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JNI Corporation Announces Results for Third Quarter 2001.

Business Editors


JNI(R) Corporation (Nasdaq:JNIC):
-- Net Revenues of $18.1 Million with 58.1% Gross Margin

-- Net Loss Per Share of $(0.01) Excluding Amortization

-- Cash Balance of $113.7 Million or $4.19 Per Share

JNI(R) Corporation (Nasdaq:JNIC), a leading supplier of Fibre Channel host bus adapters (HBAs) for the enterprise storage market, today announced financial results for the third quarter ended September 30, 2001.

Third Quarter Operating Results

JNI reported net revenues of $18.1 million for the third quarter of 2001, a decrease of 40% from $30.0 million for the third quarter of 2000, and a sequential decrease of 22% from $23.1 million for the second quarter of 2001. The decrease in revenues resulted primarily from the business slowdowns of the major server and storage OEMs that drive the majority of JNI's market.

Third quarter of 2001 gross margin was 58.1%, compared to 59.3% for the third quarter of 2000, and 59.5% for the second quarter of 2001 (excluding the effect of an inventory reserve recorded during the second quarter).

"Third quarter gross margin was higher than originally anticipated at this revenue level due to ongoing strength in JNI's 1 gigabit (Gb) product suite and a slower than expected decline in average selling prices," said President and Chief Executive Officer Neal Waddington. "We expect continuing declines in gross margin due to continuing competitive pricing for the 2 Gb generation of products.

"With regard to our cost structure, we expect approximately the same operating expense level during the fourth quarter, maintaining our emphasis on strategic R&D expenditure for next generation product development." JNI's operating expenses increased 18% to $12.3 million for the third quarter of 2001, compared to $10.4 million for the same period last year. On a sequential basis, operating expenses decreased 11% from $13.9 million in the second quarter of 2001.

JNI reported a third quarter net loss of $(353,000), or $(0.01) per share, excluding amortization of intangibles and stock-based compensation of $1.4 million, and utilizing an effective tax rate of 35%. These results compare to net income of $5.0 million, or $0.18 per diluted share, excluding amortization of intangibles and stock-based compensation of $1.5 million and utilizing an effective tax rate of 38%, for the third quarter of 2000, and net income of $755,000 or $0.03 per diluted share for the second quarter of 2001 which excludes both an excess inventory charge of $7.7 million and amortization for intangibles and stock based compensation of $1.4 million.

Including amortization, JNI reported a net loss of $(2.0) million, or $(0.07) per share for the third quarter of 2001, compared to net income of $4.4 million, or $0.16 per diluted share, for the third quarter of 2000.

Balance Sheet Highlights

At September 30, 2001, JNI had total assets of $156.2 million, including cash and investments totaling $113.7 million or $4.19 per share. JNI repurchased 900,000 shares of its common stock in the open market in September at a cost of $5.1 million.

JNI's inventory level was $12.0 million at September 30, 2001, including $659,000 of inventory located at JNI's distributor partner locations. While inventories increased slightly from $11.6 million in net inventories last quarter, the composition of inventory remains consistent with annual demand projections. Days sales outstanding increased to 51 days during the third quarter of 2001, reflecting a slower customer pay cycle due to widespread economic weakness.

As of September 30, 2001, JNI had no debt and stockholders' equity of $143.6 million.

"As the market begins the transition to 2 Gb data link speeds for storage area network (SAN) infrastructure, JNI is extremely well positioned," said Waddington. "Our Emerald III products are certified at all major storage OEMs and meet the needs of the majority of demand for build-out of 1 Gb infrastructure. Emerald IV has completed qualification at many storage OEMs and we expect that the remainder will be completed during the fourth quarter. In what I see as a clear recognition of JNI's outstanding reliability and strong market position, many early 2 Gb end users have installed JNI's SBus, PCI and CompactPCI Emerald IV HBAs ahead of the completion of OEM certifications. Both of these trends bode well for JNI's continued success."

