Emulex Reports Second Quarter Results

25% Sequential Revenue Growth Fueled by Expanded Demand Across Product Lines


COSTA MESA, Calif., Jan. 20, 2005 (PRIMEZONE) -- Emulex Corporation (NYSE:ELX), the industry's preeminent source for a broad range of advanced storage networking infrastructure solutions, today announced results for its second fiscal quarter ended December 26, 2004.

Second Quarter Highlights


 -- Revenues of $91.7 million, up from original guidance of $81-85
    million, and updated recent guidance of $90-$91 million. This was
    a 3% decrease from a year ago, but a 25% sequential increase from
    the first quarter.
 -- Non-GAAP diluted EPS of $0.21, and GAAP diluted EPS of $0.16,
    compared to original non-GAAP guidance of $0.13-$0.15 and GAAP
    guidance of $0.08-$0.10, and recently updated non-GAAP guidance
    of $0.19-$0.20 and GAAP guidance of $0.14-$0.15.
 -- Gross margin of 63%, both on a non-GAAP and a GAAP basis.
 -- Non-GAAP operating margin of 31% and GAAP operating margin
    of 23%.
 -- An 8% sequential reduction in net inventory levels to $23.0
    million with a sequential improvement in turns from 4.7 to 5.8.
 -- Cash and investments, net of debt, of $222 million, up $40
    million sequentially from first quarter levels, and up $125
    million from a year ago.

Financial Results

Second quarter revenues, essentially all of which were comprised of Fibre Channel products, rose 25% sequentially from the first fiscal quarter to $91.7 million. Second quarter non-GAAP net income declined by 9% from the comparable year-ago results, but nearly doubled sequentially to $18.9 million, or $0.21 per diluted share, reflecting margin improvement achieved on sequentially flat operating expenses coupled with higher than originally expected sequential revenue growth. Second quarter GAAP net income, including charges associated with previous acquisitions, was sequentially flat but nearly tripled from a year ago to $14.2 million, or $0.16 per diluted share. A reconciliation between GAAP and non-GAAP results is included in the accompanying financial data.

Paul Folino, Emulex Chairman and CEO, stated, "The 25% sequential growth in customer demand for Emulex solutions was twice the original guidance level, as orders surged across our customer base and both InSpeed and Lightpulse product families. Our mix of switching product revenue to HBAs remained relatively unchanged from the first quarter, reflecting solid sequential gains across both HBA and switching product lines. As we exited the December quarter, channel inventories dropped sequentially, indicating that once again actual point-of-sale channel demand for Emulex HBAs had outpaced recorded revenue." Emulex's InSpeed storage switching solutions continued to gain momentum in the market as the company expanded its installed base to 4 million ports, complementing its installed base of 1.8 million Emulex HBAs.

Folino continued, "As part of our ongoing growth and diversification strategy, we plan to expand our engineering, sales and marketing investment in upcoming quarters as we introduce new Emulex Fibre Channel connectivity solutions for the blade server and volume server markets, enter new multi-protocol storage markets, and launch support for newly acquired OEM customers." Recently, Emulex introduced its first HBA designed for the IBM eServer BladeCenter, the market's leading blade server system, which will commence commercial shipment in the current quarter. Folino concluded, "To fuel growth, Emulex is launching more new products this fiscal year than ever before, including a complete line of 4 gigabit per second Fibre Channel I/O and switching products which are rapidly gaining a first-to-market leadership position among our OEMs. Soon, these will be complemented by jointly developed multi-protocol ASICs arising from our strategic relationship with Intel that will offer OEMs an unprecedented, universal serial storage solution spanning Fibre Channel, Serial Attached SCSI and Serial ATA protocols. With interest in 4 gigabit and multi-protocol technologies accelerating, Emulex is committed to maximizing the new market opportunities ahead of us."

