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

Executives

James M. McCluney - Chief Executive Officer and Director

Michael J. Rockenbach - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Secretary and Treasurer

Jeffrey W. Benck - President and Chief Operating Officer

Analysts

Paul H. Mansky - Cantor Fitzgerald & Co., Research Division

Harsh N. Kumar - Stephens Inc., Research Division

Vlad Rom - Crédit Suisse AG, Research Division

Amit Daryanani - RBC Capital Markets, LLC, Research Division

Jayson Noland - Robert W. Baird & Co. Incorporated, Research Division

Glenn Hanus - Needham & Company, LLC, Research Division

John Slack - Caris & Company, Inc., Research Division

Emulex (ELX) Q1 2013 Earnings Call October 25, 2012 5:30 PM ET

Operator

Good day, ladies and gentlemen, and welcome to this Emulex Corporation Fiscal Year 2013 Q1 Earnings Release Conference. Just a reminder, today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to the Chief Executive Officer, Mr. Jim McCluney. Please go ahead, sir.

James M. McCluney

Thank you, operator. Good afternoon, everyone, and welcome to Emulex's First Quarter Fiscal Year 2013 Conference Call. I'm Jim McCluney, CEO of the company, and with me today are Jeff Benck, our President and COO; and Mike Rockenbach, our CFO. Mike will start off with a prepared remarks for our first quarter results. I'll follow Mike with my comments on the current business climate and then Jeff will provide more color on the results for the quarter and an update on our progress on key initiatives for our fiscal 2013. I'll close our prepared remarks with some summary comments and observations, and then we'll open the line for questions.

So over to you, Mike.

Michael J. Rockenbach

Thanks, Jim. By now you should have Emulex's first quarter 2013 earnings release, which was issued earlier this afternoon. If you do not have a copy, the press release is available in the Investor Relations section of our website at emulex.com. The press release and this presentation contains forward-looking statements, including but without limitations, statements regarding Emulex's business, operations, ongoing patent litigation and related mitigation efforts, and the anticipated financial results for our second quarter of fiscal 2013 and beyond.

These statements are subject to a number of risks and uncertainties and our actual results may differ materially from those discussed in the forward-looking statements. Those risks and uncertainties are highlighted in our earnings release and under the heading Risk Factors in Emulex's most recent annual report on Form 10-K and quarterly reports on Form 10-Q. We undertake no obligation to update the forward-looking statements. During the call, we may use any historical non-GAAP financial measure. You'll find a reconciliation to the most directly comparable GAAP financial measure in our earnings release. All of the references we will make today relate to our non-GAAP results, unless stated otherwise.

Today's conference call is being webcast and the recording will be available on the Emulex website through October 2013. I'd also like to remind participants that if you decide to ask a question, it will be included in both our live transmission, as well as any future use of this recording. Now, let me review our results for the quarter.

Sales for our first quarter came in at $119 million, which was within our guidance of $118 million to $122 million provided on our earnings call in August. Net revenues for the quarter were down 8% sequentially and grew 1% year-over-year. Diluted earnings per share in the first quarter increased over 45% from a year ago coming in at $0.19, which exceeded the high end of our August guidance of $0.14 to $0.16. The year-over-year earnings improvement was primarily due to a 12% reduction in our quarterly operating expenses.

Taking a look at revenues by product line. Our Network Connectivity Products or NCP represented over 80% of our net revenues this quarter. The NCP product line consists of Fibre Channel and Ethernet products that are used to connect services and storage arrays to our Fibre Channel Storage Area Network or to an Ethernet network.

NCP revenues totaled $97 million, an increase of 10% sequentially and 12% year-over-year. Strength in both our Fibre Channel and 10Gb Ethernet products delivered better than seasonal growth for the September quarter. Net revenues for our Storage Connectivity Products or SCP totaled $19 million, accounting for 68% of revenues for the quarter.

On our last earnings call, we have model for SCP to be down as much as $10 million as a result of last time buys of legacy products, which were completed in the fourth quarter. As the revenues were down $14 million sequentially and $5 million from the year-ago period. Given the current weakening outlook for near-term IT spending for storage, we're modeling for SCP revenues to be relatively flat in Q2, and $80 million $85 million for fiscal 2013.

First quarter gross margins were flat year-over-year, coming in at 63% for the quarter and we expect margins to remain at this level for the December quarter. Total operating expenses for the quarter came in at $55 million, which represented a 12% reduction from the first quarter of last year. $4 million in R&D savings combined with lower litigation expenses and G&A made up the majority of the spending decrease.

