Xyratex: Fiscal 4Q11 Financial Results
Sales of HDD manufacturing products down 50%, up 8% for storage systems
This is a Press Release edited by StorageNewsletter.com on January 6, 2012 at 2:52 pm| (in US$ millions) | 4Q10 | 4Q11 | Growth | FY10 | FY11 |
Growth |
| Networked storage solutions | 326.8 | 352.6 | 8% | 1,259 | 1,325 | 5% |
| Storage infrastructure | 70.0 | 35.0 | -50% | 342.9 | 123.9 | -64% |
| Total Revenues | 396.8 | 387.6 | -2% | 1,602 | 1,448 | -10% |
| Net income (loss) | 32.3 | 18.5 | |
139.4 | 28.3 |
Xyratex Ltd announced results for the fourth quarter and fiscal year ended November 30, 2011.
Revenues for the fourth quarter were $387.6 million, a decrease of 2.3% compared to revenues of $396.8 million for the same period last year.
For the fourth quarter, GAAP net income was $18.5 million, or $0.65 per diluted share, compared to GAAP net income of $32.3 million, or $1.02 per diluted share, in the same period last year. Non-GAAP net income was $20.8 million, or a diluted earnings per share of $0.73, compared to non-GAAP net income of $21.9 million, or $0.69 per diluted share, in the same quarter a year ago.
Gross profit margin in the fourth quarter was 17.7%, compared to 16.1% in the same period last year and 16.7% in the prior quarter. The change from the prior quarter was primarily due to a higher gross margin for Storage Infrastructure (SI) products.
Revenues from sales of Networked Storage Solutions (NSS) products were $352.6 million in the fourth quarter as compared to $326.8 million in the same quarter a year ago, an increase of 8%. Gross profit margin for NSS products in the fourth quarter was 17.7% as compared to 13.3% in the same quarter a year ago due to favorable changes in customer and product mix. Revenues from sales of our SI products in the fourth quarter were $35 million as compared to $70 million in the same quarter a year ago, a decrease of 50%. Gross profit margin in the SI business in the fourth quarter was 18.0% as compared to 29.7% in the same quarter a year ago, primarily due to the decrease in revenues relative to fixed costs.
Revenues for fiscal year 2011 were $1,448.5 million, a decrease of 9.6% compared to revenues of $1,601.9 million for fiscal year 2010. Revenues from sales of our NSS products were $1,324.5 million for the year as compared to $1,258.9 million in fiscal 2010, an increase of 5.2%. Revenues from sales of our SI products in fiscal 2011 were $123.9 million as compared to $342.9 million in 2010, a decrease of 63.9%. Gross profit margin for fiscal 2011 was 15.3% compared to 17.5% in the previous year. The decrease in gross profit margin from the prior year was primarily due to the decrease in SI revenues, partially offset by increased gross margins for NSS products related to favorable changes in customer and product mix.
GAAP net income for fiscal 2011 was $28.3 million, or $0.92 per diluted share, compared to GAAP net income of $139.4 million, or $4.46 per diluted share, for fiscal 2010. Non-GAAP net income for fiscal 2011 decreased to $39.0 million, or $1.27 per diluted share, compared to non-GAAP net income of $135.7 million, or $4.34 per diluted share, for fiscal 2010.
During the quarter, the company repurchased 986,707 of its common shares at a total cost of $8.4 million. For the full fiscal year, the company repurchased a total of 3,601,903 shares, representing 11.6% of issued and outstanding shares as of February 28, 2011, at a total cost of $32.3 million. The shares were repurchased under the previously announced share repurchase plan. Also, the company announced its second dividend in the quarter. The cash dividend was set at $0.055 a share. The company’s cash balance was $132.6 million at the end of the fiscal year, an increase of $41.8 million during the 2011 fiscal year.
