Emulex: Fiscal 2Q10 Financial Results

Emulex Corporation announced results for its second fiscal quarter ended December 27, 2009.

Second Quarter Financial Highlights

• Total net revenues of $108.3 million, exceeding the high end of both the October guidance of $88-$92 million and the preliminary results of $107-$108 million
• Host Server Products (HSP) net revenues increased 28% sequentially to $81.9 million
• 8Gb/s net revenues increased 59% sequentially, accounting for 26% of HSP net revenues during the quarter
• Fibre Channel over Ethernet Converged Network Adapter (FCoE CNA) net revenues grew 57% sequentially
• Embedded Storage Products (ESP) net revenues increased 24% sequentially to $26.3 million
• GAAP gross margin of 62% and non-GAAP gross margins of 66%
• GAAP operating income of $5.8 million, or 5% of total net revenues, and non-GAAP operating income of $17.3 million, or 16% of total net revenues
• GAAP diluted earnings per share of $0.11
• Non-GAAP diluted earnings per share of $0.18, exceeding the high end of both the October guidance of $0.10-$0.12 and the preliminary results of $0.16-$0.17

Business Highlights

• Emulex announced general availability of its OneConnect Universal Converged Network Adapters (UCNAs) and OneCommand Manager
• Emulex named market share leader in FCoE CNAs according to Dell’Oro Group
• IBM and Emulex collaborate to deliver industry-leading 10Gb/s Ethernet and 16Gb/s Fibre Channel storage and networking connectivity solutions for IBM Power Systems’ customers
• Emulex and Alacritech announced a license agreement giving Emulex access to Alacritech’s patent portfolio, including support for Microsoft’s Transmission Control Protocol (TCP) Chimney architecture for its OneConnect UCNAs
• Launched Emulex Edge Partner Program designed to increase revenue generation opportunities for converged networking Value Added Resellers (VARs)
• Emulex OneConnect FCoE UCNA outperformed the competition and approaches one million IOPS barrier according to IT Brand Pulse
• Sun Microsystems selected Emulex to deliver new Express Module Host Bus Adapter (HBA) combining 8Gb/s Fibre Channel and 1Gb/s Ethernet for the Sun Blade family of servers

Financial Results
Second quarter total net revenues were $108.3 million, a sequential increase of 27% and essentially flat with the comparable quarter of last year. Second quarter GAAP net income was $8.9 million, or $0.11 per diluted share, compared to GAAP net income of $10.5 million, or $0.13 per diluted share, reported in Q2 of fiscal 2009 and GAAP net income of $3.8 million or $0.05 per diluted share, in Q1 of fiscal 2010. Non-GAAP net income for the second quarter was $14.3 million, or $0.18 per diluted share. Non-GAAP net income per diluted share increased 125% from $0.08 reported in Q1 of fiscal 2010 but decreased 22% from $0.23 reported in Q2 of fiscal 2009. Reconciliations between GAAP and non-GAAP results are included in the accompanying financial data.

President and CEO Jim McCluney commented: “I’m really pleased with the exceptional execution by the entire Emulex team which is reflected in our results for the December quarter. Demand was strong throughout the quarter for both our HSP and ESP product lines.” McCluney continued, “The breadth of sequential growth across our products and our customers reinforces that we have made the right investment choices to increase our relevance with our OEM customers, gain market share in our core business, and ultimately drive increased shareholder value.”

“Looking ahead, we expect that the improving performance of our core business will be complemented by the launches of our 10Gb/s OneConnect design wins for the next x86 server refresh cycle. With our continuing laser like focus on executing our winning strategy, 2010 looks to be an exciting year for Emulex,” concluded McCluney.

Business Outlook
Although actual results may vary depending on a variety of factors, many of which are outside the Company’s control, including the current economic downturn and uncertainty resulting from recent disruptions in global credit and equity markets, Emulex is providing guidance for its third fiscal quarter ending March 28, 2010. For the third quarter fiscal 2010, Emulex is forecasting total net revenues in the range of $100-$103 million. The Company expects non-GAAP earnings per diluted share could amount to $0.16-$0.18 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 $0.11 per diluted share in expected charges arising primarily from amortization of intangibles and stock-based compensation.