QLogic’s Profits Increase 58% in 4th Quarter

QLogic Corp. reported a 58% increase in quarterly earnings Wednesday in results that beat Wall Street estimates, welcome news for a company that has lost 39% of its value since it said it would buy a money-losing company at a hefty premium.

The Aliso Viejo designer of chips and circuit boards linking computers and data-storage systems said net income rose to $13.5 million, or 17 cents a share, for its fiscal fourth quarter, ended April 2.

Last year, it earned $8.5 million, or a 11 cents a share, for the final three months. Quarterly revenue rose 71% to $60.1 million from $35.1 million.

QLogic is betting that it can boost revenue more by selling products that support so-called fibre-channel technology, which allows corporations to greatly expand their computer networks. On Monday, QLogic said it would buy Ancor Communications Inc. to increase its fibre-channel product line.

But a 69% premium the company was willing to pay in a stock swap, along with concern over the continuing relationship with a major QLogic ally that competes with Ancor, led to a broad sell-off. QLogic’s stock plunged from Friday’s $99.94 closing price to $61.94 Tuesday.

The stock closed at $60.75 a share Wednesday, down $1.19 a share. Fourth-quarter results were released after the market closed.

Revenue from QLogic’s existing fibre-channel products “significantly contributed” to the company’s sales growth, H.K. Desai, its chairman, said in a prepared statement.

“Over the past three days, it has become clear that the financial market does not fully appreciate” the benefits of the Ancor acquisition, Desai said in a conference call with analysts Wednesday. “We have not explained them as well as we could have.”

Despite Ancor’s lackluster financial performance, the company’s technology is superior to anything else on the market, Desai said .

“Ancor reminds me of QLogic four years ago: a technology leader on the verge of something very big,” Desai said. “QLogic provides Ancor with the clout to pursue larger customers.”

The deal would extend QLogic’s product line in the booming fibre-channel market, Desai said. The market for storage area network products is expected to grow to more than $4.5 billion in 2003 from $500 million last year.

Excluding a $7.5-million charge, the company had a quarterly profit of $18.5 million, or 24 cents a share. Wall Street expected a pre-charge income of 21 cents, according to an average estimate of analysts surveyed by First Call/Thomson Financial.

For the year, QLogic more than doubled its earnings, posting net income of $54 million, or 70 cents a share, from the previous year’s profit of $25.7 million, or 34 cents a share. Annual revenue grew to $203.1 million from $117.2 million.

The company had been the biggest gainer in one of Standard & Poor’s broadest indexes during the last five years, but investors have shown they don’t like the Ancor acquisition.

Ancor has lost money every year since its 1994 initial public offering. QLogic has posted rising profit and sales for the last three years.

QLogic said it expects the acquisition to add slightly to earnings this fiscal year and to provide a bigger boost in the fiscal year ending in March 2002.

QLogic said it would trade 0.5275 of a share for each Ancor share outstanding. The drop in value of QLogic shares reduced the price for Ancor from the original value of $1.7 billion to less than $1.1 billion.

The deal is subject to shareholder approvals. The company said the purchase will be completed by the end of this year.