Operating expenses were 46% of revenues, down 7 points from the 53% we reported in the year-ago quarter. Patent litigation expenses were under $1 million. And looking forward, we expect quarterly patent litigation expenses will be in the $1 million to $2 million range for the remainder of the fiscal year. Operating income increased over 60% compared to Q1 of last year, coming in at $20 million or 17% of revenues.

Net income for the quarter was $18 million or 15% of revenues. We had a tax rate of 13% compared to 9% in the first quarter of last year, and for modeling purposes, we expect the tax rate to remain at 13% for the second quarter.

Turning to our GAAP results. First quarter gross margins were 58% of net revenues, GAAP operating expenses for the quarter totaled $62 million, a decrease of 13% from the first quarter of last year. GAAP operating expenses included $500,000 related to the patent litigation efforts, $1.5 million of amortization of intangibles and $5 million of equity-based compensation charges. We reported operating income of $7 million or 6% of revenues on a GAAP basis, compared to a loss of $24 million in the preceding quarter and a loss of $6 million in the comparable period of last year. GAAP net income for the quarter was $1 million.

Before I discuss our targets for the second quarter of fiscal 2013, I want to again remind everyone that our public filings with the SEC and our Safe Harbor statement, included in our press release, discuss the risks that can affect our future performance causing actual results to differ materially from forward-looking statements.

Based on the current operating environment and the recent forecast from our customers, we're modeling for revenues of $120 million to $124 million for our second quarter ending December 30, 2012. We anticipate non-GAAP diluted earnings per share in the range of $0.19 to $0.21 for the second quarter. And on a GAAP basis, we expect EPS to be as much as $0.02 per share. Second quarter GAAP results will include up to $0.19 impact from stock-based compensation, amortization of intangibles and patent litigation-related expenses, including royalties, litigation expenses and license fees, as well as the associated tax impact and U.S. valuation allowance.

Now let me turn the call over to Jim.

James M. McCluney

Thanks, Mike. It's good to report another solid set of quarterly results. We continue to execute well on the top line with NCP, once again, doing very well. And we maintained gross margins at 63%, above the projection we gave you in August. We kept operating expenses below 50% of revenues and all of this helped propel earnings per share up 46% year-over-year, and well above the top end of our September quarter guidance.

Looking to the December quarter, it's apparent that fears of a slowdown in the global economy are materializing and are impacting IT spending. Many companies in our sector and across a broad spectrum of industries are modeling for revenues to be flat or down than what has typically been a strong seasonal quarter.

We reflected the reality of the current spending environment in our outlook for the December quarter, modeling for 2% sequential revenue growth at the midpoint of our guidance. This guidance while lower than our normal seasonality, does point to our capability to deliver sequential growth despite the headwinds. Our growth in NCP continues even if it's clear that the Romley and 10Gb adoption is slower than everybody anticipated. And as we experienced some constraints on our the 10Gb Ethernet growth potential as a result of the injunction on U.S. sales.

While both of these situations are having an impact on our current growth, we do continue to see the Romley transition as a positive catalyst for us. That, coupled with a great position in the 16Gb Fibre Channel, will give us an opportunity to continue to outpace the competition and win share in our core markets.

Even in this economic climate, we're continuing to be engaged in next-generation development at our customers as digital data growth continues to demand faster and more efficient networks. Both 16Gb Fibre Channel and low-latency 10Gb and soon-to-be 40Gb Ethernet, are going to be essential for enterprise data centers. And Emulex is right at the forefront of these transitions.

So with that, let me turn it over to Jeff.

Jeffrey W. Benck

Thanks, Jim. Today, let me cover 3 topics. First I'll provide some additional color on our first quarter results and our current view for the December quarter. Next, I'll take a few minutes to talk about our latest 16Gb announcements, the competitive landscape and the progress of our networking market share initiatives. And finally, I'll close out my section by providing some highlights since our August call in the area of international expansion and further investment in the high-growth markets.

We achieved our goal to grow NCP revenues in what is typically a flat to down summer quarter. With double-digit revenue growth both sequentially and year-over-year, NCP continues to significantly outpace the low-single-digit growth of service spending. We saw strength in both our Fibre Channel and our 10Gb Ethernet business during the quarter, albeit at a level that still reflects a relatively modest ramp of Romley-based servers, in what continues to look like a weaker macro spending environment.

