##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 
  þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 28, 2010
 OR
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Commission File No. 001-31353
 EMULEX CORPORATION
 (Exact name of registrant as specified in its charter)
 Delaware(State or other jurisdiction 
of incorporation or organization)
    
    51-0300558(I.R.S Employer
Identification No.)3333 Susan Street 
Costa Mesa, California(Address of principal executive offices)
    
    92626(Zip Code)
 (714) 662-5600  Registrants telephone number, including area code
 
 þ o
 Yes o No o
  Large accelerated filer: þ
    
    Accelerated filer: o
    
    Non-accelerated filer: o
    
    Smaller reporting company: o
 o þ




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##### 



PAGEPart I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Condensed Consolidated Balance Sheets March 28, 2010 and June 28, 2009
    
    
    3Condensed Consolidated Statements of Operations Three and Nine months ended March 28,
2010 and March 29, 2009
    
    
    4Condensed Consolidated Statements of Cash Flows Nine months ended March 28, 2010 and
March 29, 2009
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    34Item 4. Controls and Procedures
    
    
    35Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    35Item 1A. Risk Factors
    
    
    38Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    51Item 6. Exhibits
    
    
    52Signatures
    
    
    53Exhibit 31AExhibit 31BExhibit 32
   2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
  
   March 28,
    
    
    June 28,2010
    
    
    2009AssetsCurrent assets:Cash and cash equivalents
    
    $
    253,169
    
    
    $
    294,136Investments
    
    
    34,297
    
    
    
    8,289Accounts and other receivables, net of
allowance for doubtful accounts of $1,659
and $1,553 as of March 28, 2010 and June
28, 2009, respectively
    
    
    63,100
    
    
    
    51,566Inventories
    
    
    16,780
    
    
    
    10,665Prepaid income taxes
    
    
    17,563
    
    
    
    17,083Prepaid expenses and other current assets
    
    
    7,726
    
    
    
    8,021Deferred income taxes
    
    
    19,428
    
    
    
    16,793Total current assets
    
    
    412,063
    
    
    
    406,553Property and equipment, net
    
    
    64,461
    
    
    
    74,794Goodwill
    
    
    87,840
    
    
    
    87,840Intangible assets, net
    
    
    43,720
    
    
    
    42,990Deferred income taxes
    
    
    25,381
    
    
    
    16,002Other assets
    
    
    49,391
    
    
    
    30,739Total assets
    
    $
    682,856
    
    
    $
    658,918Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    32,032
    
    
    $
    28,786Accrued liabilities
    
    
    28,637
    
    
    
    23,454Total current liabilities
    
    
    60,669
    
    
    
    52,240Other liabilities
    
    
    4,414
    
    
    
    5,826Accrued taxes
    
    
    29,990
    
    
    
    31,408Total liabilities
    
    
    95,073
    
    
    
    89,474Commitments and contingencies (Note 8)Stockholders equity:Preferred stock, $0.01 par value;
1,000,000 shares authorized (150,000
shares designated as Series A Junior
Participating Preferred Stock); none
issued and outstanding
    
    
    
    
    
    
    Common stock, $0.10 par value;
240,000,000 shares authorized; 90,799,568
and 89,668,255 issued at March 28, 2010
and June 28, 2009, respectively
    
    
    9,080
    
    
    
    8,967Additional paid-in capital
    
    
    1,117,502
    
    
    
    1,106,990Accumulated deficit
    
    
    (369,981
    )
    
    
    (396,070
    )Accumulated other comprehensive loss
    
    
    (578
    )
    
    
    (443
    )Treasury stock, at cost; 10,550,971 and
8,550,971 shares at March 28, 2010 and
June 28, 2009, respectively
    
    
    (168,240
    )
    
    
    (150,000
    )Total stockholders equity
    
    
    587,783
    
    
    
    569,444Total liabilities and stockholders equity
    
    $
    682,856
    
    
    $
    658,918
   3




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Three Months Ended
    
    
    Nine Months EndedMarch 28,
    
    
    March 29,
    
    
    March 28,
    
    
    March 29,2010
    
    
    2009
    
    
    2010
    
    
    2009Net revenues
    
    $
    102,204
    
    
    $
    78,568
    
    
    $
    296,021
    
    
    $
    298,925Cost of sales
    
    
    37,784
    
    
    
