CLOUD

COSTA MESA, CA -- Emulex Corp. (Nasdaq:EMLX), a supplier of storage networking host bus adapters (HBAs), today announced results for its first fiscal quarter ended Sept. 30, 2001. Revenues amounted to $52.7 million, down 5% from the $55.5 million reported for the same quarter a year ago. Pro forma net income, which excludes deferred compensation, amortization of goodwill and other intangibles and a non-recurring inventory charge, amounted to $7.5 million, or $0.09 per diluted share, for the first quarter of fiscal 2002, compared with net income of $12.9 million, or $0.17 per diluted share, for the same quarter a year ago. For the first fiscal quarter, on a GAAP basis which includes deferred compensation, amortization of goodwill and other intangibles and a non-recurring inventory charge associated with older-generation 1 gigabit products, Emulex reported a net loss of $40 million, or $0.49 per share, compared with net income of $12.9 million, or $0.17 per diluted share for the prior year's period. Deferred compensation and amortization of goodwill and other intangibles amounted to $40 million in the first quarter, associated with the acquisition of Giganet Inc., an early-stage company specializing in Internet protocol (IP) storage networking solutions, which was completed on March 1, 2001. Near the end of the first quarter, Emulex incurred a write down of excess and obsolete inventories amounting to approximately $13.6 million associated with slowing demand for older generation 1 gigabit products, which now are giving way to newer generation 2 gigabit HBAs more rapidly than earlier expected. "Although business had been tracking to expectations, we experienced a pause in shipment and order activity in the aftermath of the terrorist attacks on September 11, which modestly reduced results for the first fiscal quarter," said Paul Folino, Emulex's president and CEO. "While the benefits of networked storage remain compelling and we have seen some recent improvement in demand, the prevailing demand trend amid fluctuating order patterns and the full economic impact of the terrorist events on upcoming quarters are difficult to gauge. "Given that our revenues remain directly dependent on the ongoing flow of orders from our OEM and distribution partners, Emulex's current priorities are expense control and new OEM development opportunities. We are implementing several actions to manage expenses while our sales force continues to focus on capturing new design wins that extend our market footprint over the long-term." In late September, Emulex recorded an excess and obsolete inventory charge for older-generation 1 gigabit products, as revenues attributable to 2 gigabit HBAs expanded from 12% of revenues in the fourth quarter of fiscal 2001 to 25% of revenues in the first quarter of fiscal 2002. Due to the ongoing transition to newer-generation, lower-cost HBAs, Emulex's pro forma gross margin expanded to 52%, compared with the 50% achieved in both the year ago quarter and the fourth quarter of fiscal 2001, ended July 1. Emulex also instituted new measures to control all discretionary expenses, including a hiring freeze for non-essential personnel. Lastly, Emulex announced a share repurchase program before the end of the first quarter, and to date has repurchased 1 million shares at an average price of $10.54 per share. "We believe that this series of actions will facilitate Emulex's efforts to regain momentum as quickly as possible as the overall economy begins to recover," said Folino. "In the interim, Emulex remains the market leader in storage networking HBAs and one of the most profitable, productive and financially strong companies in our sector, with improving pro forma gross margins, pro forma operating margin of 18%, annualized revenues per employee of better than $650,000 and cash and investment balances of over $220 million."