QLogic Corp. (
F2Q2010 Earnings Call
October 21, 2010 5:00 pm ET
Simon Biddiscombe - SVP & CFO
H. K. Desai - Chairman & CEO
Kaushik Roy - Wedbush
Amit Daryanani - RBC Capital Markets
Munjal Shah - Jeffries & Company
Katy Huberty - Morgan Stanley
Noah Huth - ThinkEquity
Harsh Kumar - Morgan Keegan
Jung Pak - BMO Capital Markets
Aaron Rakers - Stifel Nicolaus
Good day, and welcome to the Second Quarter Fiscal Year 2011 QLogic Earnings Announcement. As a reminder, today’s conference is being recorded.
At this time, I would like to turn the conference over to Simon Biddiscombe, Chief Financial Officer. You may begin when ready, sir.
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Thank you, Doris. Good afternoon, and welcome to QLogic’s second quarter fiscal year 2011 earnings conference call. Joining me on the call today is H. K. Desai, our Chief Executive Officer.
H.K. will begin the call with a brief discussion of today’s announced transition of leadership at QLogic. I will then follow with a review of the second quarter financial results. H. K. will close our prepared remarks with a discussion of the current state of our business. Afterwards, we will open the call for questions.
Certain of our comments today will include forward-looking statements regarding future events and/or projections of the financial performance of the company based on our current expectations. These comments are subject to significant risks and uncertainties that could cause our actual results to differ materially from those expressed in these forward-looking statements. We refer you to the documents QLogic files with the SEC, specifically our most recent forms 10-K and 10-Q. These documents identify important risk factors that could cause our actual results to differ materially from expectations. We do not intend to update the forward-looking statements that we make today.
I will now turn the call over to H.K. H.K.?
H. K. Desai
Thanks, Simon. Today I’m pleased to announce our planned transitions at QLogic. Effective November 15, 2010, Simon will become the company’s President and Chief Executive Officer. Having worked closely with Simon over the last 2.5 years, the Board of Directors and I have no doubt that he has the leadership skills, strategic vision, cultural fit, and all personal capabilities to lead QLogic.
I’ll assume the newly created position of Executive Chairman and for at least next three years, we’ll work very closely with Simon, focusing our technology and product roadmaps as well as continuing and expanding relationship with strategic customers. I’m personally very excited to be able to support Simon in these areas and to continue to contribute to the future success of QLogic.
I’ll turn the call back to Simon for some brief comments and his review of our second quarter financial results.
Thanks H.K. I’m delighted that H.K. and the entire Board of Directors have shown confidence in my ability to lead QLogic in the coming years. The company is well positioned to capitalize on the significant incremental opportunities in the emerging converged network end market. I’m excited to assume leadership of the company at this important time in our industry. I plan to continue the strategies outlined at our recent Analyst Day, maintaining our focus on customers, execution, and financial discipline.
I will now discuss our second quarter financial results. In our second quarter earnings press release issued early today, we reported both GAAP and non-GAAP results. A reconciliation of GAAP net income to non-GAAP net income, and a summary of the non-GAAP adjustments are included in our earnings press release. All of the references we will make on our call today relate to non-GAAP results unless otherwise stated.
Turning now to our financial results for the second fiscal quarter ended September 26, 2010. Our revenue in the second quarter was $146.5 million, an increase of 11% from the same quarter last year. This revenue was at the high end of our forecasted range of $143 million to $147 million provided during our first quarter earnings conference call and at the midpoint of our updated forecasted range of $146 million to $147 million provided in our preliminary second quarter results announced on October, the 7.
Our second quarter revenue from Host Products, which comprised primarily of Fibre Channel adapters and converged network adapters was $104.2 million, and increased 11% from $94 million recorded in the second quarter of last year. Second quarter revenue from Network Products, which are comprised primarily of Fibre Channel and InfiniBand switches was $27.2 million and increased 11% from $24.5 million recorded in the second quarter of last year.
Our second quarter revenue from Silicon Products comprised of Fibre Channel, converged networking, and iSCSI chips was $12.4 million. This revenue was consistent with our expectation and increased 30% from $9.6 million recorded in the second quarter of last year. Our service and other revenue was $2.7 million. Our second quarter gross margin of 66.8% improved from 65.5% recorded in the second quarter of last year, primarily due to higher volume to absorb manufacturing costs. Our gross margin exceeded our forecast of 65.5% to 66% provided during our first quarter earnings call, primarily due to product mix.
Next I’d like to cover our second quarter operating expenses. Total operating expenses were $53.6 million, up 1% from $52.8 million reported in the second quarter last year. Operating expenses were below our expectation. Engineering expenses in the second quarter of $28.8 million decreased 3% from a year ago and decreased as a percentage of revenue from 22.6% to 19.7%. We expect future engineering expenses as a percentage of revenue to be in the range of 18% to 21%.