    31,766
    
    
    
    112,711
    
    
    
    116,186Gross profit
    
    
    64,420
    
    
    
    46,802
    
    
    
    183,310
    
    
    
    182,739Operating expenses:Engineering and development
    
    
    31,338
    
    
    
    33,409
    
    
    
    94,417
    
    
    
    99,293Selling and marketing
    
    
    13,743
    
    
    
    13,775
    
    
    
    42,415
    
    
    
    41,561General and administrative
    
    
    12,099
    
    
    
    7,324
    
    
    
    36,274
    
    
    
    26,288Amortization of other intangible assets
    
    
    1,698
    
    
    
    699
    
    
    
    5,094
    
    
    
    4,637Total operating expenses
    
    
    58,878
    
    
    
    55,207
    
    
    
    178,200
    
    
    
    171,779Operating income (loss)
    
    
    5,542
    
    
    
    (8,405
    )
    
    
    5,110
    
    
    
    10,960Nonoperating income, net:Interest income
    
    
    1
    
    
    
    613
    
    
    
    213
    
    
    
    3,686Interest expense
    
    
    (1
    )
    
    
    7
    
    
    
    (5
    )
    
    
    (29
    )Other (expense) income, net
    
    
    (166
    )
    
    
    168
    
    
    
    (68
    )
    
    
    365Total nonoperating (expense) income, net
    
    
    (166
    )
    
    
    788
    
    
    
    140
    
    
    
    4,022Income (loss) before income taxes
    
    
    5,376
    
    
    
    (7,617
    )
    
    
    5,250
    
    
    
    14,982Income tax (benefit) provision
    
    
    (7,933
    )
    
    
    (1,652
    )
    
    
    (20,839
    )
    
    
    2,929Net income (loss)
    
    $
    13,309
    
    
    $
    (5,965
    )
    
    $
    26,089
    
    
    $
    12,053Net income (loss) per share:Basic
    
    $
    0.16
    
    
    $
    (0.07
    )
    
    $
    0.32
    
    
    $
    0.15Diluted
    
    $
    0.16
    
    
    $
    (0.07
    )
    
    $
    0.32
    
    
    $
    0.14Number of shares used in per share computations:Basic
    
    
    80,156
    
    
    
    80,547
    
    
    
    79,960
    
    
    
    80,723Diluted
    
    
    81,535
    
    
    
    80,547
    
    
    
    81,076
    
    
    
    81,244
   4




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Nine Months EndedMarch 28,
    
    
    March 29,2010
    
    
    2009Cash flows from operating activities:Net income
    
    $
    26,089
    
    
    $
    12,053Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization of property and equipment
    
    
    15,740
    
    
    
    16,874Share-based compensation expense
    
    
    13,210
    
    
    
    17,935Amortization of intangible assets
    
    
    19,270
    
    
    
    18,828Provision for losses on accounts and other receivables
    
    
    106
    
    
    
    (152
    )Accrued interest income, net
    
    
    32
    
    
    
    895Loss (gain) on disposal of property and equipment
    
    
    719
    
    
    
    (91
    )Deferred income taxes
    
    
    (13,594
    )
    
    
    (3,431
    )Excess tax benefit from share-based compensation
    
    
    (583
    )
    
    
    (190
    )Foreign currency adjustments
    
    
    (10
    )
    
    
    (161
    )Changes in assets and liabilities:Accounts and other receivables
    
    
    (11,632
    )
    
    
    12,359Inventories
    
    
    (6,147
    )
    
    
    9,392Prepaid expenses and other assets
    
    
    (7,382
    )
    
    
    (626
    )Accounts payable, accrued liabilities, and other liabilities
    
    
    7,866
    
    
    
    (4,345
    )Accrued taxes
    
    
    (1,418
    )
    
    
    (2,205
    )Income taxes payable and prepaid income taxes
    
    
    (484
    )
    
    
    (50,669
    )Net cash provided by operating activities
    
    
    41,782
    
    
    
    26,466Cash flows from investing activities:Net proceeds from sale of property and equipment
    
