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THE FOLLOWING IS A TRANSCRIPT OF A CONFERENCE CALL HELD ON
MAY 8, 2000 BY QLOGIC CORPORATION.
SPECIAL INVESTOR TELECONFERENCE
MONDAY, May 8, 2000
[QLOGIC/ANCOR CONFERENCE CALL MAY 8, 2000]
OPERATOR: Ladies and Gentlemen thank you for standing by. Welcome to the
QLogic and Ancor conference call. At this time, all participants
turn listen only mode. Later, we will conduct the question and
answer session. At that time, if you have a question, you will
need to press the one and the four on your push button phone. As
a reminder, this conference is being recorded Monday, May the 8th
year 2000. I will now like to turn the conference over to Mr. H.
K. Desai, President, Chairman and Chief Executive Officer of
QLogic. Please go ahead sir.
H.K DESAI: Thank you, operator. Good morning, and welcome to this special
teleconference regarding QLogic's acquisition of Ancor
Communications. I'm H.K. Desai, Chairman, CEO and President of
QLogic and with me is Tom Anderson, QLogic's Chief Financial
Officer. Also joining us today is Ken Hendrickson, Chairman and
Chief Executive Officer of Ancor Communications, and Ancor's
Chief Financial Officer, Steve Snyder. I will outline some of the
major points of our announcement earlier today regarding the
pending acquisition of Ancor Communications by QLogic, and Ken
will add some commentary regarding the transaction. At the
conclusion of these comments we will then open up the line for a
general question and answer session. During the course of this
conference call, we may make forward-looking statements regarding
future events or the financial performance of the company. We
wish to caution that actual events or results may differ
materially. We refer you to the documents that QLogic and Ancor
Communications files with the SEC, specifically the most recent
10-K and 10-Qs. These documents identify important factors that
could cause our actual results to differ materially from
expectations. This conference call report is protected by
copyright law and international treaties. Unauthorized
reproduction or distribution of this report or any portion of it
may result in civil and criminal penalties. Any recording or
other use or transmission of the text or audio for today's call
is not
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allowed without the express permission of QLogic and Ancor
Communications. With that being said, I will continue our
discussion of this acquisition. Earlier today we announced that
we entered into an agreement to acquire Ancor Communications,
Incorporated, in which QLogic will exchange 0.5275 shares of
common stock for each share of Ancor common stock. Based on the
closing market price for QLogic of $99.94 as of Friday, May 5,
2000, the transaction value is approximately $1.7 billion. The
proposed transaction is intended to qualify as a
pooling-of-interests and as a tax-free exchange of shares under
IRS regulations. Completion of the proposed transaction is
subject to approval of the shareholders of both companies and
appropriate regulatory clearances. We expect to close this
transaction in the third calendar quarter. We expect the
transaction to be neutral to slightly accretive to calendar year
2001 earnings, as well as, obviously QLogic's fiscal year ended
March 2002. These forecasts to not include any operational or
strategic benefits. QLogic is the leading supplier of Fibre
Channel end-node connectivity solutions for servers,
workstations, storage subsystems, peripheral devices and
management controllers. Combined with Ancor's performance
oriented scaleable switch products, QLogic will be uniquely
positioned to deliver total SAN solutions to the marketplace.
Customers will benefit from end-to-end tested SAN solutions, as
well as faster time-to-market deployments of Fibre Channel
products. The combination of our two companies will be able to
provide higher value-added solutions to a broader base of
customers and channels. I would now like to have Ken briefly
address Ancor's business and give you his perspective on this
transaction, Ken?
KEN
HENDRICKSON: Thanks H.K.. As H.K. mentioned, Ancor Communications provides
high-performance Fibre Channel switches for storage area
networks. The company's customers include Sun Microsystems, MTI
Technology Corporation, EMC, Hitachi Data Systems, INRANGE, and
SAN resellers, including Bell Microproducts. The company was the
first to deliver a Fibre Channel switch, and the first to top the
one-gigabit performance level. Through this unique merger, we
will be able to get access to an expanded customer base with
complete high-performance, interoperable SAN solutions. The
combined company's financial and technical resources and
comprehensive product scope make it second to none in the Fibre
Channel arena. It is especially noteworthy that the
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combination will allow Ancor and QLogic to accelerate its
competitive advantages in the SAN marketplace. Importantly, we
have found strong similarities in company cultures that will aid
us in making this a very successful partnership. With that being
said, I will now turn over this teleconference to Tom Anderson,
QLogic's Chief Financial Officer, Tom?