Turning to operating expenses. Our continued focus on expense management and operational efficiencies has enabled us to reduce Q1 expenses year-over-year by nearly $8 million, while continuing to invest in our leadership technology roadmap.

Let me provide you an update on our expected Fibre Channel market share. While the final reports won't be out for another couple of weeks, with our strong Fibre Channel quarter-to-quarter growth, particularly in that X86 segment, I'm confident we built on our market share gains from last quarter. And we're pretty excited about the fact that we now have over 75% market share in the new 16Gb Fibre Channel segment, reflecting our technology and time-to-market advantage.

Pressing our Fibre Channel leadership further, we made a couple of key announcements during the quarter. For example, at Oracle OpenWorld, we announced availability of our new LPe16000B, our second-generation of 16Gb Fibre Channel HBA. This product is built on our multi-fabric XE201 ASIC that could support both 16Gb Fibre Channel and 10Gb Ethernet concurrently, enabling network convergence.

Our unique 4-port Fibre Channel and 10Gb design is ideally suited for storage target opportunities where customers want the flexibility to run multiple protocols concurrently with high port density. On the server side, this is the only shipping Fibre Channel product that takes full advantage of Gen 3 PCI Express.

Why is this important? PCI Gen 3 supports the performance needs of solid state disks and storage arrays, the growth of virtual machines and deployment of target side opportunities. This will drive increased adoption of 16Gb in calendar 2013.

Another key trend in the market is the use of SSDs in new servers and storage systems, which has the opportunity to be very disruptive to today's systems architectures. Our strategy to participate in this evolving market has been to align with our OEM customers and pursue a partnering approach to delivering solutions.

To that end, we announced an interoperability and development relationship with the Fusion-io for a flash-optimized I/O connectivity solution, utilizing our 16Gb Fibre Channel today at 40Gb Ethernet-based RDMA in the future, targeted at our mutual Tier-1 OEMs.

Second, we also introduced an expanded partnership with EMC, focused under VF Cache flash-based product line. We're now working with the EMC on expanded sales solutions and marketing programs for maximizing the performance and scalability of their VF caching product, coupled with our 16Gb adapter via EMC's direct sales force and our shared channel partners.

So overall, there are a lot of great things happening in our Fibre Channel product line, and add to this another good quarter of growth for our 10Gb business where we believe we gained share in the September quarter as well, even considering there is some segments of the U.S. market in which we cannot effectively participate in today.

Fundamentally, our Ethernet technology and roadmap, including 40Gb with RDMA, are industry-leading. As part of our strategy for the future, customers have asked us to provide a low-cost alternative to InfiniBand that can be used to converge LANs, SANs and HPC workloads, while allowing IT managers to leverage their common set of tools and practices in the data center. We see the opportunity to drive the second major phase in network convergence by combining HPC, SAN and IP networks on a single wire with software defined networking tools leveraging low-latency 40Gb Ethernet. This strategy will enable us to even faster growth of our Ethernet business in 2013.

Now moving to my final topic. Since I last spoke with you, we continue to make modest investments in our sales force in key growth markets, including South America and most recently, in Beijing, China. I recently visited Asia for the opening of our Beijing subsidiary, and also met with several of our fastest-growing customers. Over the coming quarters, I expect we will see some incremental cloud and enterprise opportunities opening up for us as we expand our in-country presence.

Now let me wrap up. I'm pleased with the cadence of new products and partnerships that we have been announcing, and our pipeline continues to expand as I/O becomes more strategic in the enterprise. I look forward to updating you over the coming quarters as we continue our innovation in this exciting market.

Now let me turn it back to you, Jim.

James M. McCluney

Thanks, Jeff. Good job. Just to sum up, even though we face some uncertainty in IT spend on a more muted next-generation server launch, we continue to execute well. This, coupled with our leadership roadmap, our deep and growing customer relationships and design wins, gives me confidence that will come through this near-term issues even stronger and be positioned to solidify market share gains as the solution provider of choice for I/O connectivity.

So with that, Jeff, Mike, and I are ready to take your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question will come from Paul Mansky, Cantor Fitzgerald.

Paul H. Mansky - Cantor Fitzgerald & Co., Research Division

First on a housekeeping basis. Did I hear you or did you disclose what 10Gb is as a percentage of revenue this quarter, I believe you've provided that for us in the past?

