QLogic (QLGC) Q1 Earnings & Revenues Surpass Estimates

QLogic Corp. (NASDAQ:QLGC) reported better-than-expected first-quarter fiscal 2017 results. Adjusted earnings of 25 cents per share and revenues of $116.4 million surpassed the Zacks Consensus Estimate of 19 cents and $115.4 million, respectively. On a year-over-year basis, the metrics improved 108.3% and 2.6%, respectively.

However, the company didn’t provide any guidance due to the impending merger with semiconductor manufacturer Cavium Inc. (NASDAQ:CAVM) . The deal was announced in June this year. The deal values each QLogic share at $15.50, of which $11 will be paid in cash and the rest in Cavium’s stock.

QLOGIC CORP Price, Consensus and EPS Surprise

Quarter Details

QLogic reported non-GAAP earnings of 22 cents a share, compared with 3 cents reported in the year-ago period.

Segment wise, Advanced Connectivity Platform (adapters and silicon for server and storage connectivity applications) revenues increased 5.9% year over year to $108.6 million. Legacy connectivity product (Switching products) revenues however plummeted 28.3% from the year-ago quarter to approximately $7.8 million.

Total operating expense decreased 10.4% year over year to $53.1 million. Operating income of $15 million more than doubled from the prior-year quarter.

Balance Sheet and Cash Flow

As of Jul 3, 2016, QLogic had cash and marketable securities of approximately $365.3 million compared with $354.8 million at the end of Apr 3, 2016.

The company generated $17.7 million in cash from operations in the first quarter of fiscal 2017 compared with $9.5 million in the year ago quarter.

Our Take

QLogic holds the leading position in the Ethernet market on the back of its strong product portfolio. In 2015, the company had double-digit lead in terms of market share over its peers. Its strong balance sheet is another positive. It had $355 million in cash in hand as of Mar 29, 2015, which is included in the acquisition price of $1.36 billion.

Of late, the company is seeing increasing challenges in driving growth owing to the ongoing transition from Ethernet to Fibre Channel networks on the one hand and the shift from on-premise infrastructure to cloud deployments on the other. As a result, a takeover seems to be a good idea.

As per Cavium, the combined company will generate $900 million in LTM revenues with $45 million of cost synergies to be achieved by 2017. The deal will boost Cavium’s 2017 non GAAP earnings by 60 to 70 cents.

The deal approved by both the boards is subject to regulatory approval. The transaction is expected to close somewhere in the current quarter.

Currently, QLogic has a Zacks Rank #3 (Hold). Some better-ranked stocks in the tech space include NetEase, Inc (NASDAQ:NTES) , Ellie Mae, Inc (NYSE:ELLI) . Both three carry a Zacks Rank #2 (Buy).