Business Outlook

Although actual results may vary depending on a variety of factors, many of which are outside Emulex's control, Emulex is providing guidance for its third fiscal quarter ending March 2005. Emulex is budgeting for third quarter revenue in a range of $91-93 million, gross margins at 63%, and non-GAAP earnings per share of $0.18-$0.20. On a GAAP basis, Emulex expects diluted third quarter EPS of $0.13-$0.15 per share, reflecting approximately $0.05 per share in expected GAAP charges arising primarily from amortization of intangibles and deferred stock-based compensation.

Webcast Information

Emulex will host a webcast today at 2:00 p.m. Pacific time to discuss the financial results in detail. The webcast may be accessed live via the home page of the Emulex website at www.emulex.com. During the call, Emulex will discuss details of the second fiscal quarter financial results. A replay of the webcast will be available in the audio archive section of the investor relations page of the Emulex website. In addition, a replay of the quarterly conference call will be available for 48 hours by calling (888) 203-1112-- and using the passcode 243868.

About Emulex

Emulex Corporation is the world leader in Fibre Channel HBAs and delivers a broad range of intelligent building blocks for next generation storage networking systems. Emulex ranked number 16 in the Deloitte 2004 Technology Fast 50 and most recently received recognition as one of Forbes 200 Best Small Companies.

The world's leading server and storage providers rely on Emulex HBAs, embedded storage switching and I/O controller products to build reliable, scalable and high performance storage solutions. The Emulex award-winning product families, including its LightPulse(tm) HBAs and InSpeed(tm) embedded storage switching products, are based on internally developed ASIC, firmware and software technologies, and offer customers high performance, scalability, flexibility and reduced total cost of ownership. The company's products have been selected by the world's leading server and storage providers, including Dell, EMC, Fujitsu Ltd., Fujitsu Siemens, Bull, HP, Hitachi Data Systems, IBM, NEC, Network Appliance, Quantum Corp., StorageTek, Sun Microsystems, Unisys and Xyratex. In addition, Emulex includes industry leaders Brocade, Computer Associates, Intel, McDATA, Microsoft and VERITAS among its strategic partners. Corporate headquarters are located in Costa Mesa, California. News releases and other information about Emulex Corporation are available at http://www.emulex.com.

