Switchmakers Cautious
QLogic reported a sequential drop in its sale of low-end switches and McData issued a warning -- which could be bad omens for Brocade Communications Systems Inc. (Nasdaq: BRCD)
and Cisco Systems Inc. (Nasdaq: CSCO)
as well. The three major switch vendors will announce earnings in May.
HBA Hopefuls
In another vein, QLogic President H.K. Desai told analysts last night that he's cautious that the HBA market might be in a short-term decline, but he has high expectations for long-term growth. He also said he expects to see the small-to-medium-sized business market begin to install Fibre Channel and iSCSI SANs in the second half of the year.
After two quarters of double-digit sequential growth, QLogics HBA revenues dropped 10 percent sequentially last quarter due to lower-than-expected sales with two OEMs -- Sun Microsystems Inc. (Nasdaq: SUNW)
and Hewlett-Packard Co. (NYSE: HPQ)
are the main suspects. Overall, QLogic reported revenue of $128.1 million for the first calendar quarter of 2004, down from $137.1 million sequentially. Net income dropped sequentially from $35 million to $32.9 million. Yet analysts see QLogics gross margin of 69.6 percent as a sign that there is no pricing pressure in the HBA market, and they expect its earnings to bounce back.
With no sign of pricing pressures, we believe [the HBA] segment of the business will resume modest growth in the [current] quarter, Lazard Frères & Co. LLC analyst Cliff Su wrote in a research note today.
Big SATA Expectations
Dot Hill CEO Jim Lambert said the systems vendor expects a boost from systems with SATA drives in the second half of the year. Dot Hill, which supplies Sun with its low-end SAN systems, also has a deal to provide Sun with SATA SAN systems. Sun is expected to announce the deal in June, but already lists on its Website a system with SATA drives that scales to 18 TBytes and carries a list price of $16,000. Lambert confirmed during the earnings call with analysts that it is a Dot Hill system, and he hopes to land more SATA OEM deals.
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