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QLogic showers in gravy as parent Emulex hits dry spell

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Quarterly results show Emulex spinout QLogic quietly excelling while Emulex is still trying to dig itself out of a hole.

Both companies sell Fibre Channel host bus adapters (HBAs), and Ethernet connectivity products such as converged network adapters (CNAs). Emulex has silicon products that provide connectivity inside arrays, such as InSpeed, while QLogic has a line of Fibre Channel switches and InfiniBand products.

Okay, the top line results: Emulex had revenues of $118.4m in its quarter to 2 October with a loss of $7.2m. QLogic had revenues of $150.2m and profits of $28.7m. We're comparing GAAP net income here – Generally Agreed Accounting Principles – as these are common across companies and allow comparisons like this.

Emulex says that in non-GAAP terms it made a profit of $11.8m. Emulex exceeded its revenue and earnings guidance. CEO Jim McCluney said: "Exceeding the high-end of revenues and earnings guidance was a terrific start to our new fiscal year. With year-over-year increases on the top line of 15 per cent, and non-GAAP net income of 20 per cent, we met our goal of delivering better than industry revenue growth, with even greater earnings growth."

Sounds wonderful. When we looked at QLogic's figures we saw that its quarterly revenue was up 2.5 per cent from a year ago and its profit was 4.3 per cent less than a year ago. It has three business sectors; host products (the HBAs and CNAs), network products, and silicon products. All showed growth yea-on-year. The firm met the mid-point of its guidance, sees itself may be earning revenues of $145-155m next quarter and may well be doing something with flash caches on its adapters.

Intel's Romley processors next year may cause a ramp in 16bit/s Fibre Channel HBAs and Fibre Channel over Ethernet (FCoE) isn't happening yet but its quietly and efficiently running its business, controlling its costs and making money.

Let's return to Emulex. Revenues of $118.4m were up 15 per cent compared to the year ago quarter when it made a loss of $8.6m. This time its loss was $7.2m, 16.3 per cent lower. That sounds good but look at it another way. The company saw revenues $15.3m up on the year yet still managed to make a loss. If it had kept its spending under control it should have made a notional (GAAP) profit of $6.7m.

Where did the money go? We looked at general and administrative expenses; they went down over the year, from $17.62m to $11.87m, a saving of $5.75m. It earned $15.3m more than the year ago quarter, saved $5.75m in G and A expense, and still made a $7.2m loss.

Emulex saw revenues of $123.37m in the preceding quarter and a loss of $15.7m. Its sales revenue decreased sequentially but its spending did not get reduced enough, to say the least. In 2009 Broadcom made a take-over bid for Emulex which was fiercely rejected.

Back then McCluney said Emulex revenues would be $600m in 2012. With first quarter revenues for its fiscal 2012 of $118.4m, an outlook of $127m at the highest, that would provide $245m for the half year and, roughly, $500m for the full year, $100m shy of McCluney's boast.

Emulex brags about its awards, OEM design wins, Ethernet technology prowess, and six-month lead over QLogic in 16Gbit/s Fibre Channel HBAs – and makes losses. QLogic earns more revenue than Emulex and makes profits. Is it time to suggest that Emulex would have been better served by agreeing to the Broadcom acquisition? ®

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