    
    214
    
    
    
    55Purchases of property and equipment
    
    
    (7,205
    )
    
    
    (19,183
    )Investment in and loans to privately-held companies
    
    
    (11,000
    )
    
    
    (15,947
    )Purchases of intangible assets
    
    
    (20,000
    )
    
    
    Purchases of investments
    
    
    (57,934
    )
    
    
    (97,715
    )Maturities of investments
    
    
    31,894
    
    
    
    204,010Net cash (used in) provided by investing activities
    
    
    (64,031
    )
    
    
    71,220Cash flows from financing activities:Repurchase of common stock
    
    
    (18,240
    )
    
    
    (39,913
    )Tax withholding payments reimbursed by common stock
    
    
    (4,071
    )
    
    
    (2,436
    )Proceeds from issuance of common stock under stock plans
    
    
    3,213
    
    
    
    4,150Excess tax benefit from share-based compensation expense
    
    
    583
    
    
    
    190Net cash used in financing activities
    
    
    (18,515
    )
    
    
    (38,009
    )Effect of exchange rates on cash and cash equivalents
    
    
    (203
    )
    
    
    (130
    )Net (decrease) increase in cash and cash equivalents
    
    
    (40,967
    )
    
    
    59,547Cash and cash equivalents at beginning of period
    
    
    294,136
    
    
    
    217,017Cash and cash equivalents at end of period
    
    $
    253,169
    
    
    $
    276,564
   5




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Basis of Presentation
  Supplemental Cash Flow Information
 Nine Months EndedMarch 28,
    
    
    March 29,2010
    
    
    2009(in thousands)Cash paid during the period for:Interest
    
    $
    5
    
    
    $
    9Income taxes
    
    $
    3,865
    
    
    $
    60,999Non-cash activities:Purchases of property and equipment not paid, net
    
    $
    792
    
    
    $
    1,163
 Recently Adopted Accounting Standards
     6




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7




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Recently Issued Accounting Standards
   Fair Value of Financial Instruments
  Level 1
    
    Quoted prices in active markets for identical assets or liabilities;Level 2
    
    Observable inputs other than Level 1 prices, such as quoted prices
for similar assets or liabilities; quoted prices in markets that
are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full
term of the assets or liabilities; andLevel 3
    
    Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets
or liabilities.
  Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total(in thousands)March 28, 2010Cash and cash equivalents
    
    $
    253,169
    
    
    $
    
    
    
    $
    
    
    
    $
    253,169Municipal bonds
    
    
    102
    
    
    
    
    
    
    
    
    
    
    
    102Term deposits
    
    
    2,242
    
    
    
    
    
    
    
    
    
    
    
    2,242U.S. Government securities
    
    
    20,014
    
    
    
    
    
    
    
    
    
    
    
    20,014U.S. Government sponsored entity securities
    
    
    11,938
    
    
    
    
    
    
    
    
    
    
    
    11,938$
    287,465
    
    
    $
    
    
    
    $
    
    
    
    $
    287,465June 28, 2009Cash and cash equivalents
    
    $
    294,136
    
    
    $
    
    
    
    $
    
    
    
    $
    294,136Municipal bonds
    
    
    152
    
    
    
    
    
    
    
    
    
    
    
    152U.S. Government securities
    
    
    4,097
    
    
    
    
    
    
    
    
    
    
    
    4,097U.S. Government sponsored entity securities
    
    
    4,058
    
    
    
    
    
    
    
    
    
    
    
    4,058$
    302,443
    
    
    $
    
    
    
    $
    
    
    
    $
    302,443
  8




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Investments
  Gross
    
    
    GrossUnrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(in thousands)March 28, 2010Municipal bonds
    
    $
    102
    
    
    $
    
    
    
    $
    
    
    
    $
    102Term deposits
    
    
    2,242
    
    
    
    
    
    
    
    
    
    
    
    2,242U.S. Government securities
    
    
    20,014
    
    
    
    
    
    
    
    
    
    
    
    20,014U.S. Government sponsored entity securities
    
    
    11,939
    
    
    
    
    
    
    
    (1
    )
    
