QLogic Could Show Solid Gains over the Next Year

QLogic (QLGC) manufactures and sells components used in computer data storage networks. The company has 3 primary divisions. Host Products (about 75% of sales) sells host bus adapters, or HBAs, which connect computers to networked storage devices like hard drives or optical media. This division also makes InfiniBand Host Channel Adapters (HCAs), which are used in "supercomputing" applications that require high data bandwidth. The second division is Network Products (~17% of sales), which manufactures Fibre Channel and InfiniBand switches and storage routers. Switches and routers connect different parts of storage networks and route data between them. The final division, Silicon Products, delivers the remaining small portion of sales and is QLogic's legacy business, providing protocol and controller components used in older network architectures.

QLogic has a number of positive factors, one of which is market growth potential. It takes only a rudimentary knowledge of Internet trends to realize the massive amounts of data storage that are required for applications such as social networking, online photo and video sharing, digital distribution of audio and video content, "cloud computing" storage of documents and applications, and so forth. These trends will only intensify going forward, and to efficiently handle storage needs, these storage-area networks (SAN) will become more and more ubiquitous, driving demand for QLogic's products. IDC forecasts a 15% annual market growth for HBAs through 2011, with the overall SAN market growing at an equally impressive 10% annually. SAN vendors are trying to push the technology to medium-size enterprises (it is currently utilized mainly by large firms). Organic revenue growth potential is in QLogic's favor, and the firm has delivered almost 17% annual revenue gains over the past 5 years.