QLogic Corp. (NASDAQ: QLGC) makes electronics used to transfer large amounts of data between computer components -- usually servers. Host products, which connect computers to network and storage devices, account for 74% of sales. The company outsources manufacturing and focuses on product design, development, and sales to original equipment manufacturers (OEMs) and distributors. Its chief customers include Hewlett-Packard, IBM, Sun Microsystems, Cisco Systems,and Dell.
Sales of QLogic's products have shifted with the increased adoption of blade servers -- more compact and cost-effective than traditional rack-mounted servers. The company's revenue for host products (heavily used in blade server environments) grew by 6.65% in 2008, while the company's revenue for silicon products (almost exclusively used in non-blade server environments) decreased by 42%. 
Although QLogic's net revenue increased every year from 2006-2008, its operating income decreased in each of the two years following fiscal 2006. Host products continued to make up the vast majority of QLogic's revenue, but silicon products fell 42%, reflecting the market's shift towards an acceptance of blade servers (which tend to not use silicon parts).
QLogic's fiscal year ends on a different day every year (March 30 in 2008, April 1 in 2007, and April 2 in 2006).
The market is ditching traditional rack-mounted servers and shifting toward blade servers because they save space, reduce power consumption, and reduce cost. QLogic distributes both types of servers and its total revenue is hurt by the shift to the less-expensive blade servers. The changing market acceptance is reflected by a 6.65% increase in the revenue of host products (which include parts used in blade servers) and a 42% decrease in silicon products (which include parts used in non-blade servers) in 2007.
In fiscal 2008, 47% of QLogic's revenue came from its three largest customers: Hewlett-Packard, IBM, and Sun Microsystems. As a result, a loss of the business of any of these companies would result in a loss of up to 20% of QLogic's total revenue. In Q3 2008, QLogic introduced a line of brand new 8gb Fibre Channel switches and HBAs (important products for blade servers), which has secured HP's business for the foreseeable future.
Because QLogic reports its revenues in U.S. dollars but does nearly half of its business internationally, it is affected by exchange rates. When the value of the dollar depreciates, QLogic's international sales grow in dollar terms. From 2007-2008, the dollar depreciated relative to the euro and Japanese yen.
|Company||2008 Revenue ($ in millions)||% Operating Margin||2007 Blade Server Mezzanine Card Market Share||2007 Fibre Channel HBA Market Share||2007 Fibre Channel Switch Market Share|
|Brocade Communications Systems||1,361||-1.06%||N/A||N/A||67%|
The 2008 revenues are based on the fiscal year spanning from 3/31/07 to 3/31/08. The operating margin numbers are taken from the fiscal year spanning from 6/28/07 to 6/28/08.