Emulex: Fiscal 2Q09 Financial Results

Emulex Corporation announced results for its second fiscal quarter ended December 28, 2008.

Second Quarter Financial Highlights

• Total net revenues of $108.7 million
• Host Server Product net revenues of $81.1 million – 75% of total net revenues
• Embedded Storage Product net revenues of $27.5 million – 25% of total net revenues
• GAAP gross margin of 61% and non-GAAP gross margin of 65%
• GAAP operating income of $10.2 million, or 9% of total net revenues, and non-GAAP operating income of $22.8 million, or 21% of total net revenues
• GAAP diluted earnings per share of $0.13 and non-GAAP diluted earnings per share of $0.23
• Cash, cash equivalents and investments of $285.2 million
• Inventory turnover of 11.5 times

Business Highlights

• IBM selected Emulex’s 8Gb/s Fibre Channel HBAs for its IBM Power Systems servers
• Emulex was named one of the 20 most strategic storage vendors by Everything Channel’s CRN (Channel Reseller News) Magazine
• EMC qualified Emulex FCoE CNAs, which are now available through EMC Select
• Emulex FCoE CNAs qualified under the IBM ServerProven Program and deemed compatible with IBM System x servers
• Oracle and Emulex jointly developed open source code that prevents silent data corruption, which was accepted into the Linux kernel
• Emulex delivered a PRO-Enabled Management Pack tailored for Microsoft System Center Virtual Machine Manager 2008
• NetApp certified Emulex’s FCoE CNAs for use with its new native FCoE and Fibre Channel SAN storage solutions
• Emulex delivered Fibre Channel HBAs and FCoE CNAs for Sun Microsystem’s COMSTAR Project supporting OpenSolaris environments
• Pillar Data Systems deployed Emulex’s InSpeed SOC 422 Embedded Storage Switches across its complete line of Axiom storage systems

Financial Results
Second quarter total net revenues were $108.7 million, a decrease of 17% from the comparable quarter of last year and a 3% sequential decrease. Second quarter GAAP net income was $10.5 million, or $0.13 per diluted share, compared to GAAP net income of $17.6 million, or $0.21 per diluted share, reported in Q2 of fiscal 2008 and GAAP net income of $7.5 million, or $0.09 per share, in Q1 of fiscal 2009. Non-GAAP net income for the second quarter, which excludes amortization of intangibles, stock-based compensation, and severance expenses and associated costs, was $18.8 million, or $0.23 per diluted share. Non-GAAP net income per diluted share decreased 32% from $0.34 per diluted share reported in Q2 of fiscal 2008, but increased 5% sequentially from $0.22 per diluted share reported in Q1 of fiscal 2009. Reconciliations between GAAP and non-GAAP results are included in the accompanying financial data.

President and CEO Jim McCluney commented: "Our team did a good job of managing costs this past quarter and, looking forward, we are committed to remaining cash flow positive throughout this economic downturn. I hope this performance provides investors and employees confidence in our ability to effectively operate despite a deteriorated sales environment."

Changing topics, Mr. McCluney added: "I am pleased to welcome two recent additions to our executive team. Jeff Hoogenboom joins us as our new SVP of Worldwide Sales and Steve Daheb has signed on as our Chief Marketing Officer. Both men bring excellent experience and high energy to their positions. I feel comfortable that we have the right team and a strong strategy in place that puts Emulex in an excellent position to execute our business plan and continue to succeed as a company."

Business Outlook
Although actual results may vary depending on a variety of factors, many of which are outside the Company’s control, including the economic uncertainty resulting from recent disruptions in global credit and equity markets and a related downturn in technology spending, Emulex is providing guidance for its third fiscal quarter ending March 29, 2009. For third quarter fiscal 2009, Emulex is forecasting total net revenues in the range of $78-$85 million. The Company expects non-GAAP gross margin will be approximately 66% and non-GAAP earnings per diluted share could amount to $0.02-$0.05 in the third quarter. On a GAAP basis, Emulex expects gross margin of approximately 60% and diluted third quarter loss per share of $0.05-$0.08 per diluted share. GAAP estimates reflect approximately $0.10 per diluted share in expected charges arising primarily from amortization of intangibles and stock-based compensation for the third quarter.