TOM
ANDERSON: Thanks Ken. When they become available, we urge investors and
security holders to read QLogic's Registration Statement on Form
S-4 and the Prospectus/Proxy Statement on QLogic and Ancor
relating to the merger transaction described below, because they
will contain important information. When these and other
documents relating to the transaction are filed with the
Securities and Exchange Commission, they may be obtained free at
the SEC's Web Site at www.sec.gov. You may also obtain each of
these documents (when they become available) for free from QLogic
or from Ancor by directing your request to the investor relations
contacts in the press release issued earlier today. This
concludes our brief formal comments and now we would like to open
up the meeting for questions and answers. Operator, please poll
for any questions.
OPERATOR: Ladies and Gentleman, if you have a question, please press the
one or above the four on your push button phone. You will hear a
three tone prompt acknowledging your requesting. If your question
has been answered, and you would like to withdraw your request,
you may do so, by pressing the one followed by the three. If
you're using a speaker phone today, please pick up your handset
before entering your request. One moment please for the first
question. Robert Monigue of Morgan Keegan, please proceed with
your question or comment.
ROBERT
MONIGUE: Hi guys, way to go, I wanted to see if you would delineate a
little more. Both of you have strategic relationships with Sun.
How do you see this impacting on the added features you can offer
to Sun as part of this transaction? And also, generally, how you
will be able to combine the technologies to offer synergies in
the marketplace, in terms of future benefits to customers?
Thanks.
H.K. DESAI: We both have a great relationship with Sun and we already talked
to Sun Micro Systems last night and their response
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was very positive from their management. What synergy we are
going to provide is that we are going to provide the total SAN
solutions of products we supplied versus switch product supplying
by Ancor. So, there is going to be a benefit for the customers.
ROBERT
MONIGUE: Okay. I assume there is some opportunities at the software layer
to integrate these together under one management umbrella? Any
rough feel on the timing of that type of integration? And also,
has there been any determination made yet on the Sun warrant
situation that Ancor has had there?
H.K. DESAI: Bob, let me answer the first question and Tom can answer the
second one. The software synergy, I mean this is too early to
determine really the schedule or timeframe, but definitely we'll
look at the synergies and then see what we can provide, but,
right now, it's too early to determine that.
TOM
ANDERSON: Yes. And far as the warrant situation, it's a much similar
answer. It's much too early to determine anything different. We
did review obviously those agreements in the due diligence
process.
ROBERT
MONIGUE: Okay. Alright. I'll come back in a minute.
OPERATOR: Jim Pointer, please proceed with your questions or comments.
JIM POINTER: Yes. Is there a collar on this exchange or are you going with a
fixed percentage exchange regardless of stock prices of either
entity going forward here?
TOM
ANDERSON: The exchange ratio is fixed and there is no price collar
effecting the closing of the transaction. The definitive merger
agreement will be filed later this week with the SEC and you will
have a chance to look at it at that point.
JIM POINTER: And you're expecting a close in the calendar in the third
quarter?
TOM
ANDERSON: Yes. It's purely speculative at this point. It depends on
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just how long the regulatory process ends up taking. We obviously
will require shareholder approval both from our shareholders and
Ancor from their shareholders. And, uh, we have to obviously
file, uh, an S-4 with the SEC and that is subject to review. So,
the process we think will likely, uh, put us out in late summer,
early fall.
JIM POINTER: One last question. Does your alliance now with Ancor at the
switch level, do you think it has any impact on the marketing of
your HBA's with other switches out there, on the part of OEM's or
systems integrators?
H.K. DESAI: Well, that is not our strategy. What we want to do really is we
want to continue working with all of our suppliers and for
interoperability. Because we have common customers with a lot of
switch suppliers. So, we will continue working that. We're not
going to change any strategy on that regard.
JIM POINTER: Okay. Great. Thank you.
OPERATOR: Glen Hynans, with Needham & Company. Please proceed with your
questions.
GLEN HYNANS: Can you comment whether there were any other discussions that
took place before this was agreed to? Whether there were any
other bidders and then maybe comment on any changes to the
combined, what the combined companies management team looks like?
H.K. DESAI: We can't. We don't want to comment on any of these two questions.
We really can't comment on the first two and we don't know what's
going on on the second one. It think it's too early for us to
really talk about the management structure.
GLEN HYNANS: And the warrants with Sun and Ancor, is that spelled out in the
merger agreement? I mean, any reason SUN that you wouldn't just,
you know, take, Sun wouldn't just be taking QLogic, you know, you
just do the exchange ratio and have Sun take the QLogic share.
Has that been worked out?
H.K. DESAI: Basically, yes it has, but again, that is something that's in the
merger, definitive merger agreement, which will be filed later
this week.
GLEN HYNANS: Thank you.
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OPERATOR: Chau Wu with Insurance. Please proceed with your question or
comment.
