After struggling for much of last year, QLogic
finished the fourth quarter with a bang, raising hopes that the rest of the storage sector may follow.
The two dominate the market for Fibre Channel host bus adapters (HBAs)
“Qlogic and Emulex results are indications of a solid Q4 in the storage industry, in our view,” Robert W. Baird analyst Daniel Renouard told Enterprise Storage Forum. “These results are consistent with our Q4 VAR survey, which concluded Q4 was a strong quarter in server/storage infrastructure sales. In particular, we believe HP recovered a bit, Hitachi grew with the help of new products, EMC and Network Appliance continued gaining share, and IBM lost share in front of their new product cycle.”
Emulex posted its fiscal second-quarter results last night, with earnings per share of 20 cents, well above consensus estimates of 15 cents a share. Revenues grew 25 percent sequentially to $92 million, up from the original guidance numbers of $81-85 million. Operating margins jumped to 31 percent in the quarter.
QLogic reported its third-quarter results for fiscal 2005 on Wednesday. Revenues for the quarter were $150 million, and earnings of 48 cents a share represented a sequential net revenue increase of 12 percent. The growth was fueled by a number of factors, including a 14 percent sequential jump in switch and HBA sales, as well as an enviable operating margin of 42 percent.
Both companies also raised forward guidance above Wall Street expectations, suggesting that the good times will continue.
“We are very pleased with our strong performance during the third quarter and the achievement of both record revenues and net income,” stated QLogic chairman, CEO and president H.K. Desai. “The growth in our revenues during the third quarter was primarily driven by double-digit sequential growth for both HBAs and switches.”
The growth represents a stark turnaround from last year, when pricing pressures pushed the vendors’ results below expectations. Analysts say the latest results from QLogic and Emulex are proof positive that the storage industry is alive and well.
Susquehanna Financial Group research analyst Kaushik Roy said the results show that the Fibre Channel HBA business is healthy.
“I think the QLogic and Emulex results indicate that Fibre Channel HBA market continues to have a healthy growth despite growth in other storage connectivity technologies such as iSCSI and NAS,” Roy told Enterprise Storage Forum. “It also appears that QLogic and Emulex would most likely maintain their duopoly in this market.”
Roy added that barring any major market share shifts, switch companies such as Brocade, Cisco and McData also likely benefited from the robust growth in SAN connectivity in the fourth quarter.
Enterprise Strategy Group senior analyst Nancy Hurley said ESG’s research conducted late last year showed a 3.5 percent increase in IT budgets for storage hardware, software and services across enterprise, mid-tier and SMB markets.
“While we are not expecting any one area to dominate, the biggest increases in spending was for storage systems,” Hurley told ESF. “Combine this with the QLogic and Emulex results, and one could infer that there is a growth in the amount of storage being networked on FC SANs. Of course, Emulex is also doing well with the Vixel chips, which are resident in many of those systems.”
A recent ESG report on Emulex’s embedded FibreSpy technology noted that Fibre Channel adoption is pushing down into the SMB market. The high cost and complexity of Fibre Channel had been a barrier to adoption by SMBs, but both are coming into range of that market segment. In ESG’s view, eliminating the switch and moving the switch management inside of a storage subsystem has reduced both cost and complexity for the SMB market.
EMC’s results next week should confirm these trends, but the company won’t talk until then.
“Unfortunately, EMC can’t comment on this kind of thing because of SEC rules,” said EMC spokesperson Kevin Kempskie. “The closest we’ll get to talking about our prognostications for the industry happens during our quarterly earnings calls.”
EMC will report its latest quarterly results Tuesday morning, followed by a conference call with analysts and investors. The consensus analyst earnings estimate for EMC is 12 cents a share, which would mark a 50 percent increase from the year-ago quarter.