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Why QLogic Corporation Stock Plummeted Friday

By Steve Symington - Jul 31, 2015 at 2:14PM

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is QLogic's drop meaningful? Or just another movement?

What: Shares of QLogic Corporation ( QLGC ) were down 21% at 2:10 p.m. Friday after the high-performance networking specialist announced disappointing fiscal-first-quarter 2016 results.

So what: Quarterly revenue fell 5% year over year to $113.4 million, including a 2% decline in sales from advanced connectivity platforms to $102.6 million, and a 26.4% drop in Legacy connectivity products revenue to $10.8 million. That translated to a 10.8% decline in adjusted net income to $16.5 million, and a 9.5% decrease in adjusted net income per diluted share to $0.21. The results were roughly in line with analysts' latest estimates. Keep in mind, however, QLogic stock already plunged when it tempered those expectations in a painful release of preliminary results earlier this month.

"We are disappointed with our first quarter financial performance," explained QLogic CEO Prasad Rampalli. "Our first quarter results were adversely affected by lower than expected demand due to weakness in our traditional enterprise server and storage markets, and operational issues including an inventory buildup primarily at a major OEM customer that was not identified on a timely basis."

Now what: Even so, Rampalli insisted QLogic has not only taken action to address these problems, but also intends to implement operating cost reductions in the coming months "by streamlining our business and prioritizing our investments." Specifically, during the subsequent conference call, management elaborated that they plan to reduce operating expenses to roughly $200 million for the current fiscal year and -- without providing much elaboration -- expect revenue in the second half "to grow from the first half of the year."

But even with shares of QLogic trading at 16 times trailing-12-month earnings and a seemingly mouthwatering 8.2 times next fiscal year's estimates, it's hard to blame the market for bidding the stock down even further given the company's current weakness and vague guidance. Until QLogic can demonstrate a return to sustained, profitable growth, that's why I'm content watching its progress from the sidelines. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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