F3Q2011 Earnings Call Transcript January 27, 2011 5:00 pm ET Executives Doug Naylor – VP, Finance and Interim CFO Simon Biddiscombe – President and CEO H. K. Desai – Chairman and Executive Chairman Analysts Amit Daryanani – RBC Capital Markets Aaron Rakers – Stifel Nicolaus Jayson Nolan – Robert Baird Mark Moskowitz – JP Morgan Keith Bachman – Bank of Montreal Kaushik Roy – Wedbush Katy Huberty – Morgan Stanley Glenn Hanus – Needham & Company Rajesh Ghai – ThinkEquity Douglas Ireland – JMP Securities Scott Craig – Bank of America/Merrill Lynch Presentation Operator
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We refer you to the documents that 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.In our third quarter earnings press release issued earlier today, we reported both GAAP and non-GAAP results. In addition, all of the references we will make on our call today relate to non-GAAP results unless otherwise stated. A reconciliation of the non-GAAP financial measures presented to the most directly comparable GAAP financial measures is available on our website under Investor Relations. Turning now to our financial results for the third fiscal quarter ended December 26, 2010. Our revenue in the third quarter was $155.8 million, an increase of 4% from the same quarter last year. This revenue was at the high end of our forecasted range of $148 million to $156 million provided during our third quarter earnings conference call and consistent with the updated forecasted range of $155 million to $156 million provided in our preliminary third quarter results announced on January 12. Our third quarter revenue from Host Products, which are comprised primarily of Fibre Channel adapters and converged network adapters, was $113.5 million and increased 3% from $110.4 million recorded in the third quarter of last year. Third quarter revenue from Network Products, which are comprised primarily of Fibre Channel and InfiniBand switches, was $28.9 million and increased 6% from $27.4 million recorded in the third quarter of last year. Our third quarter revenue from Silicon Products comprised of Fibre Channel, converged networking, and iSCSI chips was $10.6 million. This revenue increased 23% from $8.7 million recorded in the third quarter of last year. Our service and other revenue was $2.7 million. Our third quarter gross margin of 67.1% improved from 66.0% recorded in the third quarter of last year, primarily due to higher volume to absorb manufacturing costs. Our gross margin exceeded our forecast of 66.0% to 66.5% provided during our third quarter earnings call, primarily due to product mix.
Next I’d like to cover our third quarter operating expenses. Total operating expenses were $54.4 million, up 2% from $53.2 million reported in the third quarter last year. Operating expenses were below our expectation. Engineering expenses in the third quarter of $29.4 million were consistent with the third quarter last year and decreased as a percentage of revenue from 19.8% to 18.9%. We expect future engineering expenses as a percentage of revenue to be in the range of 18% to 21%.Sales and marketing expenses in the third quarter of $18.3 million increased 8% from a year ago and increased as a percentage of revenue from 11.3% to 11.7%. We expect that future sales and marketing expenses as a percentage of revenue will range from 11% to 13%. General and administrative expenses in the third quarter of $6.7 million were 4.3% of revenue. We expect that future G&A expenses as a percentage of revenue will be approximately 4%. Operating profit in the third quarter of $50.1 million increased 11% from a year ago and increased as a percentage of revenue from 30.3% to 32.2%. Interest and other income was $800,000 in the third quarter. During the third quarter, we’ve recorded a tax benefit of $6.3 million. This tax benefit is a result of third quarter specific income tax items, including the retroactive reinstatement of the federal research tax credit that was enacted December 2010. Our third quarter net income of $57.2 million increased 58% from a year ago and represented a net profit margin of 36.7%. Our third quarter net income per diluted share of $0.53 was significantly better than the $0.31 we achieved last year. The benefits associated with the third quarter specific income tax items that were not included in our original guidance contributed $0.13 to our earnings per diluted share. Read the rest of this transcript for free on seekingalpha.com