Four months into Jim McCluney’s chief executive role at Emulex Corp., he’s floating high.
“I’m feeling OK,” he said. “Lots of wind in our sails here.”
The networking electronics maker has folded in two 2006 acquisitions,those of Roseville-based Sierra Logic Inc. and San Jose’s Aarohi Communications Inc.
Emulex is adding to its global workforce of 700, including adding about 35 people at its Costa Mesa headquarters.
The company is sitting on $270 million in cash.
Emulex’s recent quarterly results were greeted warmly. But the company’s lower-than-expected outlook for the current quarter spooked some investors.
“Operationally, we’re very pleased with the results” for the December quarter, McCluney said. “Our underlying operations are very strong.”
McCluney, who had been president and chief operating officer since 2003, was elevated to chief executive last September after Paul Folino handed over the title to become executive chairman. The two had worked on the transition since McCluney came aboard when his company, Vixel Corp., was acquired by Emulex.
Part of the transition includes a bid to diversify Emulex, which gets about 75% of sales from host bus adapters used to link computers on a data storage network.
Enter Aarohi, which makes data storage software, and Sierra Logic, a component maker whose wares connect storage devices.
“This was part of our strategy to grow other product lines,” McCluney said. “I call it the Pepsi-Coke war; it’s winning market share.”
McCluney has put his mark on the company, which long has been associated with Folino, one of the county’s most prominent executives.
“Paul Folino and I have really been shaping this strategy for a year or two, so there was great continuity,” McCluney said. “I also brought in some new executives,we have new heads of manufacturing operations, corporate development looking at planning, we hired a new COO, and we’re bringing in some other people who can bring in some depth.”
McCluney, a soft-spoken Scotsman known for his sense of humor and humility, was tapped as Business Journal’s technology person to watch in 2007.
Not long after our December story, McCluney said he spotted his neighbor peering over the wall of his Laguna Niguel home.
“He said, ‘I saw the article and wanted to watch you.’ I was sweeping up some leaves on the back patio,” McCluney deadpanned.
Gardening skills notwithstanding, McCluney was tapped for his work in bringing Aarohi and Sierra Logic into the Emulex fold, and for what he might do with them.
He said the two acquisitions help round out the company and offer the prospect of added sales this year and into 2008.
“Our objective is to build a billion-dollar company,” McCluney said.
Emulex now does about $450 million in yearly sales.
For the current quarter, Emulex sees revenue of $115 million to $119 million. Key customers,IBM Corp. and Hewlett-Packard Co.,anticipated a slower quarter, he said.
“All boats rise with the tides,and fall,” McCluney said.
In a conference call with analysts, McCluney estimated only a modest decline in revenue in the quarter, good profitability and continued generation of cash.
“We’re essentially debt-free and we’re repurchasing shares,” he said.
Friedman, Billings, Ramsey & Co. senior analyst Clay Sumner said Emulex had a good December quarter but downgraded the company’s shares to “market perform” on the slower forecast.
Sumner wrote in a report he was surprised by a turn in Emulex’s business in the recently ended quarter. The company’s core host bus adapters business grew a modest 6%, while embedded components shot up 17%.
“While the quarter was solid, the HBA results did not quite meet our high expectations, which means that the mix is shifting faster than we expected to lower-margin (but still very profitable) embedded products,” Sumner wrote.
Even with acquisition costs, Emulex generated $60 million in the past six months, McCluney said.
In that same time, shares of Emulex have gained about 20% with a recent market value of $1.5 billion.
But the shares fell more than 8% on the lower forecast late last month.
“Unfortunately, with Wall Street, you’re measured quarterly, and you face the slings and arrows of that,” McCluney said. “We’re looking beyond that. We do generate good cash. I don’t think we’re done with that.”
He said he doesn’t think Emulex is done making acquisitions, either. Nothing’s on the immediate horizon, he said. But a team of executives is looking full time.
“The key thing is (not to) close your eyes to anything,” McCluney said.
Broadcom Jury
A jury has spoken on one of the fights between Irvine-based Broadcom Corp. and San Diego’s Qualcomm Inc.
Late last month, a federal jury in San Diego found Broadcom didn’t infringe on two Qualcomm video patents.
The case is one of four lawsuits between the two chipmakers.