Waddington noted significant progress and success with respect to JNI's 2 Gb product introduction. He stated, "JNI was first-to-market with both 2 Gb SBus and PCI, single and dual port Solaris HBAs during the second quarter of this year, and announcement and shipment of our new 2 Gb - Ready(TM) CompactPCI product family began in August. To me, these events demonstrated our continued leadership position in SAN connectivity for Sun Microsystems full line of servers. We achieved strong partner endorsement for our Emerald IV suite with certification from StorageTek(R) and qualification by Hewlett-Packard for our 2 Gb PCI and SBus HBAs for both 1 and 2 Gb connections, and we have additional qualifications in process with other storage leaders for our 2 Gb technology.

"During the third quarter, we also previewed JNI's roadmap for future technology development, which builds on our core Fibre Channel business, including 10 Gb data link speeds and pioneering solutions for emerging technologies such as InfiniBand and iSCSI. Going forward, these are the areas of primary focus for R&D and other resource allocation," Waddington concluded.

Conference Call and Webcast

Management will host a conference call with a simultaneous Webcast at 5:00 p.m. Eastern (2:00 p.m. Pacific) today to discuss JNI's third quarter operating performance and to offer outlook for the fourth quarter and beyond. The conference call, featuring President and Chief Executive Officer Neal Waddington and Chief Financial Officer Gloria Purdy, can be accessed live via the Internet at or at CCBN's and The conference call can also be accessed by phone at 703-871-3026. Please dial in at least five minutes before start time, or if listening via the Internet, please go to the Web sites at least fifteen minutes early to register, download, and install any necessary audio software.

For those who cannot listen to the live broadcast, an audio replay will be available through October 31, 2001 by calling (888) 266-2086 and entering the passcode 5586247. The Webcast will be available for 90 days.

About JNI Corporation

JNI Corporation is a leading manufacturer of enterprise-level products used to create storage networks, and is the dominant manufacturer of host bus adapters (HBAs) for the Solaris environment. JNI offers a broad line of FibreStar(R) HBAs, Emerald(TM) ASICs, and EZ Fibre(TM) and DriverSuite(TM) software for SANs. JNI's products operate on Solaris, Windows 2000, Windows NT, HP-UX, AIX, Novell, Linux and Mac OS systems. JNI customers, distributors and strategic partners include Acal FCS, Avid, Bell Microproducts, Brocade, Chaparral, Compaq StorageWorks, Consan, Crossroads, EMC, Eurologic, Gadzoox, GE Access, Hewlett-Packard, Hitachi Data Systems, IBM, Info X, LSI Logic, McDATA, Nishan Systems, StorageTek, Sun Microsystems, TidalWire and Veritas. Company headquarters are in San Diego, with offices throughout the U.S. and Munich (Munchen), Germany.

JNI - enterprising solutions(TM)

Disclosure and Forward Looking Statements

FRB/Weber Shandwick serves as financial relations counsel to this company, is acting on the company's behalf in issuing this bulletin and receiving compensation therefor. The information contained herein is furnished for information purposes only and is not to be construed as an offer to buy or sell securities.

With the exception of historical information, the statements set forth above include forward-looking statements (including but not limited to, operating expense levels, inventory demand projections, our positioning in the market, OEM certification completion dates, projections for future periods and statements about JNI's product and technology development efforts including expectations about growth in the market for such products and technologies) that involve risk and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. These risks and uncertainties include: the timing of the achievement of OEM certifications; the effect of a continuation of the decline in information technology spending by customers in our target markets; our dependence on a small number of OEM and

distribution channel customers; potential delays in product development; our dependence on sole source and limited source suppliers for key components; our dependence on growth in the market for servers utilizing the Solaris operating system; increasing competition in the Fibre Channel market; our exclusive focus on Fibre Channel products; rapid technological change in our industry; changes in the storage area networks market; our reliance on manufacturers in other countries; potential litigation involving intellectual property and other issues; and other risk factors discussed in the company's reports on Forms 10-K, 10-Q and other reports filed with the Securities and Exchange Commission, including the Company's most recent Form 10-K filed on March 23, 2001.

