QLogic at Goldman Sachs Technology Symposium - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

MIN PARK, ANALYST, GOLDMAN SACHS: Good morning, everyone, and thank you for joining us for the QLogic presentation. My name is Min Park and I cover the storage network in the tech distribution space as part of our broader hardware coverage, and we're fortunate to have with us today H.K. Desai, CEO, and Jeff Benck, COO and President, as well as Doug Naylor, the new CFO of QLogic. I just want to thank you all for joining us this morning. With that, why don't we just get started?

Just really touching -- starting on the broader picture. QLogic saw very healthy growth in December's quarter, delivering upside to Street estimates on both the top and bottom lines. But then you noted on the last call that although you weren't seeing demand slow down as you came out of December, you wanted to remain somewhat more cautious, given the sentiment. But can you just start off by providing us a bit more color on the overall market and what it's looking like now? Do you still remain cautious, or is it holding up as well as you had expected in the first part of the year?

H.K. DESAI, CEO, QLOGIC CORPORATION: So we gave a guidance of $147 million to $151 million for the revenue and $0.25 to $0.27 cents on the EPS and we said on the call that March is normally a seasonally slow quarter and normally we are down from 2% to 5% sequential decline from the December to March. And we were a little bit more cautious and because of the macro level of concern, we gave our guidance was about mid-point at about 5 -- 5.5 points decline.

So we said in January it was looking good and we did not see any seasonality for the January. So far in the February we haven't seen seasonality. New orders was strong. Only the ITs are strong January because of the quarter end for HP and that Dell, so the first month they go a little stronger [for sales]. Second one is a little off, and the third one is also better. So what we have seen so far is we haven't seen any macro level concerns up to now.

MIN PARK: And when you just kind of look at the broader storage hardware universe, not necessarily QLogic, do you think that the quarter is trending more linearly or do you think we're going to need a stronger March to kind of get the March [quarter to be] more seasonal?

H.K. DESAI: It's trending more linearly.

MIN PARK: Okay. All right. But it indicates what the -- we do start seeing more macro headwinds going forward. Where do you think -- at least within your portfolio -- that we could start seeing softness first and are there enough installed switches out there where your HP business will hold up better or be more resilient? Or would the fabric side be a little bit --?

H.K. DESAI: At the macro level on the storage side, it all depends on OEMs. Most of our business comes from OEMS and if you see the key for us is like HP said that they don't see any macro level concern. I think IBM said today that they don't see any macro concern, either.

So those OEMs is really indicative for us. If they slow down, then we will slow down, because we don't have -- we are one step away from the end users, so we don't see the end users' concern. It's more the OEM business, OEM networks. So if these guys are slowing down, then it could impact us, but so far we haven't seen it in the [March quarter].

MIN PARK: Can you just talk about your visibility? Obviously like you guys do have an OEM business. You kind of produce this when the [chip house] needs product, but it there deeper visibility that you can see beyond specific kind of inventory calls from the OEM?

H.K. DESAI: I think that's the one -- because of -- we are going more towards the system which is HP and the switches and we are getting away from silicon. When the silicon business is there, then it's like 14 to 16 weeks lead time, so you might see some forecasts or some (inaudible) and -- so we can see more visibility, but now we're going towards the system, it's all (inaudible). Most of the business (inaudible) OEM, so we don't really have it that great, but they give us a forecast every month and we'll (inaudible). So I think all (inaudible) are full. So we only (inaudible) to the last week of the month, for example, (inaudible) product.

MIN PARK: Okay. Great. And then just jumping into some of your segments, we'll start off with your host segment, which includes your Fibre Channel HBAs as well as your iSCSI and InfiniBand adapters. QLogic put up better than expected numbers in December quarter in the HBA business as well as overall. And your (inaudible) product revenue was up nearly 17% sequentially and apart from seasonality, was there anything else? Was it mix or anything else that drove that kind of strength or --?

H.K. DESAI: No. If you -- I think, let me say, it's not 17% it's the 14% (inaudible) 14% sequentially. It was 4% year-over-year. So this year is strong. The drivers on that one were the Fibre Channel HBA were up about 13% sequentially. The [Mascot] was up more than 20%.

So I think you see strong growth in the Fibre channel. Our iSCSI grew double-digit sequential growth. Our HBA on IB activity is not that strong yet. We are coming from a small base on that.

(Inaudible) all the sectors of this (inaudible) business is growing tremendously. We target growth OEMs. I mean we have three OEMs who were up sequentially, double-digit. One was down and one was flat, and so the channel …