CHAU WU: Okay. Thanks. First congratulations. I just have kind of the same
question that the previous guy asked. In terms, like,
integration, do you plan to have this, you know, integrate their
sales forces? Integrate their engineering teams? And also, what
about the brand name? Will it be QLogic? Or will Ancor run as a
separate entity?
H.K. DESAI: QLogic is the one, let me answer your second question first.
QLogic is the one which is going to surviving entity. So it will
be a QLogic brand name. About the integrations, we'll start
working on that as soon as this transaction is complete. So,
really, it's very difficult for us to comment on our integration
plans right now. But, there are a lot of synergies between us in
the operations areas because we have a lot of chip expertise.
There are synergies in the marketing and sales. There is no
overlap on the research and develop side for the both companies.
CHAU WU: Okay. Thanks.
OPERATOR: John Dean with Solomon Smith Barney. Please proceed with your
questions or comments.
CLINT VAUGHN: Thank you. Actually, it's Clint Vaughn and firstly,
congratulations on the transaction. Ken, I would like to direct
my question to you if possible. Could you talk about your
relationship you recently had with EMC? Also, your ongoing
relationship with Inrange and Intel and how this agreement may
effect those? And then maybe, I don't know who wants to speak
about this, but, if somebody could address potential synergies
with clients and maybe you said end solution, but point to point,
rather in the end-to-end will be probably be better. But if you
could talk about some examples of how you see that really folding
in. That would be helpful. Thank you very much.
H.K. DESAI: Ken do you want to take the first one?
KEN
HENDRICKSON: Yes. I will. Alright. We've talked to each of those customers and
the response we've gotten has been very positive. I think we can
be a better supplier and certainly
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our commitment to those customers is every bit as good as, has
increased because we have increased resources, increased critical
mass to be a good supplier. The products are so complimentary and
the engineering work is so complimentary and then we put together
the sales and marketing and get it well coordinated, I think the
customer is going to be a real winner here. We're really thinking
that the employee, the stockholders, the customers, the companies
are all going to win. Because it's such a good strategic fit.
H.K. DESAI: Let me try to answer your second question. Like I said, the
benefits we have is the common customer base like Sun Micro
Systems, for example, EMC, I mean they are going to be benefiting
from the total SAN solutions. The second benefit for the
customers is that Ancor will have an expanded customer base
because the relationship we have is from the customer. So, it's
really providing a total SAN solution and that is going to be the
big benefit for the customers.
CLINT VAUGHN: Excellent. Thank you and just one other quick one. Are you
planning on merging on facilities or locations at all.
H.K. DESAI: No.
CLINT VAUGHN: Thank you very much.
OPERATOR: Rick Billy with SG Cowen. Please proceed with your questions or
comments.
RICK BILLY: Gentlemen, couple of, uh, clarifications if you would. The extent
and duration of potential dilution until you reach break-even and
when might that be?
H.K. DESAI: Okay. The statement that's in the press release is obviously that
we expect that the transaction to be neutral to slightly
accretive to calendar 2001 earnings, we're not really specifying,
you know, a specific targeted quarter within the year. In the
meantime, this deal won't close until late in the third calendar
quarter this year or perhaps even into the fourth calendar
quarter. We don't expect that the dilution in this calendar year
will be that significant. Perhaps in the $.03 to $.05 range is
probably a maximum exposure there.
R. BILLY: Thank you.
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OPERATOR: ______ Chad with Chad Partners. Please proceed with your
questions or comments.
CHAD: Yes. QLogic is sailing along and doing great, why exactly are we
doing this deal and why are we doing it right now? That's
question one. And question two for Ancor is, why were your
receivables up so much in this recent quarter?
H.K. DESAI: Let me answer. If you look at the IDC data, what we really do is
we supply end-to-end solutions for the SAN market. If you look at
IDC's numbers in 1999, there was about a 500,000,000 market. HBA
which is what we addressed at about 49%, which are $250,000,000
TAM and switches about $150,000,000 TAM which is about 30% of the
market. If you look at going forward in 2003, the data says that
it's going to be 4.5 billion dollar market, which will have about
38% HBA, which is about a $1.7 billion dollar market and about
56% will be the switch market, which is about a $2.5 billion
dollar market. So what QLogic is doing is really expanding its
market by $2.5 billion dollars going forward in 2003. And the
compound annual growth rate for that market is about 73% for the
SANs. So this is a great opportunity for us and we need to, uh,
looking for a place where we can expand and grow with the
synergistic technology and culture and we feel that Ancor is the
right company for that.
CHAD: Bt their record is horrible and your record is awesome. And this
dilution and the way the stock is getting hit, just, you know, it
seems inopportune right now.
