'll be attending the Lehman Brothers Global Technology Conference in San Francisco, followed in January by the Needham Growth Conference in New York.

So please refer to the Investor Relations section of our website at www.qlogic.com for any updates to the conference schedule. For those of you planning to attend any of these conferences, we look forward to seeing you there. Thank you.

Operator

Ladies and gentlemen, this will conclude today's presentation. We do thank you for your participation, and you may disconnect at this time.

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