"Overall, I am pleased with our results for the fiscal year. Our NSS business had a very good year as a result of good execution and a more diverse customer base. The Enterprise Storage market is strong, and we did a very good job in meeting the technology requirements and demands of our customer base. Our SI business results reflect the many challenges that affected the wider Hard Disk Drive industry in 2011, including reduced capital expenditures resulting from delays in regulatory approvals for the two acquisitions by Seagate and Western Digital, the two natural disasters in Japan and Thailand, and increased competition. As a result of the reduction in capital expenditures by our customers, we took decisive cost reduction actions in the SI business to better align our cost structure with our business expectations," said Steve Barber, CEO of Xyratex. "Looking forward, I believe we are well positioned to capitalize on the many business opportunities that we have been working on, including our entry into the High Performance Computing storage market. We believe that this, together with cost realignment within the business, provides us with a good opportunity to improve our profitability and continue our cash generation."
Business Outlook
The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. Our forecast ranges are wider than normal due to the uncertainty surrounding disk drive availability following the recent flooding in Thailand.
- Revenue in the first quarter of fiscal 2012 is projected to be in the range of $275 million to $355 million.
- Fully diluted earnings (loss) per share is anticipated to be between $(0.02) and $0.32 on a GAAP basis in the first quarter. On a non-GAAP basis, fully diluted earnings per share is anticipated to be between $0.07 and $0.41. Non-GAAP earnings per share excludes amortization of intangible assets, equity compensation expense, specified non-recurring items and related taxation expense.
Comments
Abstracts of the earnings call transcript:
Richard Pearce, CFO:
"The change from the prior year reflects growth across the majority of our major customers, including Dell, EMC, HP and IBM, offset by a proportional product volume shift as per our contract with our largest customer, NetApp.
"The fiscal year performance for our SI division reflects reduced demand for capital equipment from our 2 major customers, Seagate and Western Digital, as a result of their proposed acquisitions from Samsung and Hitachi, respectively. The impact of the 2 natural disasters in Japan and Thailand reduced demand for PC drives and increased competition from Teradyne.
"We are experiencing increased demand for our SI products, in part related to the recent flooding in Thailand. We believe this may results in a onetime revenue benefit of approximately $50 million across Q2 and Q3."
Steve Barber, CEO:
"With the support of our supply base, we have recovered supply lines for a range of other components impacted by the Thailand floods, with the replacement tooling, relocation of production, and qualification of alternative supply components. We established a dedicated task force to work with Western Digital, most severely impacted by the floods, to assist them into defining the opportune recovery plans for their Thailand facilities.
"For fiscal year 2011, our NSS business performed well, seeing strong demand across our market-leading customer base. We shipped over 4,000 petabytes or 4 exabytes in the year, a 33% growth in shipped capacity year-over-year.
"In our SI business, we ended the year with a lower cost base and a tightly focused investment portfolio. We expect a onetime benefit of the result of the Thailand floods as the disk drive and disk drive supply chain providers work to recover their damaged production facilities. The pace and scale of this equipment refurbishment or replacement activity will however be determined by the pace of recovery of key component supply, particularly recording heads.
"As the rate of growth of areal density has declined, we expect the number of heads and disks within disk drives to increase over the next few years, ahead of the commercial availability of the next generation recording technologies, including HAMR being introduced into volume production.
"In the Enterprise Storage business, in the near-term, we are monitoring and working through some potentially challenging disk drive supply issues as a result of the floods in Thailand that may impact our ability to meet demand for - from our system enclosure customers.
"With our NetApp business reducing from 75% to 50% of NetApp's midrange product volume in accordance with the agreement signed in 2008 and a planning assumption that our proportion of this business decreases by an equivalent percentage over the following 2 years. In addition, we are anticipating a reduction in our EMC business as they did a main business transitions to an in-house EMC platform solution.
"Offsetting these revenue stream reductions, we are expecting continued growth from both IBM and HP together with initial revenue from ClusterStor products and other customer opportunities."
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