EMULEX / We network storage

--------------------

Note Regarding Non-GAAP Financial Information. The non-GAAP financial information included in this press release is not prepared in accordance with GAAP as it excludes subsequent benefits related to an inventory charge, impairment charges, gains or losses on the repurchase of convertible subordinated notes and litigation settlements, as well as charges relating to the amortization of deferred stock-based compensation and in-process research and development charges. The projected non-GAAP financial information also excludes any acquisition-related charges associated with the acquisitions of Giganet, Vixel and the technology assets of Trebia Networks. Management believes that the presentation of Non-GAAP information may provide useful information to investors because Emulex has historically provided this information and understands that some investors consider it useful in evaluating Emulex's core business. Management also uses this non-GAAP information, along with the GAAP information, in evaluating Emulex's business for these purposes. The non-GAAP results should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from non-GAAP or other pro forma measures used by other companies.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: With the exception of historical information, the statements set forth above, including, without limitation, those contained in the discussion of "Business Outlook" above, contain forward-looking statements that involve risk and uncertainties. We expressly disclaim any obligation or undertaking to release publicly any updates or changes to these forward-looking statements that may be made to reflect any future events or circumstances. The company wishes to caution readers that a number of important factors could cause actual results to differ materially from those in the forward-looking statements. The fact that the economy generally, and the technology and storage segments specifically, have been in a state of uncertainty making it difficult to determine if past experience is a good guide to the future and making it impossible to determine if markets will grow or shrink in the short term. The Company's results have been significantly impacted by a widespread slowdown in technology investment that has also pressured the storage networking market that is the mainstay of the Company's business. A continued downturn in information technology spending could adversely affect the Company's revenues and results of operations. As a result of this uncertainty, the Company is unable to predict with any accuracy what future results might be. Other factors affecting these forward-looking statements include, but are not limited to, the following: slower than expected growth of the storage networking market or the failure of the Company's OEM customers to successfully incorporate the Company's products into their systems; the Company's dependence on a limited number of customers and the effects of the loss of, or decrease or delays in orders by, any such customers, or the failure of such customers to make payments; the emergence of new or stronger competitors as a result of consolidation movements in the market; the timing and market acceptance of the Company's or the Company's OEM customers' new or enhanced products; the variability in the level of the Company's backlog and the variable booking patterns of the Company's customers; the effects of terrorist activities, natural disasters and resulting political or economic instability; the highly competitive nature of the markets for the Company's products as well as pricing pressures that may result from such competitive conditions; the Company's ability and the ability of the Company's OEM customers to keep pace with the rapid technological changes in the Company's industry and gain market acceptance for new products and technologies; the effect of rapid migration of customers towards newer, lowest cost product platforms; possible transitions from board level to application specific computer chip solutions for selected applications; a shift in unit product mix from higher-end to lower-end products; a decrease in the average unit selling prices or an increase in the manufactured cost of the Company's products; delays in product development; the Company's reliance on third-party suppliers and subcontractors for components and assembly; any inadequacy of the Company's intellectual property protection or the potential for third-party claims of infringement; the Company's ability to attract and retain key technical personnel; the Company's dependence on foreign sales; the effect of acquisitions; impairment charges; and changes in tax rates or changes in accounting standards, including changes in the accounting treatment of employee stock options and contingent convertible debt. These and other factors which could cause actual results to differ materially from those in the forward-looking statements are discussed in the company's filings with the Securities and Exchange Commission, including its recent filings on Forms 8-K, 10-K and 10-Q, under the caption "Risk Factors."

--------------------

This news release refers to various products and companies by their trade names. In most, if not all, cases these designations are claimed as trademarks or registered trademarks by their respective companies.


                  EMULEX CORPORATION AND SUBSIDIARIES
              Condensed Consolidated Statements of Income
                 (in thousands, except per share data)
                              (unaudited)

                            Three Months Ended     Six Months Ended
                            Dec. 26,   Dec. 28,   Dec. 26,   Dec. 28,
                              2004       2003       2004       2003
                            --------   --------   --------   --------

 Net revenues               $ 91,671   $ 94,369   $164,896   $178,946
 Cost of sales                33,546     34,806     62,792     63,133
                            --------   --------   --------   --------
  Gross profit                58,125     59,563    102,104    115,813
                            --------   --------   --------   --------

 Operating expenses:
  Engineering and
   development                19,746     18,311     39,943     34,655
  Selling and marketing        7,587      6,850     15,011     11,452
  General and
   administrative              3,579      5,588      3,158      9,245
  In-process research and
   development                    --     11,400         --     11,400
  Impairment of goodwill          --         --      1,793         --
  Amortization of other
   intangibles                 6,548      4,301     13,095      5,751
                            --------   --------   --------   --------
   Total operating expenses   37,460     46,450     73,000     72,503
                            --------   --------   --------   --------
   Operating income           20,665     13,113     29,104     43,310
                            --------   --------   --------   --------

 Nonoperating income:
  Interest income              2,867      1,978      5,901      4,476
  Interest expense            (1,056)      (727)    (2,403)    (1,760)
  Gain (loss) on repurchase
   of convertible
   subordinated notes             --     (1,764)    13,090      2,901
  Other income, net               82         58         72        164
                            --------   --------   --------   --------
   Total nonoperating
    income (loss)              1,893       (455)    16,660      5,781
                            --------   --------   --------   --------

 Income before income taxes   22,558     12,658     45,764     49,091

 Income tax provision          8,357      9,043     17,264     22,888
                            --------   --------   --------   --------
 Net income                 $ 14,201   $  3,615   $ 28,500   $ 26,203
                            ========   ========   ========   ========
 Net income per share:
   Basic                    $   0.17   $   0.04   $   0.34   $   0.32
                            ========   ========   ========   ========
   Diluted                  $   0.16   $   0.04   $   0.32   $   0.31
                            ========   ========   ========   ========