H.K. DESAI: Well, you can't really look at the short-term benefits. What we
look at it is what's our strategies and where we going forward.
Where the market is going and the opportunity and I disagree with
you that they have a horrible record. I think, what I'm hearing
from customers is that they have a great technology and that's
what we're looking for.
CHAD: They preleased their, uh, their two quarters ago and their
receivables are up this quarter. And obviously your holders are
none too happy with your stock down 20 points today.
H.K. DESAI: Okay. I think we've answered the question. Is there anything
Steve or Ken you want to address on his question on the
receivables.
STEVE SNYDER: Sure. I can address that. This is Steve. The fourth quarter,
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the calendar fourth quarter, the linearity within that quarter
was weighted much more toward the middle of the quarter and hence
we had an unusually low DSO in Q4 and I pointed that out in our
call at the time. And Q1 March quarter, our quarter was more
weighed toward the end of the quarter, hence, the receivables
were higher. So, it's really a function of timing within the
quarter and the increase is the difference between the two
quarters and not a reflection of any creditors or collection
issues.
CHAD: Okay. Thank you. Best of luck.
UNKNOWN: Alright. Thank you.
OPERATOR: James Thayer for Prudential Security. Please proceed with your
question.
JAMES THAYER: Thank you very much and congratulations on the merger. Most of my
questions have been answered. Tom, as far as that notion is
concerned, you seem to be saying that there is going to be a $.03
to $.05 dilution in QLogic's fiscal third quarter for the March
2001 year. Do I understand that correctly? And, what is going to
be the overall effect in the March 2001 year?
TOM ANDERSON: Jim, you understood my--my general comments I think pretty well.
I said, the one thing that I'm going to clarify here a little bit
is we don't know exactly when this transaction will close. We
don't know if it will close within the third quarter or within
fourth quarter. So that obviously affects when they'll be
consolidated with our financial results. And basically in those
quarters, I'm just giving you a range of what could be expected
in those quarters, given the trend that we see with the numbers
right now. And again, we're focused on the longer haul on this
issue next year, overall its accretive earnings.
JAMES THAYER: Yes. I understand. Okay. And, second, you both have mentioned
several times that there would be products synergies, but would
you describe these in a little bit more detail briefly. Thank
you.
H.K. DESAI: It's really what I said. There are solution synergies, like, I
said before, we supply the end node products which is HBA and the
silicon and they have the switch which is in there, in the fabric
for the customer it's a total end-to-end
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solution and that's the synergy we really talk about. It's more
at the customer side synergy more than the product synergy. And
then the technology synergy is the one which we both are in the
fibre technology. We are also both investing in InfiniBand
technology. So there is technology synergy which probably we will
use in future products.
JAMES THAYER: Thank you.
OPERATOR: Michael Power with Steel Capital. Please proceed with your
questions or comments.
MICHAEL POWER: Hi. Good morning. Quick question about the competitive landscape
with this acquisition, could you talk about who might benefit
from this acquisition and also maybe also your competitors who
are really going to see more difficult challenges in the market.
Thank you.
H.K. DESAI: I think the biggest benefit is going to be the customers in this,
the customers will have the most benefit because they can get the
total solution. In a competitive market, I don't know, I mean I
think it's going to be beneficial to us because we both will have
our product for the SAN market.
MICHAEL POWER: Okay. Thank you.
OPERATOR: John McClone with McClone & Company. Please proceed with your
question.
MCCLONE: Yeah. I have two questions. The first is if you could help me
understand your position versus Brocade's 2010 and the Vixel 7000
and Zoot's Capelli and how to you play down there? And secondly,
concerning the combo HBA you just introduced, which I guess, Sun
is OEM-ing, is that unique to Sun or will that be going out on
all their servers and is that somehow play into all the Sun
business that Ancor does with them in the switch area?
H.K. DESAI: Let me answer the second question and then Ken can answer the
first one. The second question is the combo, what we announced
about Sun, which is that Sun is using our chip to and they have
designed a combo card for Fibre Channel and this is for that
product so they are buying silicon from us and this is for Sun.
There is no impact on this for--for the switch, for the Ancor
acquisition. And Sun has designed us in for a lot of different
products as to its on the
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motherboard or in the server or the HBA any way. And this is one
of the one designs with Sun. Ken, you want to take the first one?
KEN
HENDRICKSON: Yes. I would. Thank you. We produce the broadest line of Fibre
Channel switches in the marketplace. We actually cover the whole
marketplace. We have 8 and 16 port switches shipping today. They
provide full fabric. They can also run in arbitrated loop mode
and they can translate between the arbitrated loop or the old
private loop. Let me clarify that a little bit because you can
have a fabric arbitrated loop or a private loop arbitrated loop.
