Xyratex: Fiscal 1Q11 Financial Results
Forecast affected by HGST acquisition by WD
This is a Press Release edited by StorageNewsletter.com on April 1, 2011 at 3:09 pm| (in US$ millions) | 1Q10 | 1Q11 | Growth |
| Networked storage solutions | 271.0 | 334.2 | 23% |
| Storage infrastructure | 48.0 | 26.3 | -45% |
| Total Revenues | 319.0 | 360.5 | 13% |
| Net income (loss) | 26.3 | 4.7 |
Xyratex Ltd announced results for the first fiscal quarter ended February 28, 2011.
Revenues for the first quarter were $360.5 million, an increase of 13% compared to revenues of $319 million for the same period last year.
For the first quarter, GAAP net income was $4.7 million, or $0.15 per diluted share, compared to GAAP net income of $26.3 million, or $0.85 per share, in the same period last year. Non-GAAP net income was $7.5 million, or $0.24 per diluted share, compared to non-GAAP net income of $29.4 million, or $0.96 per share, in the same quarter a year ago (1).
Gross profit margin in the first quarter decreased to 13.7%, compared to 18.1% in the same period last year, primarily due to significantly lower revenues and gross margins in the Storage Infrastructure business.
Revenues from sales of our Networked Storage Solutions (NSS) products were $334.2 million as compared to $271 million in the same quarter a year ago, an increase of 23.3%. Gross profit margin in the NSS business was 14.2% as compared to 15.2% a year ago. Revenues from sales of our Storage Infrastructure (SI) products were $26.3 million as compared to $48 million in the same quarter a year ago, a decrease of 45.2%. Gross profit margin in the SI business was 9.7% as compared to 34.7% a year ago.
"Our first quarter results were somewhat mixed between our two businesses. Demand in our NSS business was within our expectations despite component supply challenges experienced by our largest customer. In our Storage Infrastructure business we experienced soft demand. I believe this resulted from changes in the market for 2.5 inch disk drives and also the recently announced industry consolidation among two of our customers. These factors have reduced our expectations of demand and revenues in the current fiscal year, however, in the medium to long term, I believe the consolidation will be good for the industry and our business," said Steve Barber, CEO of Xyratex. "Given the current environment in both industries that we participate in and the consolidations that are taking place, we are very focused on creating new opportunities with both existing and new customers and restricting our costs to reflect the current environment. The dynamics in both industries are still very good and with good execution and the right technologies, I feel confident that our business opportunities remain strong. We will continue to work with our customers to make them more competitive in their respective markets and remain flexible in meeting their technology and product demands."
Share Repurchase Plan
The Board of Directors has authorized a recommencement of the share repurchase plan it initially approved during the first quarter of 2008, and to increase the maximum value of shares that may be repurchased. According to the revised terms of the plan, the Company may repurchase up to an additional $50 million of its outstanding shares following April 30, 2011. As of February 28, 2011, Xyratex had 30.9 million shares outstanding.
Share repurchase transactions authorized under the plan will occur from time to time in the open market, through block trades or otherwise. Management and the Board of Directors will exercise discretion with respect to the timing and amount of any shares repurchased, based on their evaluation of a variety of factors, including current market conditions. Repurchases may be commenced or suspended at any time without prior notice. Additionally, Xyratex may initiate repurchases under a Rule 10b5-1 plan, which would permit shares to be repurchased when the Company would otherwise be precluded from doing so under insider-trading laws. The repurchase program will be funded using the Company’s available cash resources, and it is intended that the repurchase program will be Rule 10b-18 compliant.
Business Outlook
- Revenue in the second quarter of 2011 is projected to be in the range $320 to $365 million.
- Fully diluted earnings per share is anticipated to be a loss of between $0.20 and $0.02 on a GAAP basis in the second quarter. On a non-GAAP basis fully diluted earnings per share is anticipated to be between a loss of $0.12 and earnings of $0.06. 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:
"However, our revenue forecast for the year for the SI division has reduced significantly as a result of changes to the 2.5-inch mobile disk drive market and WDs proposed acquisition of HGST. We are in the process of determining what expense reductions should be made without impacting our product roadmap or affecting the mid-to-long term opportunities which we have not really changed."
Steve Barber, CEO:
"Today's storage market environment is currently experiencing significant change, resulting from the recent major industry consolidation announcement of Western Digital and Hitachi GST. The uncertainty of component supply and demand, as a result of the earthquake and subsequent tragic events in Japan and the slowdown in notebook PC shipment in January and February. We believe these factors may result in disk drive unit shipments, potentially only increasing by 5% this year compared to around 10% historically.
"The level of component supply disruption resulting from the Japanese disaster is not yet fully understood by the wider electronic industry nor the result in potential demand implication for disk drive and other components.
"We shipped just over 1,000 petabytes or just over 1 exabyte of enterprise storage in our fiscal first quarter, representing a 24.4% growth over the prior quarter and 59.9% growth over a year ago.
"In terms of enterprise type shipped, we continue to see an increasing trend towards SAS in enterprise market. In the quarter, we shipped 72.03 petabytes of Fibre Channel, 711.77 petabytes of SATA, 216.18 petabytes of SAS, up over 150% year-over-year and 340 terabytes of SSD, up 189% year-over-year.
"We're seeing positive growth in our IBM business following their launch on the quarter of V7000 platform. In addition, we're working closely with HP and Dell to assist in the integration of the 3PAR and Compellent businesses respectively as they position these products within their storage portfolio and leverage their global capability. The recent announcement of NetApp's intention to acquire LSI's Engenio storage division, should have little, if any impact on Xyratex over the next two years through to the provisions within the multiyear agreement we entered into in 2008.
"We now provide our data storage solutions to five of the top server and storage OEM, including Dell, EMC, IBM, HP and NetApp.
"We estimate now, that the reduction in 2.5-inch disk drive growth rate, the acquisition of Hitachi GST by Western Digital, and the impact of the Japan tragedy, will result in approximately $145 million reduction to our prior fiscal year 2011 revenue outlook range. This revised revenue outlook is based on our assessment that disk drive unit shipments will now only increase by 5% in 2011 to 685 million units."
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