Another Orange County technology company is tapping India for engineering work,and not just the simple stuff.
Costa Mesa-based Emulex Corp., a maker of electronics that link computers on data storage networks, is looking to boost its workers in India from around 35 to upward of 100 in the next few years, said Michael Rockenbach, chief financial officer.
The company won’t just send secondary engineering work to India, as have some of Emulex’s technology cousins. The move includes development jobs as well, Rockenbach said.
Emulex plans to keep growing in Costa Mesa, Rockenbach said, noting there are 25 openings at the company’s headquarters.
“We’re growing in the U.S. as well as offshore,” he said.
The India expansion should save the company money without reducing engineering and help get products out faster, according to Rockenbach.
Fostering Loyalty
Sending some key engineering work to India should garner loyalty there, he said.
Emulex sells host bus adapters,circuit boards that link servers to other computers within massive data centers run by corporations, banks and governments. The company also sells switches that connect data storage banks with servers.
Offshoring could help address investor concerns that Emulex needs to do more to boost profits.
It’s no secret engineers in India make less than their U.S. counterparts. Some analysts have said the savings can be more than 30%, though the gap could be shrinking.
Emulex’s spending on research and development has been running at 21% to 22% of revenue, Rockenbach said.
“We’ve been looking to bring that down,” he said.
Rockenbach didn’t elaborate on how much.
In the quarter ended July 2, Emulex reported a gross profit margin of 62.8%, missing its own target of 64%, said Laura Conigliaro, an analyst with Goldman Sachs Group Inc.
The manufacturing and inventory problems that caused the shortfall in margins have been resolved, Conigliaro said.
Still, margins are feeling some squeeze as Emulex shifts into a growing but less profitable business selling boards for blade servers, which slip into a data room rack and increasingly are the server of choice of Corporate America.
Emulex gained access to India with its May buy of San Jose-based Aarohi Communica-tions Inc., a supplier of networking components and software for data centers.
Aarohi has about 70 people, primarily engineers, split between San Jose and Bangalore.
Engineers in India eventually will work on host bus adapters, Emulex’s most traditional of products, among other things, Rockenbach said.
Emulex’s decision to put some “core” engineering work in India is different than its cross-county rival, Aliso Viejo-based QLogic Corp.
QLogic has about 100 to 110 workers in India via outside companies, according to Chief Executive H.K. Desai.
The company has about 850 employees in all.
The jobs in India are for “non-core” engineering work, including product testing, Desai said.
Newport Beach chipmaker Conexant Systems Inc. has been more aggressive, opening design centers in India where it employs about 1,000 with plans to invest $250 million more.
Conexant’s India workers are handling “non-core” engineering. The move has paid off, getting Conexant out of the red last year and bolstering profit margins since.
Putting core engineering in the hands of Indians is a simple reaction to market forces in the country, according to Rockenbach.
Demand for Indian engineers has made it easy for them to jump from one employer to the next, making high turnover a problem for companies here. Emulex wants to avoid that, Rockenbach said.
Engineers are more likely to stay if they’re doing cutting-edge work that’s critical to their employer.
“If you’re just running a help desk, you’re going to see a lot of turnover,” Rockenbach said. “It’s something we wanted to change.”
The move also turns Emulex’s engineering operation into one that’s around the clock.
“It’s basically halfway around the world,” Rockenbach said. “You can work on stuff 24 hours a day. So there’s better time to market.”
Bouncing Back
The India push comes as Emulex is enjoying a bit of resurgence.
For the recently ended quarter, the company’s adjusted earnings beat estimates by nearly 10%. Revenue of $99 million was in line with expectations.
The company had missed estimates for the prior few quarters.
For the current quarter, Emulex expects to meet estimates for earnings but said revenue could come in just below expectations.
Wall Street forecasts $100.6 million in sales for the quarter, down about 4% from a year earlier. Net income is seen coming in at about $20 million, down from $25 million a year earlier and up from $13 million in the prior quarter.
Shares of Emulex are up about 7% in the past month with a recent market value of $1.3 billion.
