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Why QLogic Corp. Stock Fell 22% Today

By Anders Bylund – Jul 9, 2015 at 11:42AM

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QLogic's sales efforts are not paying off right now. One company's sad story, or terrible news for its entire sector? The jury is still out.

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.>

What: Shares of storage networking specialist QLogic (QLGC) fell as much as 22% in Thursday's morning session, following a dreadful preliminary report of first-quarter 2016 sales and earnings.

So what: QLogic's original guidance set a revenue range for the first quarter between $124 million and $132 million. Analysts settled in very near the midpoint of that range, at $128.3 million. This morning's update outlines a 5% year-over-year revenue drop, stopping at just $113 million.

The bottom-line story is much the same. Adjusted earnings are now expected to land at roughly $0.17 per share, down from an original guidance midpoint and analyst consensus at $0.25 per share. In the year-ago period, QLogic reported adjusted earnings of $0.21 per share.

These are large and unexpected misses, and QLogic's management knows it.

"We are disappointed with the level of business activity during the quarter," said Qlogic CEO Prasad Rampalli in a press statement.

Image source: QLogic.

Now what: The full story will arrive on July 30, when QLogic presents its full first-quarter report.

Meanwhile, you can ponder this 5% yearly sales drop and 20% earnings decline in the context of fourth-quarter earnings rising 17% year-over-year against a backdrop of 15% higher sales. Something is clearly going very wrong here.

The press release didn't offer much explanation, but investors are arriving at industrywide conclusions. Shares of arch rival Brocade Communications Systems, whose own quarterly results aren't due until the middle of August, fell 5% on QLogic's news..

Looking down the food chain, builders of networked storage systems who often use components from QLogic and Brocade are trending down on an otherwise generally positive market day.

I can't wait to hear the full story behind QLogic's disappointing results. That soft "level of business activity" is either an execution problem specific to QLogic, or a larger malaise for the whole networked storage industry. At this point, I simply don't have enough data to make that call.

Anders Bylund has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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