So let me talk about whole fabric private loop and translate in
between. So we cover the whole switch landscape 8 to 16 ports
with the whole range of features. We have the lowest latency in
the business. We are the only switch that can take a private loop
initiator and translate it up to a full fabric and have a
performance system that has more than a 126 nodes. So we have
several technical advantages across that product line. In
addition, we are sampling as I speak, a 64 port storage director
product. The only company that does that in the industry, well,
nobody does a 64 port in the industry and we will have a 128 port
version of that this Fall. So Ancor has the broadest product
line. I think it overlaps all the competitor's product lines.
MICHAEL POWER: When you say translate, are you talking about dynamic
interactions? Or are you talking about a gradability to the
fabric?
KEN
HENDRICKSON: No. I'm talking about dynamic interactions. In the private loop,
you've got 8 bit addressing and if you want a simple minded
model, the switch adds the other 16 bits to give you the 24 port
address and keep tracks and so it treats that private loop device
just as though it were full pledged member of the fabric by
building into translation.
MICHAEL POWER: And price wise?
KEN
HENDRICKSON: Price wise, I think we're very competitive.
MICHAEL POWER: Okay. And one follow-up on that combo quick. How much does Sun
represent in your business now? And do you expect to
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accelerate where you will be experiencing a larger percentage of
business from Sun?
TOM ANDERSON: The percentage of Sun business to our total busines is only
announced once a year. That's after a year-end. We have not
announced our year-end results yet. Last fiscal year, they were
about 18% of our total revenue. That's in the ballpark probably.
H.K. DESAI: And we'll announce this Wednesday about the last fiscal year.
KEN
HENDRICKSON: Last fiscal year. Yes.
MICHAEL POWER: I guess, what I'm getting at is, the competitors that are working
with Sun now. Primarily, in the, Unix environment, such as
Emulex. Do you think this is a competitive advantage over them,
within the Sun environment?
H.K. DESAI: What we are supplying, like I said before, we supplying products
to Sun just the combo card is not the only thing. I mean, we're
doing the HBA for the SCSI, we have HBA for the Fibre Channel. We
have silicon on their motherboard for their server, low-end
server anyways. So we supply, we will be supplying the products
on the lot of different fronts anyway for Sun. So we really have
a very dominant position at the Sun as far as Fibre Channel
products are concerned.
MICHAEL POWER: So you don't expect any market share shifts then? Between you and
Emulex at Sun?
H.K. DESAI: Not at Sun.
MICHAEL POWER: Okay. Good luck.
H.K. DESAI: Thank you.
MICHAEL POWER: Thanks.
OPERATOR: ______ _______ Franklin Street Partners. Please proceed with your
question.
UNKNOWN: I have two questions. One is do you have any kind of cost
synergies on acquiring Ancor and secondly, could Ancor talk about
their competitive positioning along in terms of a
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Broadcom and others in the area.
H.K. DESAI: Like I said before, a lot of synergies exist between us and
Ancor. Long-term I don't expect to see anything be changed in the
short term. But the long-term, because we are still looking at
the expertise of the purchasing we'll probably have for the
silicon, it is going to help us in the long term. So there will
be some synergies in the long-term on the cost side. Ken you want
to talk about the second question.
KEN
HENDRICKSON: Today we make InfiniBand and Fibre Channel switches that's our
product line. I don't believe that Broadcom is in that product
line.
UNKNOWN: O.k. sorry I meant to say Brocade not Broadcom. I'm sorry about
that.
KEN
HENDRICKSON: We are the only ones in InfiniBand we're not shipping those yet
but we are in a development mode there. As far as the Brocade
switches our product line is virtually parallel with theirs. We
have some features that they don't have but 8 port switches, we
both sell 16 port switches we have private loop features we have
public loop features. Ours is a little faster, ours does
translate from a private loop initiator into a full fabric and
probably most importantly we have 64 and 128 port switches in our
product line. So I would say that we include all of Brocade's
product line within our product line and then some.
UNKNOWN: Do you have any kind of lead over Brocade and how much time
Brocade needs to catch up with you.
KEN
HENDRICKSON: I think that's a horse race. You take a point in time with any
pair of competitors in a development company and somebody will
come out with features ahead of one another. We feel that we are
ahead of them right now. If you ask Greg, I suspect he'd claim
that he was ahead of us and it is a horserace and that's one of
the advantages of this acquisition is it gives us the critical
mass and the resources to be able to really run a good race, so
that's why we're so enthusiastic about it.
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UNKNOWN: O.k. Thanks.
OPERATOR: Chesapeake Partners, please proceed with your questions.
