Emulex: Fiscal 4Q10 Financial Results

     
Emulex Corporation announced results for its fourth fiscal quarter ended June 27, 2010.

Fourth Quarter Financial Highlights

• Total net revenues of $103.1 million
• Host Server Products (HSP) net revenues were $72.6 million, or 70% of net revenues, an increase of 16% year-over-year and 4% sequentially
• 8Gb/s net revenues increased to 37% of HSP net revenues during the quarter
• Embedded Storage Products (ESP) net revenues decreased 6% sequentially to $30.4 million, or 30% of net revenues
• GAAP gross margin of 61% and non-GAAP gross margins of 66%
• GAAP operating income of $0.9 million, or 1% of total net revenues, and non-GAAP operating income of $14.1 million, or 14% of total net revenues
• GAAP loss per share of $0.03 and non-GAAP diluted earnings per share (EPS) of $0.16, an increase of 78% year-over-year
• Ended the quarter with $295 million in cash, cash equivalents and investments

Business Highlights

• Announced definitive agreement to acquire ServerEngines, which is expected to be completed by the end of August 2010
• HP selects Emulex’s Universal Local Area Network on Motherboard (LOM) to provide concurrent operation of 10Gb/s Ethernet and Fibre Channel over Ethernet (FCoE) or iSCSI connectivity in ProLiant G7 server blades
• Dell selects OneConnect Universal Converged Network Adapter (UCNA) for 10Gb/s FCoE and iSCSI connectivity for its PowerEdge rack and blade servers and iSCSI and Fibre Channel storage solutions
• Cisco qualifies Emulex OneConnect UCNA to provide 10Gb/s FCoE connectivity for Cisco Unified Computing B-Series Blade Servers, Cisco Unified Computing C-Series Rack Mounted Servers and the Nexus family of Unified Fabric Switches
• Fujitsu selects Emulex OneConnect FCoE UCNAs for PRIMERGY x86 servers
• OneConnect UCNAs named Connectivity Product of the Year by Storage Awards – Storries VII
• Network Products Guide Reader Trust Awards names Emulex OneConnect UCNAs Best Networking Solution
• Emulex connectivity solutions support VMware VSphere 4.1
• Emulex OneCommand Vision software to provide I/O performance analysis and optimization in heterogeneous network environments
• EMC integrates Emulex OneSecure 8Gb/s Fibre Channel encryption Host Bus Adapter (HBA) into its PowerPath Encryption with RSA

Financial Results
Fourth quarter total net revenues were $103.1 million, an increase of 30% from the comparable quarter of last year and an increase of 1% sequentially. Fourth quarter GAAP net loss was $2.5 million, or $0.03 per share, compared to a GAAP net loss of $4.5 million, or $0.06 per share, reported in Q4 of fiscal 2009 and GAAP net income of $13.3 million, or $0.16 per diluted share, in Q3 of fiscal 2010. Non-GAAP net income for the fourth quarter was $13.5 million, or $0.16 per diluted share. Non-GAAP net income decreased 45% from $24.3 million, or $0.30 per diluted share, reported in Q3 of fiscal 2010, but increased 76% from $7.6 million or $0.09 per diluted share, reported in Q4 of fiscal 2009. Reconciliations between GAAP and non-GAAP results are included in the accompanying financial data.

President and CEO Jim McCluney commented: "We had solid financial performance over the last quarter, achieving the upper end of revenue guidance and meeting our EPS target. Emulex also delivered a landmark 10Gb/s Ethernet market validation proof point during the quarter with the announcement that HP would be integrating our OneConnect UCNA technology as the industry’s first 10Gb/s Ethernet Universal LOM with hardware-based FCoE onto the motherboards of its new ProLiant G7 servers."

McCluney continued: "Emulex’s OneConnect UCNA technology for 10Gb/s Ethernet, iSCSI and FCoE connectivity continued to lead the industry with new tier-one design win announcements during the quarter with Cisco, Dell, Fujitsu and HP." McCluney concluded: "The fourth quarter was a great capstone to a pivotal fiscal year. In fiscal year 2010, we delivered against our vision for converged networking by launching an unprecedented number of 10Gb/s Ethernet-based design wins. We have demonstrated our leadership in this new growth opportunity, and are well positioned for meaningful growth in fiscal year 2011."

Business Outlook
Although actual results may vary depending on a variety of factors, many of which are outside the Company’s control, including the Information Technology (IT) spending environment during the current economic downturn, and the timing of the completion of the ServerEngines acquisition, Emulex is providing guidance for its first fiscal quarter ending September 26, 2010. For Q1 of fiscal 2011, Emulex is forecasting total net revenues in the range of $100-$104 million.

The Company expects non-GAAP earnings per diluted share could amount to $0.08-$0.11 in the first quarter. Included in this guidance is an expectation of one month of operations from the completion of the ServerEngines acquisition, which includes approximately $1 million of revenues, and reduces earnings per diluted share by $0.02-$0.03 cents. On a GAAP basis, Emulex expects between a loss per share of 0.02 and earnings per diluted share of $0.01 for the first quarter, reflecting approximately $0.10 per share in expected GAAP charges, arising primarily from amortization of intangibles and stock-based compensation. Additionally, Emulex will incur charges associated with the acquisition of ServerEngines, including additional stock-based compensation and amortization of intangibles. However, as the valuation and the purchase allocation are not yet complete, Emulex is unable to predict the impact of the acquisition on its GAAP earnings per share at this time.