    
    11,938$
    34,297
    
    
    $
    
    
    
    $
    (1
    )
    
    $
    34,296June 28, 2009Municipal bonds
    
    $
    151
    
    
    $
    1
    
    
    $
    
    
    
    $
    152U.S. Government securities
    
    
    4,097
    
    
    
    
    
    
    
    
    
    
    
    4,097U.S. Government sponsored entity securities
    
    
    4,041
    
    
    
    17
    
    
    
    
    
    
    
    4,058$
    8,289
    
    
    $
    18
    
    
    $
    
    
    
    $
    8,307
  Inventories
  March 28,
    
    
    June 28,2010
    
    
    2009(in thousands)Raw materials
    
    $
    3,903
    
    
    $
    4,330Finished goods
    
    
    12,877
    
    
    
    6,335$
    16,780
    
    
    $
    10,665
  9




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Goodwill and Intangible Assets, net
   March 28,
    
    
    June 28,2010
    
    
    2009(in thousands)Intangible assets subject to amortization:Core technology and patents
    
    $
    72,145
    
    
    $
    92,228Accumulated amortization, core technology and patents
    
    
    (50,362
    )
    
    
    (82,381
    )Developed technology
    
    
    68,500
    
    
    
    77,312Accumulated amortization, developed technology
    
    
    (47,950
    )
    
    
    (46,488
    )Customer relationships
    
    
    3,200
    
    
    
    38,670Accumulated amortization, customer relationships
    
    
    (2,238
    )
    
    
    (37,227
    )Tradename
    
    
    4,639
    
    
    
    4,639Accumulated amortization, tradename
    
    
    (4,214
    )
    
    
    (3,763
    )$
    43,720
    
    
    $
    42,990
     2010 (remaining 3 months)
    
    $
    6,4242011
    
    
    21,7112012
    
    
    7,5852013
    
    
    4,0002014
    
    
    4,000Thereafter
    
    
    $
    43,720
  10




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Other Assets
  March 28,
    
    
    June 28,2010
    
    
    2009(in thousands)Notes receivable
    
    $
    25,466
    
    
    $
    15,000Equity investment in privately-held company
    
    
    11,184
    
    
    
    11,184Other
    
    
    12,741
    
    
    
    4,555$
    49,391
    
    
    $
    30,739
   Accrued Liabilities
  March 28,
    
    
    June 28,2010
    
    
    2009(in thousands)Payroll and related costs
    
    $
    15,660
    
    
    $
    11,410Warranty liability
    
    
    1,794
    
    
    
    2,462Deferred revenue and accrued rebates
    
    
    3,942
    
    
    
    3,499Other
    
    
    7,241
    
    
    
    6,083$
    28,637
    
    
    $
    23,454
  (in thousands)Balance as of June 28, 2009
    
    $
    2,462Accrual for warranties issued
    
    
    1,034Changes to pre-existing warranties (including changes in estimates)
    
    
    (961
    )Settlements made (in cash or in kind)
    
    
    (741
    )Balance as of March 28, 2010
    
    $
    1,794
  11




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Commitments and Contingencies
 Litigation
   12




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13




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14




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Broadcom Unsolicited Takeover Proposal
  Other Commitments and Contingencies
    Treasury Stock
  Stock-Based Compensation
   15




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Three Months Ended
    
    
    Three Months Ended
    
    
    Nine Months Ended
    
    
    Nine Months EndedMarch 28,
    
    
    March 29,
    
    
    March 28,
    
    
    March 29,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)Total cost of
stock-based payment
plans during the
period
    
    $
    4,686
    
    
    $
    5,368
    
    
    $
    13,179
    
    
    $
    17,886Amounts capitalized
in inventory during
the period
    
    
    (123
    )
    
    
    (117
    )
    
    
    (326
    )
    
    
    (461
    )Amounts recognized
in income for
amounts previously
capitalized in
inventory
    
    
    83
    
    
    
    165
    
    
    
    357
    
    
    
    510Amounts charged
against income,
before income tax
benefit
    
    $
    4,646
    
    
    $
    5,416
    
    
    $
    13,210
    
    
    $
    17,935Amount of related
income tax benefit
(expense)
recognized in
income, excluding
tax impact of stock
option exchange
program (see Note
11)
    
