Technology stocks have been among the hardest hit in Wall Street’s running slide.
Aliso Viejo’s QLogic Corp., a maker of electronics that speed the flow of data on networks, is no exception,its stock is down some 25% in the past six months.
But the company, with a recent market value of $1.7 billion, bucked the overall trend of slower sales and more cautious outlooks last week with results for the December quarter.
QLogic, which makes controller chips, host bus adapters and switches that make up the backbone of data storage networks, reported record revenue of $158 million for the quarter, after a weak first half of the year.
It recovered a bit in the September quarter, but few expected December’s results, even Chief Executive H.K. Desai.
“We had a strong December quarter, better than we expected,” he said in an earnings conference call.
Upped Guidance
Excluding charges for stock compensation, acquisitions and other items, QLogic saw profits of $41 million, down 9% from a year earlier but above analysts’ initial expectations.
Earlier this month, QLogic said it expected sales and profits to exceed expectations.
“Despite a weakening U.S. economy and choppiness in financial services, the quarter seems to have ended well for most of the enterprise storage companies,” said Kaushik Roy, senior analyst of data center technologies at San Francisco-based Pacific Growth Equities LLC.
QLogic’s sales were helped by good results from its top customers, Hewlett-Packard Co., EMC Corp. and IBM Corp., according to Tam Dell’Oro, principal of the Dell’Oro Group, a market tracker in Redwood City.
“This means the server market had a good, strong quarter,” she said.
The quarter typically is good for makers of servers, according to Dell’Oro.
“Typically the server manufacturers have an end of year seasonal strength,” she said.
A quarter to 30% of data storage networking companies’ sales come during the December quarter, according to data from Dell’Oro Group.
It’s also the time that big users of data networks, such as banks and corporations, are spending the rest of their yearly budgets, according to Pacific Growth’s Roy.
“The No. 1 thing for QLogic is that there was a fourth-quarter budget flush,” he said. “These IT budgets were decided in January of 2007, when things looked pretty good still.”
QLogic also likely got a boost from the weaker dollar, Roy said.
Roughly half of its sales are from outside the U.S., which means the company’s income statement gets a boost when revenue is reported in dollars.
Better Margins
The company improved its profits on its Infiniband brand of switches,stackable devices that regulate the flow of data between servers on a network.
QLogic buys the chips that go into the switches from Israel’s Mellanox Technologies Ltd., which is publicly traded in the U.S.
“In the past QLogic had got hurt a little bit because of Mellanox beating them up on margins,” Roy said. “At some point, they probably renegotiated and are getting slightly better pricing.”
The company reported gross margins of about 69%, more than the 67% anticipated in the outlook it gave in December.
QLogic hopes to carry its gains into the slower quarter through March.
“We see a momentum in our business from the last couple of quarters,” Desai said.
For the current quarter, QLogic expects profits of $34 million to $37 million on sales of $147 million to $151 million, Chief Financial Officer Tony Massetti said in a conference call.
The low end of the ranges are in line with analysts’ expectations and up from the $147 million in sales the company reported during the same period a year ago.