Jeffrey W. Benck

We didn't break it out and I don't think we've been breaking it out. We have been talking about growth rates as we look at our 10Gb. We did see sequential growth and greater than 25% growth year-over-year in the quarter. And that's about as much detail as we provided before.

Paul H. Mansky - Cantor Fitzgerald & Co., Research Division

And the management control of this, I know it's a relatively small number, but it was down substantially year-on-year. Is that a reflection of just overall weakness in this server market and inventory balancing there or should we be thinking about stripping that out of the model going forward given some design considerations?

Jeffrey W. Benck

We have a lot of design wins there, so I'm pretty comfortable with the roadmap going on. And we had some customer transitions and maybe a little bit of inventory, but there's some other products in that category, too, so you see you can't look at ATP and make a conclusion just from that. But I certainly wouldn't strip out management control because it's a strategic area for us. And we're seeing some new designs in storage and switch vendors that have expanded the pipeline, at least. But we did see a little bit of fluctuation in that business this quarter, but I don't see it as a long-term trend at all.

Paul H. Mansky - Cantor Fitzgerald & Co., Research Division

Okay. So you think it'll be fair to say it's between a $5 million to $7 million kind of run rate on a normalized basis, I mean, $5 million to $7 million per quarter?

Michael J. Rockenbach

I think that's a fair way to look at it, although for December, we don't expect it to be that high, that's probably more likely saw in the September quarter.

Paul H. Mansky - Cantor Fitzgerald & Co., Research Division

Okay. And then lastly, from a -- looking over at IBM, obviously, it's a fairly substantial server refreshes both z and pSeries. Can you kind of frame up how you expect those to impact, maybe not necessarily the December quarter, but if you think that that's a tailwind for you going into March? And then remind us what your content is within that zSeries these days?

Jeffrey W. Benck

Well, from the zSeries, we saw some strength actually in Fibre Channels, you could contribute a little bit to that in the September quarter. That's an ASIC sale for us, so it tends to be in front of their run-up. I know they've talked a lot about the new launch, so we probably sell a little bit on z ahead of that. As far as power goes, some of our -- we're pretty excited about them bringing the 16Gb to the market, it's not there yet, we'll see that over the next 6 months here. And I'm sure we'll see upside, but I expect that upside to be actually more in the beginning of next calendar year. But we're pretty excited about our position there. We've also got some new 10Gb wins that will be coming to market. So it's -- I think that's going to be pretty solid for us. But looking more in the next calendar year.

Operator

Up next we'll hear from Harsh Kumar, Stephens Inc.

Harsh N. Kumar - Stephens Inc., Research Division

I just wanted to ask about the OpEx rate. You had a couple of quarters last -- I mean, this year, actually, with $55 million, $56 million kind of a rate. And then spiking up in September and March, should we think about this level as sort of the new baseline, but maybe 2 quarters in the fiscal year spiking up for auditing and payroll taxes?

Michael J. Rockenbach

Yes. This is Mike. It does vary from quarter to quarter. I don't think this is quite our rate. We did have relatively low patent litigation in this particular quarter. So I think we're expecting it to be a little bit higher in December. And then as you mentioned, payroll tax matching starts over again, which adds a couple of million dollars predominantly on the engineering line because that's where the headcount is, starting in the March quarter. So I think, our goal is, if you saw the numbers for this quarter, we're about 46% of revenue and we think we can keep operating expenses under 50% of revenue for the full year. But it will kind of vary from quarter-to-quarter. And I think, overall, a couple of quarters was pretty low for us, at least for this year because we had very little expenses on the litigation side.

Harsh N. Kumar - Stephens Inc., Research Division

Okay. Great. And I just wanted to clarify if I heard you correctly, that both Fibre Channel and 10Gb were up in September quarter, is that correct?

Michael J. Rockenbach

That's correct.

Harsh N. Kumar - Stephens Inc., Research Division

Okay. And how do you -- what are you thinking in terms of December quarter? Should we expect or should we think of both of them being up or just one?

James M. McCluney

Well, we don't break out products on a forward basis, but we are anticipating growth in our overall NCP product line, what they call the mix just now.

Harsh N. Kumar - Stephens Inc., Research Division

Fair enough, fair enough. And Mike I wanted to ask you a quick question on legal expenses, since much of the technology that was on the question for your legal expense -- of your patent litigation is actually licensed by you from other companies, do you get reimbursed for some of the legal expenses? Has that been happening or is that even a possibility?

