Emulex: Fiscal 3Q10 Financial Results

Emulex Corporation announced results for its third fiscal quarter ended March 28, 2010.

Third Quarter Financial Highlights

• Total net revenues of $102.2 million
• Host Server Products (HSP) net revenues were $69.7 million, or 68% of net revenues, an increase of 18% year-over-year
• 8Gb/s net revenues increased 323% year-over-year, accounting for 28% of HSP net revenues during the quarter
• Embedded Storage Products (ESP) net revenues increased 23% sequentially to $32.3 million, or 32% of net revenues
• GAAP gross margin of 63% and non-GAAP gross margins of 68%
• GAAP operating income of $5.5 million, or 5% of total net revenues, and non-GAAP operating income of $18.6 million, or 18% of total net revenues
• GAAP diluted earnings per share of $0.16, compared to guidance of $0.05-$0.07
• Non-GAAP diluted earnings per share of $0.30, exceeding the high end of guidance of $0.16-$0.18
• Certain discrete tax items added $0.11 to GAAP diluted earnings per share and $0.12 to non-GAAP diluted earnings per share
• Cash, cash equivalents and investments at the end of the quarter were $287 million

Business Highlights

• HP offers Emulex OneConnect 10Gb/s Ethernet and Fibre Channel over Ethernet (FCoE) Universal Converged Network Adapters (UCNAs) for HP ProLiant rack, tower and blade servers
• IBM selects OneConnect 10Gb/s Ethernet UCNAs for eight IBM System x and BladeCenter server platforms
• EMC qualifies Emulex OneConnect 10Gb/s iSCSI and FCoE UCNAs across EMC Network Storage Systems
• NetApp adopts Emulex OneConnect FCoE UCNAs for use with its Ethernet storage solutions
• Hitachi Data Systems offers Emulex OneConnect FCoE UCNAs for its Universal Storage Platform and Adaptable Modular Storage Systems
• Compellent selects Emulex 8Gb/s LightPulse Fibre Channel Host Bus Adapters (HBAs) for use with its Storage Center SAN solutions
• Emulex LightPulse Fibre Channel HBAs and OneConnect UCNAs are optimized for use with the new Intel Xeon processor 5600 series (formerly codenamed Westmere–EP) and the new Intel Xeon processor 7500 series (formerly codenamed Nehalem–EX)
• Emulex announces VMware vSphere 4 certification of its OneConnect 10Gb/s Ethernet UCNAs
• Dell’Oro Group reports that Emulex grew faster than the industry and captured four points of Fibre Channel market share in the fourth quarter of 2009
• Emulex named FCoE Converged Network Adapter (CNA) market share leader for 2009, according to Infonetics
• Network Computing magazine names Emulex OneConnect UCNAs 2010 New Product of the Year and Network Infrastructure Product of the Year

Financial Results
Third quarter total net revenues were $102.2 million, an increase of 30% from the comparable quarter of last year and a decrease of 6% sequentially. Third quarter GAAP net income was $13.3 million, or $0.16 per diluted share, compared to GAAP net loss of $6.0 million, or $0.07 per diluted share, reported in Q3 of fiscal 2009 and GAAP net income of $8.9 million or $0.11 per diluted share, in Q2 of fiscal 2010. Non-GAAP net income for the third quarter was $24.3 million, or $0.30 per diluted share. Non-GAAP net income increased 70% from $14.3 million reported in Q2 of fiscal 2010 and increased 452% from $4.4 million reported in Q3 of fiscal 2009. Reconciliations between GAAP and non-GAAP results are included in the accompanying financial data. Additionally, GAAP and non-GAAP diluted earnings per share results for the quarter benefited by $0.11 and $0.12, respectively, from certain discrete tax items.

President and CEO Jim McCluney commented: “I’m pleased with the results that the team delivered during the March quarter, coming in at the high end of our revenue and earnings guidance.” McCluney continued, “During the quarter we also announced significant design wins covering multiple platforms for our award winning OneConnect UCNAs with marquee server and storage OEMs including EMC, HP, Hitachi Data Systems, IBM and NetApp."

"With our expanding number of both announced and unannounced design wins, Emulex continues to deliver on our commitment to growth and leadership in the emerging network convergence market,” concluded McCluney.

                                 Revenues by Channel and Territory

Business Outlook
Although actual results may vary depending on a variety of factors, many of which are outside our control, including the current economic downturn and uncertainty resulting from recent disruptions in global credit and equity markets, Emulex is providing guidance for its fourth fiscal quarter ending June 27, 2010. For the fourth quarter fiscal 2010, Emulex is forecasting total net revenues in the range of $100-$103 million. We expect non-GAAP earnings per diluted share could amount to $0.16-$0.18 in the fourth quarter. On a GAAP basis, Emulex expects earnings per diluted share of $0.05-$0.07 in the fourth quarter. GAAP estimates for the fourth quarter reflect approximately $0.11 per diluted share in expected charges arising primarily from amortization of intangibles and stock-based compensation.