    $
    1,640
    
    
    $
    (742
    )
    
    $
    4,707
    
    
    $
    2,748
   Three Months Ended
    
    
    Nine Months EndedMarch 28,
    
    
    March 29,
    
    
    March 28,
    
    
    March 29,2010
    
    
    2009
    
    
    2010
    
    
    2009Expected volatility
    
    
    43%  45
    %
    
    
    53
    %
    
    
    43%  49
    %
    
    
    42%  53
    %Weighted average expected volatility
    
    
    44
    %
    
    
    53
    %
    
    
    47
    %
    
    
    44
    %Expected dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected term (in years)
    
    
    2.97  4.97
    
    
    
    2.97  4.97
    
    
    
    2.97  4.97
    
    
    
    2.97  4.97Weighted average expected term
(in years)
    
    
    3.81
    
    
    
    3.81
    
    
    
    3.81
    
    
    
    3.81Risk-free rate
    
    
    1.62%  2.55
    %
    
    
    1.28%  1.76
    %
    
    
    1.49%  2.55
    %
    
    
    1.12%  3.02
    %
  Three Months Ended
    
    
    Nine Months EndedMarch 28,
    
    
    March 29,
    
    
    March 28,
    
    
    March 29,2010
    
    
    2009
    
    
    2010
    
    
    2009Expected volatility
    
    
    43
    %
    
    
    49
    %
    
    
    43
    %
    
    
    49
    %Expected dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected term (in years)
    
    
    0.49
    
    
    
    0.49
    
    
    
    0.49
    
    
    
    0.49Risk-free rate
    
    
    0.17
    %
    
    
    1.13
    %
    
    
    0.17
    %
    
    
    1.13
    %
  16




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WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicOptions
    
    
    Exercise Price
    
    
    Term
    
    
    Value(in years)
    
    
    (in millions)Options outstanding at June 28, 2009
    
    
    12,180,404
    
    
    $
    21.68
    
    
    
    3.10
    
    
    $
    2.0Options granted
    
    
    553,000
    
    
    $
    10.62Options exercised
    
    
    (103,727
    )
    
    $
    5.78Options canceled
    
    
    (4,279,099
    )
    
    $
    22.87Options forfeited
    
    
    (502,457
    )
    
    $
    16.94Options outstanding at March 28, 2010
    
    
    7,848,121
    
    
    $
    20.77
    
    
    
    2.88
    
    
    $
    5.9Options vested and expected to vest at March 28, 2010
    
    
    7,779,080
    
    
    $
    20.86
    
    
    
    2.86
    
    
    $
    5.7Options exercisable at March 28, 2010
    
    
    6,995,747
    
    
    $
    21.84
    
    
    
    2.62
    
    
    $
    4.3
  WeightedAverage GrantNumber of
    
    
    Date FairAwards
    
    
    ValueAwards outstanding and unvested at June 28, 2009
    
    
    2,721,606
    
    
    $
    12.85Awards granted
    
    
    2,025,708
    
    
    $
    9.75Awards vested
    
    
    (1,119,162
    )
    
    $
    14.45Awards forfeited
    
    
    (195,875
    )
    
    $
    13.44Awards outstanding and unvested at March 28, 2010
    
    
    3,432,277
    
    
    $
    10.49
      17




---



##### Table of Contents



Income Taxes
     Net Income (Loss) Per Share
    18




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedMarch 28,
    
    
    March 29,
    
    
    March 28,
    
    
    March 29,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands, except per
    
    
    (in thousands, except pershare data)
    
    
    share data)Numerator  Net income (loss)
    
    $
    13,309
    
    
    $
    (5,965
    )
    
    $
    26,089
    
    
    $
    12,053Less: Undistributed earnings
allocated to participating
securities
    
    
    (143
    )
    
    
    
    
    
    
    (378
    )
    
    
    (305
    )Undistributed earnings allocated
to common shareholders for basic
net income (loss) per share
    
    $
    13,166
    
    
    $
    (5,965
    )
    
    $
    25,711
    
    
    $
    11,748Undistributed earnings allocated
to common shareholders for
diluted net income (loss) per
share
    