Michael J. Rockenbach

Over the last year or so, there has been some specific pieces that have been reimbursed. But because the patents cover a number of products that come from a number of different vendors, we focused on the defense part of it first. And there is some protection within the contracts, but we'll look at that once we get past all the litigation.

Operator

Now from Credit Suisse is Vlad Rom.

Vlad Rom - Crédit Suisse AG, Research Division

I was wondering, can you talk generally about pricing trends that you're seeing in the 10Gb E market and the Fibre Channel market and where you expect those to head?

Michael J. Rockenbach

Yes. This is Mike. Actually, the pricing trend has been pretty benign from an ASP erosion over the last year. The main reason for that was both of the products is -- it's an OEM base sale and the pricing structure for the life of a particular platform is negotiated at the time that we get awarded the design win. So the only thing that really affects -- kind of affects that overall is the mix between customers. It's not kind of priced on a day-by-day basis, that's negotiated price up front. But that should have been pretty good. We looked at that earlier on, on a kind of a year-over-year basis and it was well within what we were expecting on a macro basis or for both Fibre Channel and 10Gb.

Vlad Rom - Crédit Suisse AG, Research Division

And how do you expect that to trend over the next few quarters?

Michael J. Rockenbach

Well, we don't expect it to change because the pricing is structured at the time we get the design win. So it's really driven by the mix of the customers. So we expect based on where we're at today that the pricing environment is going to be about the same over the next few quarters.

Operator

Next up is Amit Daryanani of RBC Capital Markets.

Amit Daryanani - RBC Capital Markets, LLC, Research Division

Just a couple of questions. One, the December quarter guide, you guys are looking up 2% or so sequentially. Can you just talk about, is the growth -- the sequential growth, I guess, is that fairly centered on IBM given the fact they're having some fairly sizable refresh cycles or do you think you're seeing modest but muted growth across other OEMs as well? I'm trying to get a sense on how broad the growth potentially is?

James M. McCluney

Yes. I think we usually see the 7% sequential growth going into December and we are at 2%. So we're off a bit in and that's more, from our perspective, more macroeconomic related. And the December quarter tends to be a good quarter with us with IBM. And I think we are projecting that we'll gain share across-the-board going into December and with particular focused on NCP, I think, as Mike said on the call, we expect NCP to be relatively flat going into the quarter. So I think there's obviously pockets of strength depending on the customer base and pockets of weakness, as well. You can see that from all of the recent reports, but, I think, that balances us out to that sort of 2% growth rate at the midpoint.

Amit Daryanani - RBC Capital Markets, LLC, Research Division

Got it. Maybe just a follow-up question was going to be around how do we think about the litigation expenses beyond the December quarter? Could you give us some sense of what you think fiscal 2013 expenses could be from that?

Michael J. Rockenbach

Well, the second hearing or the second trial is going to be in April. So we expect it will be at that level for each quarter -- I'm sorry, $1 million to $2 million per quarter through the end of the fiscal year and then that should be it.

Operator

Next, we'll hear from Jayson Noland, Robert Baird.

Jayson Noland - Robert W. Baird & Co. Incorporated, Research Division

It sounds like Romley is ramping slower than expected. Is that a safe assumption for a 16Gb FC also? A slower ramp or kind of an elongated ramp in a tough macro?

Jeffrey W. Benck

It's a little early on 16Gb. I would say Romley has not taken off the way we might have anticipated, but when we look at our 16Gb Fibre Channel, some of the quals are pretty late in the Romley cycle. What I mean is, some of the platforms launched actually even before we had the quals complete. We did see our 16Gb business triple, quarter-to-quarter, of course, off a pretty small base. But we saw pretty good 16Gb growth, and the analysts are predicting a faster transition to 16 than we saw from 4 to 8. So we're pretty optimistic there. And I think you'll see further OEM quals in the next few months here, even on the target side. So I'm not linking -- I don't link the 16Gb as closely to Romley as maybe what we've seen in the 10Gb side.

Jayson Noland - Robert W. Baird & Co. Incorporated, Research Division

Okay. Mike, a question on SCP. You talked about 80 to 85 for the year flat and up Q2 and that would imply a pretty strong ramp in the second half, I guess, what are you seeing there?