JNI, JNIC, Emerald, FibreStar, DriverSuite, 2 Gb - Ready, EZ Fibre and `enterprising solutions' are trademarks or registered trademarks of JNI Corp. All other trademarks are the property of their respective holders.

 JNI Corporation
 Income Statement
 Three Months and Nine Months Ended September 30, 2001 and 2000
 (in thousands, except per share amounts)

 3 months 3 months 9 months 9 months
 ended ended ended ended
 9/30/01 9/30/00 9/30/01 9/30/00

Net revenues $ 18,080 30,013 $ 62,279 $ 72,514
Cost of revenues 7,581 12,201 33,240 29,436
 Gross margin 10,499 17,812 29,039 43,078

Operating expenses:
Research and development 6,329 5,016 18,945 13,836
Selling and marketing 3,612 3,268 12,105 8,523
General and administrative 2,371 2,109 7,204 5,505
 Total operating expenses
 before amortization 12,312 10,393 38,254 27,864

Operating income (loss)
 before amortization (1,813) 7,419 (9,215) 15,214

Amortization of intangible
 assets 1,339 1,340 4,018 4,019
Amortization of stock-based
 compensation 107 161 335 502
 Total amortization 1,446 1,501 4,353 4,521

Operating income (loss)
 after amortization (3,259) 5,918 (13,568) 10,693

Interest income 1,270 578 4,026 1,636

Income (loss) before income
 taxes (1,989) 6,496 (9,542) 12,329

Income tax provision 0 2,143 0 4,360

Net income (loss) $ (1,989) $ 4,353 $ (9,542) $ 7,969

Earnings (loss) per share
 (excl excess inventory
 reserve and amort)(1)(a) $ (0.01) $ 0.18 $ 0.06 $ 0.39
Earnings (loss) per share
 (excluding amortization
 charges)(2) $ (0.01) $ 0.18 $ (0.12) $ 0.39
Earnings (loss) per share $ (0.07) $ 0.16 $ (0.35) $ 0.30

Number of shares for diluted
 EPS 27,149 27,106 27,088 26,712

(1) Earnings per share excluding excess inventory reserve
 and amortization

Operating income (loss) before amortization $ (9,215)
Interest income 4,026
Excess inventory reserve recorded 7,731
Tax provision at 35% 890
 Net income excluding excess inventory reserve
 and amortization $ 1,652

 Earnings per share (excluding excess inventory reserve
 and amortization) $ 0.06

(2) Earnings (loss) per share excluding amortization charges

Operating income (loss)
 before amortization $ (1,813) $ 7,419 $ (9,215) $ 15,214
Interest income 1,270 578 4,026 1,636
 (543) 7,997 (5,189) 16,850
Tax provision at 35% and 38%,
 respectively (190) 3,039 (1,816) 6,403
 Net income (loss) excluding
 amortization charges $ (353) $ 4,958 $ (3,373) $ 10,447

 Earnings (loss) per share
 (excluding amortization
 charges) $ (0.01) $ 0.18 $ (0.12) $ 0.39

(a) Reflects earnings per share for the nine months ended September
30, 2001 excluding the excess inventory reserve of $7.7 million
recorded in the second quarter.

 JNI Corporation
 Balance Sheet
 September 30, 2001 and December 31, 2000
 (in thousands)

 Balance at Balance at
ASSETS: 9/30/01 12/31/00

Cash and investments $ 113,664 $ 116,445
Accounts receivable, net 11,008 21,635
Inventories 12,009 19,262
Property and equipment, net 13,111 8,995
Intangible assets, net 670 4,688
Other assets 5,739 7,069
 $ 156,201 $ 178,094


Accounts payable and accrued liabilities $ 10,949 $ 16,701
Deferred revenue 1,606 4,704
Total stockholders' equity 143,646 156,689
 $ 156,201 $ 178,094
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Publication:Business Wire
Geographic Code:1USA
Date:Oct 24, 2001
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