UNKNOWN: Congratulations and a couple of questions. One, could you tell us
a little bit more, give us a little bit more color on the
background to the transaction and two, you mentioned perhaps a
September or October closing, I was wondering why this should
take that long it sounds like a clean deal and then also I'm
wondering you know, given the track records if there is some
protection for QLogic that's explicit. In other words are there
financial tests or product milestone tests or development tests
that Ancor has to meet?
TOM ANDERSON: O.k. First of all let's address the issue of the length of time
to do the transaction. Uh, that is - you have to remember this
also our year-end. We're going to be announcing our year-end
results in two-days. We have a number of SEC filings to undertake
as a result of year-end and as a result of this transaction and
we're just anticipating that at worse case we'll probably have
some commentary from the SEC. There is really nothing we feel out
of the ordinary in this type of transaction but the SEC is
obviously very diligent about matters these days. So in that
regard we think that it could draw out that long. There is always
the chance that it could go much faster too. The second part in
terms of the milestones, etc. we're not going to get into
addressing that today as I say there is some SEC documentation
that's going to be filed with regard to the merger later this
week, but we feel that we've done certainly a good job in the due
diligence process and we feel very comfortable with where this
company is heading and we think that we can obviously assist
Ancor in moving along to identify the area even faster perhaps
than they would have been able to do alone.
UNKNOWN: So there are no earnings test or product development tests?
TOM ANDERSON: Again, that's something that we are not commenting on here today.
UNKNOWN: O.k. Thank you.
OPERATOR: _______________ of Morgan Stanley Dean Whiter please proceed with
your questions or comments.
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UNKNOWN: Yes, I was wondering when a deal's announced there is a period of
uncertainty where at times customers defer decisions on
purchasing products and I was wondering if there is any plans
that the companies have for preventing that sort of thing.
Anything you can do ahead of the deal that would allow the
company to continue selling during the course of completing this
deal.
H.K. DESAI: You know - I kind of -- in our business it takes a lot of time to
get the design win. It's not like the business is made in a very
short period so whatever design means they have or what we have
in our product I think that's not going to change at all. We will
continue without any problems or issues because its a long way
inside the design and the qualification cycles. Um, for the
future one I don't think people is going to wait for making the
decisions because what this is really providing to the customer
is that they have better resources available with a combined
company so there is a benefit to them.
UNKNOWN: O.k. Thank you.
OPERATOR: Mike Ridgelay with Regan MacKenzie please proceed with your
questions.
MIKE RIDGELAY: Yes, I have three real quick questions. First you mentioned the
operational impact going forward and long-term regarding
purchasing silicon and what not you have a pretty competitive
gross margin in the industry in general, what long-term impact do
you see to the gross margin with the addition of these new
products. Secondly, you mentioned there are some new customer
opportunities. You mentioned some of the overlaps could you
identify maybe a little bit of detail from the new opportunities
that you see with QLogic products given the Ancor customer list
and finally, just a little bit of discussion perhaps on how
you're positioning the Anchor switch vs. Brocade in the NT
environment and how you see that environment progressing. Thank
you.
H.K. DESAI: Like I said, there are benefits long term because of the synergy
we'll have on the marketing and sales side. The gross margin is -
we really don't know right now. We cannot comment on that when I
don't think there is going to be an impact on the gross margin of
what we doing our self. But gross margin for Ancor long term, we
don't have a date right
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now we'll let you know as the time goes. The customer opportunity
is we have a lot of common customers between us and what this
deal is really providing is expanded opportunity for both of us
and the relationships we have. Ken you want to answer the last
question about the NT market for the switch?
KEN
HENDRICKSON: Why certainly, H.K. you have a lot of credibility in a good
partnership with several customers in that space. I think that by
being part of QLogic the Ancor switch can benefit from those
relationships and that credibility with the NT customers.
MIKE RIDGELAY: Great thanks a lot and we'll listen to you again on Wednesday.
TOM ANDERSON: I would just like to add one further. . . a little bit of
commentary on the general financial question that was asked and
maybe I wasn't real clear on this a little earlier. We do expect
to achieve accretion in the first half of calendar year 2001 on
this transaction, but obviously we're not going to get into the
details today of how we're going to affect things like gross
marginsand operating expenses and other details but we feel
pretty confident about the overall outcome of the financial
success of the two companies.
KEN
HENDRICKSON: I'd like to make one addition too if I could to my last comment.
I think its important to consider that there will be second
sourcing opportunities as this industry matures and I think that
by being part of QLogic and having their relationships and their
credibility with the NT customers that will aid us in the second
sourcing and even in some cases first sourcing opportunities of
those customers. Thank you.
OPERATOR: Glen Hynans with Needham & Company please proceed with your
follow-up question.
