SOURCE: Emulex Corp.
COSTA MESA, Calif.--(BUSINESS WIRE)--April 18, 2002--Emulex Corp.
(Nasdaq:EMLX - news), the world's largest supplier of storage networking host bus
adapters (HBAs), today announced results for its third fiscal quarter ended March 31,
2002.
Revenues grew to $69.6 million, up 15% from the $60.4 million reported for the same
quarter a year ago and up 12% sequentially from the December 2001 quarter.
Pro forma net income amounted to $13.7 million, or $0.16 per diluted share, for the third
quarter of fiscal 2002, up 26% from the pro forma net income of $10.9 million, or $0.13
per diluted share, reported for the same quarter a year ago. On a sequential basis, pro
forma net income grew 27% from the second fiscal quarter level of $10.8 million.
Pro forma net income excludes charges for a loss on the sale of a strategic investment and
amortization expense for deferred compensation, goodwill and other intangibles, as well as
the benefits from a release of valuation allowance related to deferred tax assets and a
reduction of the excess and obsolete inventory charge associated with older generation 1
gigabit per second (Gbps) products recorded in the first quarter of fiscal 2002.
For the third fiscal quarter, on a GAAP basis, which includes the charges and benefits
described above, Emulex reported a net loss of $16.5 million, or $0.20 per share,
compared with a net loss of $24.5 million, or $0.32 per share for the prior year's period.
Amortization of deferred compensation, goodwill and other intangibles, net of tax effect,
amounted to $39.0 million in the third quarter, primarily associated with the acquisition of
Giganet Inc., an early-stage company specializing in Internet protocol (IP) storage
networking solutions, which was completed on March 1, 2001.
``Demand for our storage networking products continued to improve during the third fiscal
quarter as our Fibre Channel business expanded 14% over the second quarter and grew
18% over the year-ago period,'' stated Paul Folino, president and CEO of Emulex.
``While most of this sequential gain was generated by increased demand for high-end storage networking host bus adapters,
mid-range adapters also contributed materially to growth as Emulex continued to progress in penetrating this new sector.''
During the third quarter, unit shipments of Emulex HBAs rose to a record level, led by an ongoing shift from 1 Gbps products
to next-generation 2 Gbps products. Sales of Emulex's market-leading 2 Gbps Fibre Channel HBAs doubled sequentially,
rising to 48% of Fibre Channel revenue in the third quarter, up from 28% in the second quarter.
Folino stated, ``During this period of economic uncertainty, our strong focus on the storage networking HBA market and
continued emphasis on operating controls has enabled Emulex to remain one of the most productive companies in the storage
networking sector, with annualized revenues per employee now better than $800,000.''
Emulex's pro forma gross margin continued to expand, rising to 57% in the third quarter of fiscal 2002, up from the 54% and
52% achieved in the second quarter and first quarter, respectively. As a result of generally improved demand, which is
exceeding prior estimates, Emulex reversed $2.2 million of its September 2001 excess and obsolete inventory charge
associated with 1 Gbps products.
``The improvement in our third quarter pro forma gross margin is unrelated to the reversal of the prior 1 Gbps inventory charge,
which is excluded from our pro forma results,'' stated Mike Rockenbach, Emulex chief financial officer.
``Other factors such as the shift to next-generation, lower cost solutions and improved manufacturing efficiencies were the key
elements in improved profit margins.''
Pro forma operating margin also expanded sequentially, rising to 30% in the third quarter ended March 31, 2002, up from the
25% and 18% recorded in the second fiscal quarter and the first fiscal quarter, respectively.
Emulex also exited the quarter with a strengthened balance sheet. On a sequential basis, excluding net proceeds from the
convertible debenture offering completed in January 2002, cash and investments expanded by more than $34 million.
Receivables declined by $807,000 sequentially to $36.7 million even as revenue expanded sequentially by 12%. Inventories
declined sequentially by $2.3 million to $18.2 million, generating improved inventory turns of 6.5, compared with the 5.5
achieved in the second fiscal quarter, based on pro forma cost of sales.
During the quarter, Emulex was able to establish several new inventory hubs for a leading customer. ``We were pleased to be
able to strengthen an important customer relationship while taking another step to improve the quality of earnings at Emulex,''
stated Rockenbach.
Under the inventory hub model, Emulex products are separately warehoused on or near customer premises and remain under
Emulex ownership until OEM customers pull them onto the manufacturing floor for final integration and shipment.
``We have succeeded in establishing inventory hubs now at two of our three largest customers and it remains our standard
policy to book revenue only after that inventory is released to their manufacturing floor. And for standard HBAs sold through
the distribution channel, we only recognize revenue upon sell-through by the distributor,'' commented Rockenbach.
For the nine months ended March 31, 2002, revenues declined 1% to $184.5 million, compared with the $186.9 million
reported for the same period a year ago. Pro forma net income for the first nine months of fiscal 2002 declined 24% to $31.9
million, or $0.38 per diluted share, compared with pro forma net income of $41.9 million, or $0.53 per diluted share for the
same period a year ago.
Pro forma net income for the nine months ended March 31, 2002, excluded amortization of deferred compensation, goodwill
and other intangibles, an excess and obsolete inventory charge associated with older generation 1 Gbps products, a loss related
to a strategic investment and the release of valuation allowance related to deferred tax assets.
Pro forma net income for the nine months ended April 1, 2001, excluded amortization of deferred compensation, goodwill and
other intangibles, in-process R&D, interest on a pre-acquisition note receivable from Giganet and a gain on a strategic
investment.
During the first quarter of fiscal 2002, Emulex incurred an excess and obsolete inventory charge amounting to approximately
$13.6 million associated with older generation 1 Gbps products. As a result of generally improving demand, which is exceeding
prior estimates, Emulex reversed $2.2 million of this inventory charge during the third quarter of fiscal 2002.
On a GAAP basis, the net loss for the first nine months of fiscal 2002 was $84.8 million, or $1.04 per share, compared with
net income of $7.7 million, or $0.10 per diluted share, for the same period in the prior year.
