Emulex: Fiscal 2Q12 Financial Results

(in US$ millions)	2Q11	2Q12	6 mo. 11	6 mo. 12
Revenues	114.0	128.7	217.1	247.1
Growth		13%		14%
Net income (loss)	(41.0)	15.0	(49.6)	7.8

Emulex Corporation announced results for its second quarter of fiscal 2012, which ended on January 1, 2012.

Second Quarter Financial Highlights
Net revenues of $128.7 million, an increase of 13% year-over-year and 9% sequentially
Network Connectivity Products (NCP) net revenues of $96.6 million, or 75% of net revenues, an increase of 5% year-over-year and 12% sequentially
10GbE products totaled approximately 15% of net revenues

• Storage Connectivity Products (SCP) net revenues of $27.6 million, or 21% of net revenues, an increase of 65% year-over-year and 16% sequentially
• Advanced Technology and Other Products (ATP) net revenues of $4.5 million, or 4% of net revenues, a decline of 12% year-over-year and 44% sequentially
• GAAP gross margins of 59% and non-GAAP gross margins of 63%
• Successfully executed recovery plans from the Thailand flooding, restoring full production capacity at a cost of approximately $2.1 million, which impacted gross margins by 2.0% in the quarter
• GAAP operating income of $11.8 million, or 9% of total net revenues, and non-GAAP operating income of $24.5 million, or 19% of total net revenues
• GAAP net income of $15.0 million and non-GAAP net income of $22.6 million
• GAAP diluted earnings per share of $0.17 and non-GAAP diluted earnings per share of $0.26
• Cash, cash equivalents and investments at the end of the quarter of $191.7 million

Second Quarter Business Highlights

• Delivered three new I/O connectivity solutions for HP Integrity servers, including the first combo adapter with two ports of 8Gb Fibre Channel (8GFC) and two ports 1/10GbE, and two new CNAs
• Emulex continued 10GbE market share gains for the fifth straight quarter according to the Dell'Oro Group and Crehan Research third quarter 2012 reports. Other highlights included: Named the undisputed leader in the10GbE LOM market with over 40 percent of the revenue market share; market leader in the non-captive FCoE with 30 % revenue market share and 80% of the port shipments; #2 in overall 10GbE revenues with 17% market share; gained 3% market share over nearest competitor in total 10GbE-based product revenues
• Announced Emulex Extra Program, a major initiative to support customers and partners by providing enhanced training and accrediting end users working with Emulex solutions, leading to Emulex Expert Certification
• Introduced OneCommand Vision 2.0, a proactive I/O performance and availability management application that provides increased scalability, usability improvements, customer alerting capabilities and additional operating systems and hypervisor support and is ideal for cloud and virtualized data center environments

Financial Results
In the second quarter, total net revenues increased 13% from the comparable quarter of last year, reaching $128.7 million. Second quarter net income on a GAAP basis was $15.0 million, or $0.17 per diluted share, compared to a GAAP net loss of $7.2 million, or $0.08 per share, reported in Q1 of fiscal 2012, and a GAAP net loss of $41.0 million, or $0.47 per share, in Q2 of fiscal 2011. Non-GAAP net income for the second quarter was $22.6 million, or $0.26 per diluted share, representing a 69% increase from $13.4 million in the comparable quarter of the last fiscal year, and an increase of 92% from the $11.8 million reported in the immediately preceding quarter. Reconciliations between GAAP and non-GAAP results are included in the accompanying financial data. Lower than anticipated legal expenses associated with the Broadcom patent, antitrust and defamation litigation contributed approximately $0.02 to the second quarter results.

CEO Jim McCluney commented: "Our focus on operational excellence is reflected in our results as we once again exceeded the high-end of our revenues and earnings guidance. December was our fourth consecutive quarter of double digit year-over-year revenue growth, as we continued to drive market share gains in our core business," continued McCluney.

"Looking forward, we believe we are exceptionally well positioned to deliver increased shareholder value as we continue to build on this momentum," McCluney concluded.

Business Outlook
Although actual results may vary depending on a variety of factors, many of which are outside the company's control, including uncertainty related to the macro IT spending environment, the timing of new server launches by our customers, and the results and related costs of ongoing patent litigation, Emulex is providing guidance for its third fiscal quarter ending April 1, 2012. For the third quarter of fiscal 2012, Emulex is forecasting total net revenues in the range of $121-$125 million. The company expects non-GAAP earnings per diluted share could amount to $0.17-$0.19 in the third quarter. On a GAAP basis, Emulex expects earnings per diluted share of $0.05-$0.07 in the third quarter. GAAP estimates for the third quarter reflect approximately $0.12 per diluted share in expected charges arising primarily from amortization of intangibles and stock-based compensation.