GLEN HYNANS: Couple things. One of the callers asked about the background of
the transaction can you give us any color on how long you've been
talking to one another. Two, I guess there was an announcement -
a press release about interoperability between certain switch
vendors being demonstrated this morning. Can you comment on more
specifically just what
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interoperability is being demonstrated and whether this
represents a major milestone in the process towards a switch to
switch interoperability or not and lastly are there break up fees
in this deal and can you tell us anything there.
UNKNOWN: In terms of the - how the transaction - the color of how it came
together, all the details of that will be in the jointly filed
S-4. Those were recent discussions that obviously were held
between the CEO's and I think that's as far as it went to answer
that question. Go ahead H.K.
H.K DESAI: Ken do you want to take the interoperability questions?
KEN
HENDRICKSON: Yes I will. There was a OSFI press release this morning which
talked about the demonstrations that are going to be demonstrated
at N plus I which is a conference that's going on in Las Vegas
this week. The announcement was that Ancor, Gadzoox, Vixel and
MacData along with Inrange will be demonstrating switches in a
fabric working together heterogenous fabric. There was one switch
supplier that is part of OSFI which is not taking part in the
demonstration and that's Brocade.
UNKNOWN: I think we have time maybe for one additional question we do need
to cut this teleconference at 45 minutes and its just about at
that time limit.
OPERATOR: Robert Monigue with Morgan Keegan please proceed with your
question.
ROBERT
MONIGUE: Just a few follow-ups. First of all building on that interop
question. Ken or H.K. could maybe either of you comment on the
macro recent trends at the OEM's on desirability or how strong
they are pushing the industry to achieve interoperability. Second
of all on the director type products maybe you could just refresh
your view of how much of the market you see moving from 8-16 port
switch categories over to higher port count or high availability
type products like the director and are typically are you seeing
customers create these as separate procurement categories or are
these gonna be viewed with established design situations in the
eight and sixteen port and then finally - get my little shopping
list in here - Ancor's got a relationship with Intel on the
InfiniBand and H.K. I know your very active in both
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VI and InfiniBand any direct impact or synergy that you see in
the Intel relationship with those technologies. Thank you.
H.K DESAI: Uh, Ken I think you can take most of the questions there.
KEN
HENDRICKSON: O.k. I will. Thank you for the question Robert and I'll point you
to the recent EMC announcement where both Brocade, Ancor and
McData are in the announcement in the form of the NC switch. A
lot of our customers are now demanding interoperability and I
think its a strong trend. Speaking from my experience in the past
I will tell you that people want dual sourcing, they want
interoperability without it the industry is severely handicapped.
So there will be a lot of pressure for interoperability. With
regards to the director we are seeing that in the same category.
We are seeing people wanting a switch family. A lot of our Unix
people want to build fabrics that not only have a 8 and 16 port
switches but they have a fabric topology that has 64 port
switches and 8 and 16 and its interesting because you might
assume in the center actually it depends so much on the fabric.
The larger switch may be on the edge and you might have a small
switch in the core it might be reversed. It's that flexibility.
What our customers want is to be able to provide a growth
scenario for their end-users so they want to be able to build a
fabric that can expand over time and keep that customer and by
having a full family of switches they have a better chance of
providing that growing fabric for their customers. As far as
Intel is concerned we're very active, we're very proud of the
fact that we're writing a lot of the standards documents and very
active. One of the comments I got this morning when we did the
all hands meetings and I will take this opportunity to make this
statement that our employees are very enthusiastic about this and
feel that teaming with QLogic is going to be extremely beneficial
but one of the advantages is that they knew a lot of QLogic
people from the Intel sponsored and InfiniBand meetings.
H.K DESAI: I like to add a couple of things what Ken said is that the QLogic
management team is and the employees are very enthusiastic about
this deal. We are getting a tremendous positive response inside
QLogic. I also have known Ken for many many years. I use to
really work for him one time at WB so we have great relationship
we also have secured employment contracts with the team at Ancor.
So we are
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looking forward that this is going to be very very exciting
fortunately for both companies and we are looking forward for the
challenges on these things. With that Tom, do you have closing
remarks?
TOM ANDERSON: We want to thank everybody for joining us for this special
teleconference. As a reminder those of us at QLogic will look
forward to discussing our fourth quarter and year-end results
with you on Wednesday, May 10th at 2:30 p.m. PST. Thanks to
everybody for joining us.
H.K DESAI: Thank you.
OPERATOR: Ladies and Gentlemen that does conclude our conference call for
today you may all disconnect and thank you for participating.
