Ride the infrastructure wave
Comparatively speaking it wasn't nearly as bad of a week for shareholders of
QLogic (
NASDAQ: QLGC) , a server and storage networking infrastructure products provider, but it certainly felt like it with shares dipping close to 20% in just six trading sessions.
The big culprit was the combination of weak earnings results from its peers, as well as a disappointing fourth-quarter report issued Thursday night. For the quarter, QLogic reported a revenue decline of roughly 1% to $115.7 million, slightly ahead of the midpoint of its previous guidance, as adjusted EPS improved to $0.24 from $0.17 in the prior year period. But QLogic also reported a number of hefty one-time charges totaling $56.5 million, which investors didn't seem to care much for.
Despite the dip, though I believe it could be time to pull the trigger.
First off, consider the benefit QLogic should see from its $147 million cash purchase of the NetXtreme II Ethernet products business from Broadcom in March. This new line of products should boost revenue by about 10% this year and it sets the company up in new strategic areas where it either had no footprint or small amounts of market share previously.
Also remember that we're dealing with special charges in the fourth quarter, and not recurring losses. QLogic's top line may be struggling to find its footing with stagnant organic revenue growth, but cost-cutting and operational efficiency improvements have left QLogic strongly profitable. In fact, there's an outside chance I could see the company turn in as much as $1 in EPS in fiscal 2015.
QLogic is also well-capitalized. Even after spending $147 million on the NetXtreme II acquisition it has $278 million in cash and cash equivalents, which equates to more than $3 per share. Networking equipment providers like QLogic keep this cash stashed in the event of weakness like it's witnessing now, and for strategic purchases such as its NetXtreme buy.
Finally, don't forget that telecom infrastructure spending is booming right now led by a fresh wave of industry consolidation. It can take two or three years before we see these investments trickle down to networking suppliers fully, so this could be the perfect opportunity to get in ahead of that infrastructure wave of spending.