Emulex Profits Drop 53%; Product, Legal Woes Cited

Blaming several one-time-only problems, including the costs of dropping an unprofitable product line and prolonged legal wrangling with a principal competitor, Emulex Corp. on Friday said its fiscal 1987 profits plunged 53%, to $3.5 million from $7.5 million a year earlier.

The Costa Mesa computer parts maker’s revenues for the year ended June 28 were $103.8 million, off 1% from the $104.9 million recorded in fiscal 1986.

Although business had slumped during the earlier quarters, the company was hit particularly hard in the final three months. Profits in the fourth quarter dropped nearly 90% to $246,000 from $2.3 million the year before. Revenues of $27.4 million, however, fell just 2% from $27.9 million.

Michael Lewis, Emulex’s chief financial officer, attributed the quarterly profit drop largely to the unexpectedly high costs of completing and introducing several new computer products. In addition, the company was also taxed $625,000 to transfer $12.2 million in profits from its Puerto Rican subsidiary to the parent company--which plans to use the money to rebuy up to 2 million shares of Emulex stock.

“We had expected a better performance,” Lewis said. “But we’re starting the 1988 fiscal year in better shape than we were last year at this time. Our bookings (orders) are strong.”

In addition to the problems in the final quarter, Emulex’s sales and profits were depressed most of the year by its decision last fall to withdraw from the market for personal computer accessories, a factor chairman Fred Cox called “the heaviest contributor” to the year’s “disappointing” performance.

Furthermore, for the first half of the year, Emulex was legally prevented from working on a new generation of products as a result of the continuing trade secrets litigation with arch-competitor Digital Equipment Corp.

DEC, a large Massachusetts-based computer maker, has accused Emulex of using stolen DEC materials to design that new product line.

The court ban preventing Emulex from working on the products was lifted in January. However, the suit is pending.