 Number of shares used in
  per share computations:
   Basic                      82,732     82,558     82,646     82,550
                            ========   ========   ========   ========
   Diluted                    92,632     88,447     93,659     87,909
                            ========   ========   ========   ========

 The interest expense adjustment, net of tax, to the Company's GAAP
 diluted per share calculation due to the dilutive effect of its
 convertible subordinated notes was $661 and $163 for the three months
 ended December 26, 2004, and December 28, 2003, respectively. The
 interest expense adjustment, net of tax, to the Company's GAAP
 diluted per share calculation due to the dilutive effect of its
 convertible subordinated notes was $1,492 and $856 for the six months
 ended December 26, 2004, and December 28, 2003, respectively. Diluted
 earnings per share for prior periods have been recalculated in
 accordance with EITF 04-08.

 The reconciliation of the non-GAAP net income with the Company's net
 income determined under GAAP is presented in the following table.

                  EMULEX CORPORATION AND SUBSIDIARIES
       Reconciliation of GAAP Net Income to Non-GAAP Net Income
                      (in thousands - unaudited)

                                         Three             Six 
                                     Months Ended     Months Ended
                                  ----------------  -----------------
                                  Dec. 26, Dec. 28, Dec. 26,  Dec. 28,
                                   2004     2003      2004     2003
                                  -------  -------  --------  -------
 GAAP net income,
  as presented above              $14,201  $ 3,615  $ 28,500  $26,203
                                  -------  -------  --------  -------
 Items excluded from GAAP net
  income to calculate
  non-GAAP net income:
   Subsequent benefit related
    to the excess and obsolete
    inventory charge, excluded
    from cost of sales(1)              --      (88)       --   (1,896)
   Amortization of deferred
    stock-based compensation
    associated with the
    acquisitions of Vixel and
    Giganet, as follows:
     Excluded from engineering
      and development                 363      567       886      977
    Excluded from selling and
      marketing                       219    1,274       458    1,419
    Excluded from general and
     administrative                   476      374       961      411
    Excluded from cost of
     sales                             37      229        75      233
   In-process research and
    development excluded from
    operating expenses                 --   11,400        --   11,400
   Amortization of intangibles,
    excluded from operating
    expenses                        6,548    4,301    13,095    5,751
   Impairment of goodwill,
    excluded from operating
    expenses(2)                        --       --     1,793       --
   Insurance settlement
    (recovery) and $315 of
    related interest associated
    with settlement of
    securities class action and
    derivative lawsuits,
    excluded from general and
    administrative and interest
    income expenses                  (250)     698    (4,964)     698
   Net loss (gain) on repurchase
    of convertible subordinated
    notes excluded from non-
    operating income(3)                --    1,764   (13,090)  (2,901)
   Income tax effect of above
    items excluded from the
    income tax provision           (2,678)  (3,248)      691   (1,339)
                                  -------  -------  --------  -------
   Impact on net income             4,715   17,271       (95)  14,753
                                  -------  -------  --------  -------

 Non-GAAP net income              $18,916  $20,886  $ 28,405  $40,956
                                  =======  =======  ========  =======
 ---------------------------

