Back to top

QLogic Leads in Adapter Market

Read MoreHide Full Article

A leading supplier of high-performance network infrastructure solutions, QLogic Corp. continues to dominate the Fibre Channel adapter market. According to latest reports provided by the two leading industry research firms Dell’Oro Group and Crehan Research, QLogic retained its #1 position in Fibre Channel adapters for the ninth consecutive year.

As per the Dell’Oro report, QLogic’s revenue market share was 53.4% in 2012. According to Crehan research, QLogic’s revenue market share was 52.0% in the same period. Despite this difference, both the research firms reported that QLogic had a lead of 11.4% compared to its nearest competitor.

However, QLogic’s market share growth slightly declined from approximately 55% at the end of 2011. In 2011, QLogic’s market share had increased slightly from 54.0% reported in 2010. Moreover, QLogic’s lead from its nearest competitor in 2012 also declined considerably from 16.0% in 2010 and 15.0% in 2011.

This shows that competitors such as Emulex Corp. are catching up slowly but steadily, which does not bode well for QLogic, in our view.

Nevertheless, QLogic’s dominant position continues to be driven by its superior product portfolio. QLogic focuses on serving the high-end enterprise data center market, which is expected to grow significantly due to rapid adoption of cloud computing.

According to market research firm Gartner, spending on data center systems is expected to reach $147.0 billion in 2013, up 4.5% from 2012. For 2014, spending is further projected to increase 4.2% year over year to $154.0 billion. We believe that this increasing spending level will boost QLogic’s top-line growth over the long term.

Moreover, QLogic continues to upgrade its existing product portfolio as well as launch new products such as 16 gig Fibre Channel adapters and FlexSuite" 2600 Series adapters. QLogic’s extended adaptive convergence strategy is expected to boost its growth in converged networking (essential for cloud computing) over the long term.

We believe that QLogic will benefit from major OEM customer wins. Moreover, increased focus on its key strategic initiatives with large OEMs such as Cisco (CSCO - Free Report) and EMC Corp. will boost growth over the long term. This will also provide QLogic a competitive edge over its peers 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 product development is also expected to hurt profitability in the near term.

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

In-Depth Zacks Research for the Tickers Above

Normally $25 each - click below to receive one report FREE:

Cisco Systems, Inc. (CSCO) - free report >>

More from Zacks Analyst Blog

You May Like