* * * *
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ABOUT ANCOR COMMUNICATIONS
Ancor Communications Inc. (Nasdaq: ANCR) provides high-performance
SANbox(TM) Fibre Channel switches for storage area networks (SANs). The
company's customers include EMC, Hitachi Data Systems, INRANGE Corporation, MTI
Technology Corp., Sun Microsystems, and premier SAN resellers, including Bell
Microproducts and Datalink. The company was the first to deliver a Fibre Channel
switch, and the first to hit the one-gigabit performance level. Ancor, an ISO
9001 quality certified company, is a member of the Fibre Channel Industry
Association, the Storage Networking Industry Alliance, the InfiniBank Trade
Association, the ANSI Standards Committee, and the University of New Hampshire
Fibre Channel Consortium to promote the advancement of Fibre Channel standards
and interoperability. Information on Ancor is available on the Web at
http://www.ancor.com.
ABOUT QLOGIC
A member of the Nasdaq-100 Index, QLogic Corporation sold more Fibre
Channel host bus adapters in 1999 than any other manufacturer in the world
according to IDC. The company is also a leading designer and supplier of
semiconductor and board-level I/O and enclosure management products targeted at
the computer system, storage device and storage subsystem marketplaces. QLogic
high-performance controllers are implemented in products from technology leaders
such as AMI, Compaq, Dell, Fujitsu, Hitachi, IBM, Iwill, Quantum, Raidtec,
Siemens, Sun Microsystems and Unisys. The company's high-performance Fibre
Channel and SCSI solutions play a key role in enabling enterprise-level storage
area networks (SANs) and the company's enclosure management products monitor and
communicate component information that is critical to computer system and
storage subsystem reliability and availability. For more information about
QLogic and its products, contact QLogic Corp., 26600 Laguna Hills Drive, Aliso
Viejo, CA 92656; telephone: 800/662-4471 (sales); 949/389-6000 (corporate); fax:
949/389-6126; home page http://www.qlogic.com.
ADDITIONAL INFORMATION AND WHERE TO FIND IT
QLogic Corporation ("QLogic") and Ancor Communications, Incorporated,
("Ancor ") plan to file a Registration Statement on Form S-4 and other relevant
documents with the Securities and Exchange Commission (the "SEC") in connection
with the merger, and QLogic and Ancor expect to mail a Joint Proxy
Statement/Prospectus to stockholders of QLogic and Ancor containing information
about the merger.
Investors and security holders are urged to read the Registration
Statement, the Joint Proxy Statement/Prospectus, and other documents filed with
the SEC carefully when they are available. The Registration Statement, Joint
Proxy Statement/Prospectus, and other filings will contain important information
about QLogic, Ancor, the merger, the persons soliciting proxies relating to the
merger, their interests in the merger, and related
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matters. Investors and security holders will be able to obtain free copies of
these documents through the website maintained by the SEC at http://www.sec.gov.
Investors will be able to obtain copies of the documents free of charge from
QLogic by directing a request through the Investor Information portion of
QLogic's website at http://www.qlogic.com or by mail to QLogic Corporation,
26650 Laguna Hills Drive, Aliso Viejo, CA 92656, attention: Investor Relations,
telephone: (949) 389-6000. Documents filed by Ancor will be available free of
charge from Ancor by directing a request through the Investor Information
portion of Ancor's website at http://www.ancor.com or by directing a request by
mail to Ancor Communications, Incorporated, 6321 Bury Drive, Eden Prairie, MN
55346, attention: Investor Relations, telephone: (612) 932-4000. In addition to
the Registration Statement and the Joint Proxy Statement/Prospectus, QLogic and
Ancor file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or other
information filed by QLogic or Ancor at the SEC public reference rooms at 450
Fifth Street, N.W., Washington, D.C. 20549 or at any of the SEC's other public
reference rooms in New York, New York and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms.
QLogic's and Ancor's filings with the SEC are also available to the public from
commercial document-retrieval services and at the Web site maintained by the SEC
at http://www.sec.gov.
INVESTORS SHOULD READ THE JOINT PROXY STATEMENT/ PROSPECTUS CAREFULLY
WHEN IT BECOMES AVAILABLE BEFORE MAKING ANY VOTING OR INVESTMENT DECISIONS.
NOTHING HEREIN SHALL CONSTITUTE AN OFFER OF ANY SECURITIES FOR SALE.
SOLICITATION OF PROXIES; INTERESTS OF CERTAIN PERSONS IN THE MERGER.
A description of the identity of the participants in the solicitation and a
description of their direct or indirect interests is set forth in the Rule
14a-12 filing made by Ancor on May 22, 2000 (relating to a press release dated
May 8, 2000), under the caption "Solicitiation of Proxies; Interests of Certain
Persons in the Merger" and that description is incorporated by reference.
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