 (1) Excess and obsolete inventory charge. Starting in late
     September 2001, some of Emulex's major customers made
     announcements that general economic conditions, exacerbated by
     the increase in economic uncertainty in the aftermath of the
     terrorist events of September 11, 2001, were having a negative
     impact on their financial results. The announcements made, and
     forecasts received, indicated deteriorating demand for the
     Company's one gigabit per second (Gbps) products as these
     customers were expected to migrate to two Gbps products for
     future purchases. In order to provide meaningful comparisons of
     operating results, any subsequent consumption of these previously
     impaired products is excluded.
 (2) Impairment of goodwill. During the first quarter of fiscal
     2005, the Company changed estimates and discovered errors related
     to the deferred tax assets of Vixel Corporation (acquired in
     November 2004). As a result, the Company recorded a $1.8 million
     impairment of goodwill in the first quarter of fiscal 2005. Had
     these items been recorded in fiscal 2004, the Company's net loss
     would have been $1.8 million higher, or $534.1 million, instead
     of $532.3 million. The Company does not believe that this $1.8
     million impairment of goodwill is material to fiscal 2004 or 2005
     operations.
 (3) Net loss (gain) on repurchase of convertible subordinated
     notes. In the three months ended September 26, 2004, Emulex
     repurchased $153.0 million in face value of its 0.25% convertible
     subordinated notes at a discount, resulting in a pre-tax gain of
     $13.1 million. In the three months ended December 28, 2003,
     Emulex repurchased $85.4 million in face value of its 1.75%
     convertible subordinated notes, resulting in a pre-tax loss of
     $1.8 million. Additionally, in the three months ended September
     28, 2003, Emulex repurchased $93.9 million in face value of its
     1.75% convertible subordinated notes at a discount, resulting in
     a pre-tax gain of $4.7 million.


 The non-GAAP financial information presented below is based on the
 Company's condensed consolidated financial statements and excludes
 certain adjustments detailed above. The Company uses this non-GAAP
 information to evaluate its operating performance. This presentation
 is not in accordance with, or an alternative for, GAAP and may be
 different from the non-GAAP presentation used by other companies.

                  EMULEX CORPORATION AND SUBSIDIARIES
        Non-GAAP Condensed Consolidated Statements of Income(4)
                 (in thousands, except per share data)
                              (unaudited)

                            Three Months Ended     Six Months Ended
                            Dec. 26,   Dec. 28,   Dec. 26,   Dec. 28,
                              2004       2003       2004       2003
                            --------   --------   --------   --------

 Net revenues               $ 91,671   $ 94,369   $164,896   $178,946
 Cost of sales                33,509     34,665     62,717     64,796
                            --------   --------   --------   --------
  Gross profit                58,162     59,704    102,179    114,150
                            --------   --------   --------   --------
 Operating expenses:
  Engineering and
   development                19,383     17,744     39,057     33,678
  Selling and marketing        7,368      5,576     14,553     10,033
  General and
   administrative              3,353      4,516      6,846      8,136
                            --------   --------   --------   --------
   Total operating expenses   30,104     27,836     60,456     51,847
                            --------   --------   --------   --------

   Operating income           28,058     31,868     41,723     62,303
                            --------   --------   --------   --------
 Nonoperating income:
  Interest income              2,867      1,978      5,586      4,476
  Interest expense            (1,056)      (727)    (2,403)    (1,760)
  Other income, net               82         58         72        164
                            --------   --------   --------   --------
   Total nonoperating
    income                     1,893      1,309      3,255      2,880
                            --------   --------   --------   --------

 Income before income taxes   29,951     33,177     44,978     65,183

 Income tax provision         11,035     12,291     16,573     24,227
                            --------   --------   --------   --------
 Net income                 $ 18,916   $ 20,886   $ 28,405   $ 40,956
                            ========   ========   ========   ========
 Net income per share:
   Basic                    $   0.23   $   0.25   $   0.34   $   0.50
                            ========   ========   ========   ========
   Diluted                  $   0.21   $   0.24   $   0.32   $   0.48
                            ========   ========   ========   ========
 Number of shares used in
  per share computations:
   Basic                      82,732     82,558     82,646     82,550
                            ========   ========   ========   ========
   Diluted                    92,632     88,447     93,659     87,909
                            ========   ========   ========   ========

 The interest expense adjustment, net of tax, to the Company's
 non-GAAP diluted per share calculation due to the dilutive effect of
 its convertible subordinated notes was $664 and $360 for the three
 months ended December 26, 2004, and December 28, 2003, respectively.
 The interest expense adjustment, net of tax, to the Company's
 non-GAAP diluted per share calculation due to the dilutive effect of
 its convertible subordinated notes was $1,514 and $1,008 for the six
 months ended December 26, 2004, and December 28, 2003, respectively.
 Diluted earnings per share for prior periods have been recalculated
 in accordance with EITF 04-08.

