QLGC tech conf presentation fyi.
QLogic Corp. (QLGC: Outperform, $43.59)
• Effect on Rating. We believe that the Hitachi issue is a temporary one and Qlogic’s core
FC business should continue to exhibit strong growth, dispelling fears of price pressure.
One month into fiscal 4Q04, the company reported that it is in line with previously guided
1-3% q/q revenue growth based on performance thus far and in line with the 3-6% q/q
revenue growth guided in 1Q05 (June quarters). HBA growth should continue to be the
main driver based on market growth and share gains (16% q/q growth last quarter, double
digit growth expected again in the March quarter). In addition, we continue to see multiple
catalysts materializing for the 2nd half of calendar ’04, including a new, aggressively priced
FC switch, an HBA for the SMB market, and an HDC addressable market increase related
to the HGST design win.
• Effect on Estimates. Qlogic indicated that gross margins are affected mainly by product
mix and that there can be ½ point to 1 point swings in any given quarter. The company will
be introducing a low-end HBA later this year and recently announced its aggressively priced
5200 switch, which together could create modest downward pressure on margins. That said,
we see little variance near term given the low cost focus at Qlogic, the benign pricing
pressure in HBAs and the lack of a significant catalyst to drive margins down. We are
modeling a slight erosion of gross margins in FY05 to 67.0% from 67.9% in FY04.
• Industry Outlook. Qlogic perceives little change in the competitive landscape of the HBA
market with Qlogic and Emulex splitting the market. By dealing directly with channel
partners and not EMC, there is, relative to the switch market, not as much pricing pressure
on the HBA side. The company pegs the industry growth rate for the HBA and switch
products at 18-22% (based on market research data), while the HDC growth rate is less than
10% (in line with enterprise HDD growth). Qlogic believes it can grow faster than the
market in each area based on share gains and in the case of HDCs, by increasing its TAM
with Hitachi from 6% to 16%.
• Stock Impact. We reiterate our Outperform rating on the stock and feel confident that the
June through December quarters are in great shape for outperformance relative to
expectations.
• Valuation. On forward P/E, the stock is currently trading at 27x our CY04 EPS estimate of
$1.63 versus the peer group at 36x. On a historic valuation basis, the current TTM P/E of
30x is at the low end of the 30-60x range that the stock has traded in over the last 30
months.
AI
Market Data 
Markets 