Michael J. Rockenbach

Well, I think where we're at right now, it appears to be that -- well, similar to what we see in the past, SCP kind of is in peaks and valleys. That seems to be an area where there tends to be more of an inventory build from time to time. So based on where we're at for this part of the -- this half of the fiscal year, we think there's some inventory to burn off there, which is why we see it relatively flat. But we do have some design wins that have been ramping up on some new platforms. So we expect that to show a little bit stronger growth out in the second half of this fiscal year.

Jayson Noland - Robert W. Baird & Co. Incorporated, Research Division

Okay. Last question for me, Jeff, we've heard about multi-hop FCoE from the channel as an area of recent strength, is that something that you guys have seen and is it important?

Jeffrey W. Benck

I think it's important for really large deployments of FCoE. We got one customer that's part of a 5,000 cards this year, and deployed them. So those kind of environments it's a little more sensitive. We did take a look at FCoE a little bit closer, and we see good growth. Actually, this business grew faster than our 10Gb, sequentially. So people are deploying it. And it's getting up meaningfully, more than tens of millions of revenue for the quarter. So the fact that the FCoE adoptions moving faster than 10Gb, I see more customers deploying it, probably because there is some certification timeline. And then adding in the multi-hop, certainly, didn't hurt us any there. But in general, it seems like FCoE is getting a little more momentum far as. So we're pretty, pretty, pretty encouraged by that.

Operator

[Operator Instructions] We'll go back to Glenn Hanus, Needham & Company.

Glenn Hanus - Needham & Company, LLC, Research Division

Could you give us some update on progress towards ASIC respins in the April deadline. Any kind of milestones or things you can point to give investors confidence there won't be any hiccups as we get into next year?

Jeffrey W. Benck

Glenn, it's Jeff. We've obviously been spending quite a bit of time on the respins and a lot of energy from my organization working through that with our supplier partners. We made tremendous progress. We're real sensitive about sharing specific details of the tape off and such because it's a very competitive environment that we're in, as you can appreciate. I will tell you also, working with customers on a continuity plans and working very hard to ensure a continuity as we work through the transition. So beyond that, I'm a little bit hesitant. What I think is as we get through some significant milestones, we'll share updates as we go. But I do want to kind of lay out our whole plan with a lot of it being under confidentiality protection. But it's safe to say we're spending a lot of energy on it and ensuring that we've got a very solid plan here based on what we have to get done.

Glenn Hanus - Needham & Company, LLC, Research Division

Okay. Fair enough. If you think about getting some traction in Web 2.0 and cloud companies, is the way to think about that is that you more intersect there at 40Gb when you have RDMA?

Jeffrey W. Benck

Yes. Let me talk about that. We certainly -- we think we're going to participate with 10Gb, too. 40Gb certainly is -- there's been some requests explicitly for 40Gb RDMA solution from those guys, from us. But we think there's 10Gb opportunities. We are a little bit inhibited there. In the U.S., we actually had some design wins that were impacted by the injunction with the cloud guys. So obviously, that activity was kind of put on hold. But we're very engaged in NextGen stuff, a lot of interest there and a lot of activity going on in Asia and in China, particularly. Even though they haven't moved to 10Gb quite as actively as what we've seen, I think with the U.S.-based Web giants, there's a lot of activity right now. And I spent some time recently in Asia and there's this tremendous amount of interest. More for 10Gb there than 40Gb. The 40Gb was more of, I would say, a U.S. market statement.

Glenn Hanus - Needham & Company, LLC, Research Division

So you're constrained, is that what you meant in your prepared remarks when you said there were some segments you can't participate in 10Gb?

James M. McCluney

Yes. It's part of the injunction on a 10Gb product, Glenn, is that we're not allowed to ship to new U.S.-based customers that aren't on the sunset list and includes -- unfortunately, the design wins that Jeff talked about were not -- aren't enough to go into shipments to qualify for the sunset list. But they sure like our product and I think we'll be in a great shape coming out with the redesign products and NextGen products. And as Jeff points out, it's for the 10Gb and the opportunity of low latency 40Gb as well, that's what really differentiates us in the market.

Glenn Hanus - Needham & Company, LLC, Research Division

Right. And lastly for me, any update on the target side opportunity, and I think that's more of a calendar '13 revenue ramp or how is that shaping up?