 (4) See the preceding Note Regarding Non-GAAP Financial Information, 
     as well as the Reconciliation of GAAP Net Income to Non-GAAP 
     Net Income.


                  EMULEX CORPORATION AND SUBSIDIARIES
                 Condensed Consolidated Balance Sheets
                            (in thousands)
                              (unaudited)

                                             Dec. 26,        June 27,
                                               2004            2004
                                             --------        --------
 Assets

 Current assets:
  Cash and cash equivalents                  $125,290        $192,137
  Restricted cash                                  --              23
  Investments                                 315,074         220,114
  Accounts and other receivables, net          50,209          61,720
  Litigation settlements receivable                --           5,101
  Inventories, net                             22,989          31,835
  Prepaid expenses                              3,649           3,572
  Deferred income taxes                        24,272          26,824
                                             --------        --------
   Total current assets                       541,483         541,326

 Property and equipment, net                   64,451          64,570
 Investments                                  157,697         243,125
 Other intangibles, net                       109,572         122,667
 Other assets                                   1,130           1,293
                                             --------        --------
                                             $874,333        $972,981
                                             ========        ========

 Liabilities and Stockholders' Equity

 Current liabilities:
  Accounts payable                           $ 23,091        $ 21,747
  Accrued liabilities                          22,175          22,839
  Income taxes payable                         16,985           9,910
                                             --------        --------
   Total current liabilities                   62,251          54,496


 Convertible subordinated notes               376,056         524,845
 Deferred income taxes and other                8,407             486
                                             --------        --------
 Total liabilities                            446,714         579,827
                                             --------        --------

 Total stockholders' equity                   427,619         393,154
                                             --------        --------
                                             $874,333        $972,981
                                             ========        ========

                  EMULEX CORPORATION AND SUBSIDIARIES
                       Supplemental Information

 Historical Revenue by Channel and Territory:

                      Q2 FY               Q2 FY 
                       2005    % Total     2004    % Total   % Change
 ($000s)             Revenue   Revenue   Revenue   Revenue   Year/Year
                     -------   -------   -------   -------   ---------
 Revenue from
  OEM customers      $60,146        66%  $66,307        70%     -9%
 Revenue from
  distribution        31,199        34%   28,005        30%    +11%
 Other                   326        nm        57        nm      nm
                     -------   -------   -------   -------   ---------
 Total net revenues  $91,671       100%  $94,369       100%     -3%
                     =======   =======   =======   =======   =========

 United States       $50,695        55%  $51,587        55%     -2%
 Europe and rest
  of world            28,592        31%   33,203        35%    -14%
 Pacific Rim
  countries           12,384        14%    9,579        10%    +29%
                     -------   -------   -------   -------   ---------
 Total net
  revenues           $91,671       100%  $94,369       100%     -3%
                     =======   =======   =======   =======   =========


 Forward-Looking Diluted Earnings per Share Reconciliation:

                                                      Guidance for
                                                  Three Months Ending
                                                     March 27, 2005
                                                     --------------

 Non-GAAP diluted earnings per share guidance         $ 0.18-0.19

 Items excluded, net of tax, from non-GAAP
  diluted earning per share to calculate GAAP
  diluted earnings per share guidance:
   Amortization of intangibles                           (0.04)
   Amortization of deferred stock-based compensation     (0.01)
                                                     --------------

 GAAP diluted earnings per share guidance             $ 0.13-0.14
                                                     ==============


            

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