    $
    13,169
    
    
    $
    (5,965
    )
    
    $
    25,717
    
    
    $
    11,750Denominator:Denominator for basic net income
(loss) per share  weighted average
shares outstanding
    
    
    80,156
    
    
    
    80,547
    
    
    
    79,960
    
    
    
    80,723Effect of dilutive securities:Dilutive options outstanding,
unvested stock units and ESPP
    
    
    1,379
    
    
    
    
    
    
    
    1,116
    
    
    
    521Denominator for diluted net income
(loss) per share  adjusted
weighted average shares outstanding
    
    
    81,535
    
    
    
    80,547
    
    
    
    81,076
    
    
    
    81,244Basic net income (loss) per share
    
    $
    0.16
    
    
    $
    (0.07
    )
    
    $
    0.32
    
    
    $
    0.15Diluted net income (loss) per share
    
    $
    0.16
    
    
    $
    (0.07
    )
    
    $
    0.32
    
    
    $
    0.14Antidilutive options and unvested
stock excluded from the
computations
    
    
    7,294
    
    
    
    16,170
    
    
    
    8,434
    
    
    
    15,365Average market price of common stock
    
    $
    12.56
    
    
    $
    6.01
    
    
    $
    10.91
    
    
    $
    8.68
   19




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-Looking Statements
   20




---



##### Table of Contents



Executive Overview
  ®
 ®
     Global Initiatives
   21




---



##### Table of Contents



Results of Operations
  Percentage of Net Revenues
    
    
    Percentage of Net RevenuesThree Months Ended
    
    
    Nine Months EndedMarch 28,
    
    
    March 29,
    
    
    March 28,
    
    
    March 29,2010
    
    
    2009
    
    
    2010
    
    
    2009Net revenues
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Cost of sales
    
    
    37
    
    
    
    40
    
    
    
    38
    
    
    
    39Gross profit
    
    
    63
    
    
    
    60
    
    
    
    62
    
    
    
    61Operating expenses:Engineering and development
    
    
    31
    
    
    
    43
    
    
    
    32
    
    
    
    33Selling and marketing
    
    
    13
    
    
    
    18
    
    
    
    14
    
    
    
    14General and administrative
    
    
    12
    
    
    
    9
    
    
    
    12
    
    
    
    9Amortization of other intangible
assets
    
    
    2
    
    
    
    1
    
    
    
    2
    
    
    
    1Total operating expenses
    
    
    58
    
    
    
    71
    
    
    
    60
    
    
    
    57Operating income (loss)
    
    
    5
    
    
    
    (11
    )
    
    
    2
    
    
    
    4Nonoperating income, net:Interest income
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total nonoperating income, net
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Income (loss) before income taxes
    
    
    5
    
    
    
    (10
    )
    
    
    2
    
    
    
    5Income tax (benefit) provision
    
    
    (8
    )
    
    
    (2
    )
    
    
    (7
    )
    
    
    1Net income (loss)
    
    
    13
    %
    
    
    (8
    )%
    
    
    9
    %
    
    
    4
    %
 Three months ended March 28, 2010, compared to three months ended March 29, 2009
 Net Revenues.
 Net Revenues by Product Line
  Net Revenues by Product LineThree Months Ended
    
    
    Percentage
    
    
    Three Months Ended
    
    
    PercentageMarch 28,
    
    
    of Net
    
    
    March 29,
    
    
    of Net
    
    
    Increase/
    
    
    Percentage(in thousands)
    
    2010
    
    
    Revenues
    
    
    2009
    
    
    Revenues
    
    
    (Decrease)
    
    
    ChangeHost Server Products
    
    $
    69,724
    
    
    
    68
    %
    
    $
    59,009
    
    
    
    75
    %
    
    $
    10,715
    
    
    
    18
    %Embedded Storage Products
    
    
    32,348
    
    
    
    32
    %
    
    
    19,385
    
    
    
    25
    %
    
    
    12,963
    
    
    
    67
    %Other
    
    
    132
    
    
    
    
    
    
    
    174
    
    
    
    
    
    
    
    (42
    )
    