Michael J. Rockenbach

We actually had our first 16Gb target design wins start shipping in the September quarter. I can't really disclose who it is, but there are several more, many more in the pipe. I think from a real contribution to revenue, I think, as we look at next calendar year, with '13, that will be more material. And I'm thinking first half, not second half of next calendar year. But we're pretty excited about that. A lot of design wins around 16Gb, even some around 8Gb and a lot of activity in that segment and, I think, frankly some of our strength, a little bit of it came from target space today at 8Gb, but 16Gb will be a big play for us. So I'm feeling pretty good about it, but there's a lot of qualifications in that flight that will yield more come next calendar year.

Operator

[Operator Instructions] We'll now go to John Slack, Caris & Company.

John Slack - Caris & Company, Inc., Research Division

A little quick clarification first on Glenn's question about the cloud opportunity. If you are shipping into ODMs in China or Taiwan for U.S. clouds, is that opportunity open to you or is it where they're domiciled? Just a clarification there.

Jeffrey W. Benck

It's a little complicated. I guess what I would say if a U.S. companies is sensitive to the litigation they may make a decision to not import product in to the U.S, even if the product was initially shipped into China.

John Slack - Caris & Company, Inc., Research Division

Got it. And then, you mentioned there's a partnership opportunities you got going on EMC and fusion-io. Any update on kind of the timing the revenue on those and how we should think about those?

Jeffrey W. Benck

Yes. I think what's kind of interesting is, I think, one of our competitors says they don't have a solution in the market that competes with them. And I think our 16Gb coupled with Fusion-io or our 16Gb coupled with EMC's flash product make really good solutions in the marketplace that you can actually buy today. We also have some design efforts in flight to continue to optimize those but there's been good certification and qualification together and ensuring that things work seamlessly when you want a network SSDs and flash storage. So one of the benefits is that we can take the latest 16Gb technology and apply it to that solution versus trying to integrate old 8Gb technology and hope to go and move that into the market. So we're pretty excited about that. I mean, we saw it was a pretty crowded space when you look at the number of players just that are handing just the flash side of things, coupled with the fact that folks like EMC and IBM seem to want to own their own solution there. So we've really chosen the path work closely with all the flash players and optimize our 16Gb to really help speed up SSDs and flash. And so far, we've had really good response and people really want to work with us because they don't see us as a competitor per se in that space. Yet, we're going to enjoy the benefits of selling more Fibre Channel tied into that SSD deployments.

James M. McCluney

It's a little bit early to call the revenue just yet when these things are just getting into the market.

John Slack - Caris & Company, Inc., Research Division

Okay. Great. And then last one for me. NCP was really pretty strong in the quarter and made up some of the shortfalls and certainly SCP. Any color you can give on any particular OEM, was it the fact that you have early ramp of 16Gb that helped you there? Just look for any sort of color on that, as well.

Jeffrey W. Benck

We have a great lead in 16Gb Fibre Channel, but we can't attribute it to Fibre Channel. I've got a really -- I mean, the 16Gb Fibre Channel. I really got to attribute it to share gain across multiple OEMs, primarily with 8Gb products. So we had real good strength there. From the early results I see with some other 10Gb suppliers, we believe we gained share in 10Gb as well, a lot of folks were flat when we talk about some sequential growth. But I've got to say Fibre Channel looked pretty healthy for us and I think we're going to gain a lot of share in the quarter that we would normally have a struggle because seasonality for our business would make this typically a quarter that we would struggle to hold share. And to do that at the back of the strong quarter, last quarter feels pretty good in that business.

Operator

And at this time, there are no further questions. I'll hand the conference back over to our speakers for any additional or closing remarks.

Michael J. Rockenbach

Okay. Thanks. Well, we certainly appreciate everyone participating in the Emulex First Quarter 2013 Conference Call. Before we close it up tonight, I just want to let you know some of the investor conferences we'll be attending over the next quarter before our next earnings call. November 8, we'll be in Chicago with Stifel, Nicolaus one-on-one conference. On November 28, we'll be at the Credit Suisse Conference in Scottsdale, Arizona and we'll start off the calendar new year at the Annual Needham Growth Conference in New York on January 15. So we look forward to hopefully speaking with you at one of these upcoming investor events, or on our Second Quarter Earnings Call, which will be in late January. So thank you, and good night.

Operator

And ladies and gentlemen, that does conclude today's conference. We would like to thank you all for your participation.

James M. McCluney

Thank you.

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

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

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

Source: Emulex Management Discusses Q1 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts