QLogic at Goldman Sachs Technology and Internet Conference - Final.(Broadcast transcript)

MIN PARK, ANALYST, GOLDMAN SACHS: Good afternoon everyone. Thank you for joining us for the QLogic presentation. My name is Min Park and I am part of the hardware team here at Goldman Sachs. We are fortunate to have with us today, H.K. Desai, CEO and Chairman of QLogic, as well as Simon Biddiscombe, CFO of QLogic. Thank you both for attending.

Simon, do you need to say any Safe Harbor comments or is it --

SIMON BIDDISCOMBE, CFO, QLOGIC: No (multiple speakers).

MIN PARK: So we will get started. First H.K., given how dramatically things have changed in the past couple of quarters, can you start off by giving us your perspective of what the current environment looks like for storage connectivity and how it is impacting QLogic?

H.K. DESAI, CHAIRMAN, CEO, QLOGIC: If you look at the way we have done it for the March quarter -- we had pretty good quarter for the first couple of quarters for the fiscal year. We had a good June quarter, a good September quarter. December quarter, at the end of December then things started slowing, even though we met our guidance.

When we give our guidance for the March quarter we expect normal seasonality, about a 5% to 7% decline sequentially for December to March quarter. When we give our guidance it is about 15% to 20% (inaudible) million. So we expect IT spending to be declining.

We also seeing it is a broad slowdown. It is across all productlines, across all the verticals. So I think we have just slowed down accordingly for that.

MIN PARK: Clearly it seems when we talk to our CIOs and we talk to end-users, storage seems to be an area where they are going to continue to spend. And one of the things that is interesting it seems like the connectivity side of storage is seeing a greater impact on the array side. And why do you think that dynamic is showing up in the marketplace?

H.K. DESAI: If you look at the guidance from the storage guys, what you hear from them, and if you're hearing from a company like us, I don't see there is much difference. When we gave a guidance of 15% to 20% sequential decline, we were actually the first company to do that because we were way ahead of everybody else. And fortunately for us that everybody gave the same kind of a guidance.

If you look at everybody the sequential of declines for the March quarter, I think it is so similar, that (inaudible) it is connected to [supplies].

MIN PARK: So when you look at the March quarter, now you are two months into it, are there any trends that you're seeing that is coming out a little bit better than you had expected, or anything that is worse than you had expected since you gave out your guidance?

H.K. DESAI: It is a CFO question.

SIMON BIDDISCOMBE: No, I think the way we build our guidance is obviously based on all the information that is in front of us at any point in time. And at the time we gave the guidance we had January behind us essentially. And January, as we have said, and many others have said, was a relatively poor month.

Things have certainly stabilized since that point in time. But we do need, as usual, the final month of the quarter to be a good month. So with five weeks to go, we need that five weeks to play out as we would have expected it to. But February was certainly a little more stable than January was, that's for sure.

MIN PARK: Is it getting better or just the deterioration has stabilized?

SIMON BIDDISCOMBE: Stable. Just calling it stable is the best way to do it.

H.K. DESAI: So what he is saying is January and February is like stable compared to the guidance we have given in the US. There is five more weeks to go for --.

SIMON BIDDISCOMBE: But if you see normal linearity in month the March we should be in good shape. (inaudible).

MIN PARK: As you mentioned, QLogic has actually exceeded through the downturn quite well, much better than a lot of the other hardware countries we have seen out there. And with solid results last quarter as well despite pretty soft end of the year close.

Looking forward, what are your key priorities? Obviously you're going to navigate through a very soft spending environment. But what are looking to do? Is it more kind of take advantage of the situation, get some share, be offensive, or are you kind of hunkering down and trying to make it through the cycle?

H.K. DESAI: I think we have a really balanced approach. We want to make sure that we are expense controlled. We already cut down expenses really off about 4% in November timeframe, so we're going to save over $5 million over the years.

At the same time we're also looking at the elephant program like the 16 G Fibre Channel, (inaudible) network, that was -- or IB QDR, we want to make sure that we keep investing on the development program. So we're not really cutting down on the R&D investment. But at the same time where we can cut expenses, we are continuing that.

MIN PARK: On the host side of the business, QLogic has picked up a lot of share over the last year. And the share gain, the pace of it kind of decelerated most recently, but you have picked up a lot of share throughout the year. Apart from your OEM exposure and the fact that …