Back to top

Analyst Blog

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

QLogic Corp (QLGC - Analyst Report) reported second quarter fiscal 2014 earnings of 18 cents per share, which beat the Zacks Consensus Estimate by 7 cents. Earnings per share jumped 38.1% year over year and 95.2% sequentially.

Revenues

Revenues decreased 4.4% year over year but remained flat sequentially at $112.6 million, which was slightly better than the Zacks Consensus Estimate. Revenues were also in line with the mid-point of management’s guided range of $108.0 million to $116.0 million.

The year-over-year decline was primarily due to weak growth in advanced connectivity platform and legacy connectivity platform. Beginning fiscal first quarter 2014, QLogic revised its product categories into these two new segments:

Advanced connectivity platform (strategic server and storage connectivity products) revenues declined 3.5% year over year but increased a modest 0.9% sequentially to $94.0 million.

Legacy connectivity products (Fibre Channel Switch products and the 1 gig iSCSI products) revenues plunged 9.0% from the year-ago quarter and 6.6% sequentially to $18.6 million.

Margins

Gross margin expanded 90 basis points (bps) from the year-ago quarter and 20 bps from the previous quarter to 67.8%. This was within management guided range of 67.0% to 68.0%. The year-over-year growth was primarily due to favorable product mix in the quarter.

Total operating expense decreased 10.8% year over year and 13.0% on a sequential basis to $58.8 million. The year-over-year decrease was primarily due to lower engineering and development costs (down 8.5%) and sales & marketing (down 16.8%) costs. Operating expenses were slightly above management’s expectation of $57.0 million.

Operating margin was 15.6% in the second quarter compared with 11.0% in the year-ago quarter and 7.9% in the previous quarter. Net income margin was 13.7% compared with 10.1% in the year-ago quarter and 7.6% in the previous quarter.

Balance Sheet and Cash Flow

As of Sep 30, 2013, QLogic had cash and short-term investments of $433.0 million versus $431.9 million in the previous quarter. Cash flow from operating activities was $24.1 million in the quarter. QLogic bought back $19.0 million of the company’s common stock.

Guidance

QLogic expects fiscal third quarter 2014 revenues in the range of $114.0 million to $120.0 million. Gross margin is expected to be approximately 67.0% to 68.0%. QLogic expects to incur operating expenses of $56.0 million.

Earnings are expected to be in the range of 22 cents to 27 cents for the third quarter. QLogic expects operating expenses of approximately $230.0 million (down from earlier outlook of $235.0 million) for the fiscal year.

Recommendation

We believe that QLogic will continue to benefit from contract wins from OEMs such as International Business Machines (IBM - Analyst Report) and Hewlett Packard (HPQ - Analyst Report) in the near term. Moreover, innovative product pipeline, new technologies (Mt. Rainier) and additional savings from its restructuring initiatives will drive profitability going forward.

However, a tough macro-economic environment continues to hurt server sales, which in turn may hurt top-line growth in the near term. Increasing investments in engineering and increasing competition from peers such as Cisco (CSCO - Analyst Report) will hurt profitability going forward.

Currently, QLogic has a Zacks Rank #3 (Hold).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
LAKE SHORE G LSG 0.77 +6.05%
QUESTCOR PHA QCOR 80.07 +2.47%
VIPSHOP HOLD VIPS 156.35 +1.82%
ENLINK MIDST ENLC 36.29 +1.60%
BNC BANCORP BNCN 17.33 +1.58%