Financial

posted on 08 August 2008 09:18

Emulex has recorded an 11 percent fall in revenues for its fiscal 2008 and  a 124 percent fall in net income to record a loss for the year.

The maker of server network adapters and storage array switches reported Q4 fy08 revenues of $112.8 million, 11 percent down on Q4 fy07's $126.3 million and also 12 percent down sequentially. The Q4 fy08 net loss was a thumping great $50.4 million (-$0.61/share) compared to the year-ago quarter's $13.16 million ($0.15/share) net income.

This dreadful quarter had its effect on the full year figures with a reduced revenue growth and net loss. Fy 08 revenues were $488.3 million, a 4 percent rise on fy07's $470.2 million and Emulex' tenth consecutive quarter of revenue growth. The fy08 net loss was $7.1 million (-$0.09/share) which compares to fy07's net income of $29.4 million ($0.34/share), meaning there was a 124 percent negative turnaround. Something went badly wrong.

A look at the accounts shows that OEM revenues were $88.6 million in Q4 fy08 and $90.1 million in Q4 fy07, decreasing by $1.5 million. Distribution revenues were $36.21 million in Q4 fy07 but fell to $23.95 million in Q4 fy08, a decrease of more than $12 million.

Checking out the geographic results points the finger fairly clearly at distribution sales in the US as a main culprit of the Q4 fy08 revenue fall and resulting net loss.

Q4 fy08 US revenues were $46.1 million (Q4 fy07 - $61.1 million) with Pac Rim revenues of $28.5 million (Q4 fy07 - $26.1 million) and Europe/ROW revenues of $38.2 million (Q4 fy07 - $39.1 million). There was a drop of $15 million in US distribution revenues.

Emulex HBA product sales at $88.4 million were 10 percent down year-on-year. (QLogic HBA sales were up 16 percent year on year as it gained share.) Emulex has a less than 30 percent share in the blade server HBA market.

The embedded switch segment declined 33 percent year on year as OEM customers delayed product take-up.

Emulex CEO and president Jim McCluney said: "While the fourth quarter revenue results were disappointing, key metrics including our gross margins, cash generation and spending management demonstrate our commitment to performance. We were also able to deliver our 10th consecutive year of top line revenue growth in 2008 driven by strong year-over-year growth of our server OEMs."

Disappointing is certainly one way of describing the quarter.
Looking ahead he continued: "As we enter 2009, we are accelerating our strategy of leveraging our strong financial model to take advantage of our opportunities to grow through diversification. In addition to adding depth to our product portfolio, we are focusing our internal investments in sales and marketing to closely align ourselves with our customers and partners in faster growing global markets for our existing solutions."

Is that a hint that the US market flopped for Emulex rather than its distribution sales organisation there failed to deliver the goods?

The outlook is for Q1 fy09 total net revenues in the range of $108-$111 million. The Company's GAAP gross margin will be approximately 63 percent and diluted first quarter earnings per share will be $0.00-$0.02. A recovery quarter in other words.

Leveraging financial strengths to grow through diversification could be a coded way of referring to an acquisition. Focussing internal investments in sales and market could signal some kind of restructuring.

^{[Chris Mellor.]}