Seeking Alpha

QLogic hit by soft margin forecast; Emulex also drops

  • QLogic (QLGC -10%) posted in-line FQ1 revenue to go with a slight EPS beat, and also guided on its CC (transcript) for in-line FQ2 revenue: $121M-$127M vs. a $124.7M consensus.
  • But the company also forecast its gross margin will drop to 62%-63% from FQ1's 64.4%, and said it's "comfortable" with a 62-63% GM for the whole of FY15.
  • Perhaps more worrying than the guidance itself is the explanation: A mix shift towards Ethernet product sales, which are expected to grow by $3M-$4M Q/Q. With QLogic's core Fibre Channel market expected to keep declining, the company is counting on Ethernet sales (a double-digit % of revenue following the purchase of Broadcom's Ethernet controller unit), along with its budding storage ASIC business, to drive growth.
  • CFO Jean Hu previously estimated the Ethernet business has only a ~40% gross margin. When pressed yesterday on Ethernet's long-term impact on Emulex's margins, she argued the company will be able to reap "manufacturing cost synergies" beyond FY15.
  • Archrival Emulex (ELX -2.3%) followed QLogic lower. The company reports on Aug. 7.

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Comments (1)
  • DoctoRx
    , contributor
    Comments (2846) | Send Message
     
    QLGC is cheap to its net assets and also on a P/E basis. I wonder if it is going to shop itself around. Or might it merge w ELX? Would there be any antitrust issues?
    25 Jul 2014, 10:26 PM Reply Like
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