Some children grow up fast. Just ask QLogic Corp.
When Costa Mesa-based Emulex Corp. spun off QLogic in 1993, the company only sold small chips that controlled disk drives. Now the company has virtually eclipsed its former parent with a strategy that has served some companies well in the tech industry: Be all things to all people.
For Aliso Viejo-based QLogic, that meant setting itself up in 1998 to make a line of products that would serve a then-obscure market called network attached storage. It built the line with its own research and development and by acquiring some firms with key technologies.
As it turned out, the market took off and proved to be a gold mine for QLogic and other companies that sell such gear.
Network attached storage is predicated on the maxim that it’s better to share than to hog. Network attached storage products allow a single repository for data,stored on an independent server somewhere,to be accessed across a network by multiple servers with many different users. Techies say this improves upon the age-old method of accessing data,storing data on a server that also handles network traffic,because it improves network efficiency.
“We sell all the products for networking storage, from end-to-end,” said Frank Berry, QLogic’s vice president of marketing. “We do it all the way down to the peripheral component chips.”
In a business fraught with unintelligible words and acronyms, QLogic’s strategy is simple. Storage networks are composed of many different parts, ranging from the ones that sit on servers handling user requests to switches directing the traffic to storage devices that hold information, and all the wires in between. QLogic makes them all,except for the wires.
“Our roots are in controller chips that go into disk drives and tape drives,” Berry said. “I would say that it has been a logical migration with that core technology to easily sell other types of products.”
Those products break out into two categories: slower ones based on small computer system interface (SCSI, pronounced “skuzzy” by industry types) technology and faster fibre channel technology. SCSI products are slower and older, having been around since personal computers first came on the scene. The tech vanguard is in fibre channel products, which can connect computers at high speeds over long distances.
QLogic counts its fibre channel-based gear among some of its most popular, including a product called a switch that actually looks like a large server.
“We’ve led in this area,” brags Berry.
But QLogic still has its work cut out. Just as its strategy of selling all the products that go into storage networks could make it a giant, it also has pitted the company against several tough competitors that focus on specific parts of such networks. For instance, QLogic’s switch line competes directly with that from San Jose-based Brocade Communications Sys-tems Inc., while its host bus adapter products compete directly with Emulex.
And the storage market has been declining over the past year. Several analysts have lowered estimates on QLogic’s shares as companies have slashed spending amid the broader economic slowdown. The Sept. 11 attacks only worsened the situation,a point bemoaned in a recent report from brokerage Robertson Stephens.
“These uncertainties have reverberated throughout the supply chain on the enterprise and carrier markets,in all cases stemming from weak end-user demand and consumer confidence,” said Robertson Stephens analyst Paul Johnson. “It appears that consumer sentiment and the poor economic conditions are feeding on each other, creating a system in search for some equilibrium. The communications equipment vendors are caught in the middle of the economic malaise.”
Johnson last month lowered his estimates for QLogic’s current fiscal year by 10%.
And QLogic executives themselves point out that there could be rough times ahead. The industry’s newest products,devices that move data at speeds of 2 gigabytes per second,are coming out at the same price as the industry’s oldest products,ones that move data at 1 gigabyte per second.
“There’s definitely some commoditization in the industry going on,” Berry said. In preparation for a slowdown, the company has delayed plans to expand its headquarters campus until the economy comes back.
At the same time, the company still has a line of higher-margin chip products that QLogic executives bet will carry the company through any difficulties.
Analysts seem to agree. A majority of analysts covering QLogic rate the company’s shares a buy. And the company’s past stock performance looks the part. QLogic shares have jumped 87% since Oct. 1 even as jittery investors shied away from other tech issues. The stock has grown some 1,800% since 1996.
And QLogic executives point to its research into new technologies as a reason to believe that kind of performance will continue. QLogic engineers have feverishly worked to put together products that move data at 10 gigabytes per second while the company continues to make acquisitions. QLogic acquired Ancore Networks last year and Little Mountain Group this year.
“We’re all hoping the economy’s going to pick up next year,” Berry said. n