    
    (24
    )%Total net revenues
    
    $
    102,204
    
    
    
    100
    %
    
    $
    78,568
    
    
    
    100
    %
    
    $
    23,636
    
    
    
    30
    %
  22




---



##### Table of Contents



® ®
  Net Revenues by Major Customers
  Net Revenues by Major CustomersDirect Revenues
    
    
    Total Direct and Indirect Revenues (2)Three Months Ended
    
    
    Three Months Ended
    
    
    Three Months Ended
    
    
    Three Months EndedMarch 28,
    
    
    March 29,
    
    
    March 28,
    
    
    March 29,2010
    
    
    2009
    
    
    2010
    
    
    2009Net revenue percentage (1):OEM:EMC
    
    
    
    
    
    
    
    
    
    
    14
    %
    
    
    14
    %Hewlett-Packard
    
    
    13
    %
    
    
    17
    %
    
    
    13
    %
    
    
    17
    %IBM
    
    
    20
    %
    
    
    24
    %
    
    
    28
    %
    
    
    32
    %
 
 (1)
    
    Amounts less than 10% are not presented.(2)
    
    Customer-specific models purchased or marketed indirectly through distributors, resellers,
and other third parties are included with the OEMs revenues in these columns rather than as
revenue for the distributors, resellers or other third parties.   23




---



##### Table of Contents



Net Revenues by Sales Channel
  Net Revenues by Sales ChannelThree Months Ended
    
    
    Percentage
    
    
    Three Months Ended
    
    
    PercentageMarch 28,
    
    
    of Net
    
    
    March 29,
    
    
    of Net
    
    
    Increase/
    
    
    Percentage(in thousands)
    
    2010
    
    
    Revenues
    
    
    2009
    
    
    Revenues
    
    
    (Decrease)
    
    
    ChangeOEM
    
    $
    86,017
    
    
    
    84
    %
    
    $
    67,741
    
    
    
    86
    %
    
    $
    18,276
    
    
    
    27
    %Distribution
    
    
    16,011
    
    
    
    16
    %
    
    
    10,885
    
    
    
    14
    %
    
    
    5,126
    
    
    
    47
    %Other
    
    
    176
    
    
    
    
    
    
    
    (58
    )
    
    
    
    
    
    
    234
    
    
    nmTotal net revenues
    
    $
    102,204
    
    
    
    100
    %
    
    $
    78,568
    
    
    
    100
    %
    
    $
    23,636
    
    
    
    30
    %
 
 nm
    
     not meaningful  Net Revenues by Geographic Territory
  Net Revenues by Geographic TerritoryThree Months Ended
    
    
    Percentage
    
    
    Three Months Ended
    
    
    PercentageMarch 28,
    
    
    of Net
    
    
    March 29,
    
    
    of Net
    
    
    Increase/
    
    
    Percentage(in thousands)
    
    2010
    
    
    Revenues
    
    
    2009
    
    
    Revenues
    
    
    (Decrease)
    
    
    ChangeUnited States
    
    $
    35,582
    
    
    
    35
    %
    
    $
    28,304
    
    
    
    36
    %
    
    $
    7,278
    
    
    
    26
    %Europe, Middle East, and Africa
    
    
    32,309
    
    
    
    32
    %
    
    
    23,698
    
    
    
    30
    %
    
    
    8,611
    
    
    
    36
    %Asia Pacific
    
    
    33,517
    
    
    
    33
    %
    
    
    25,561
    
    
    
    33
    %
    
    
    7,956
    
    
    
    31
    %Rest of world
    
    
    796
    
    
    
    
    
    
    
    1,005
    
    
    
    1
    %
    
    
    (209
    )
    
    
    (21
    )%Total net revenues
    
    $
    102,204
    
    
    
    100
    %
    
    $
    78,568
    
    
    
    100
    %
    
    $
    23,636
    
    
    
    30
    %
  Gross Profit.
 Gross ProfitThree Months Ended
    
    
    
    
    
    Three Months EndedMarch 28,
    
    Percentage of
    
    
    March 29,
    
    
    Percentage of
    
    
    Increase/
    
    
    Percentage2010
    
    Net Revenues
    
    
    2009
    
    
    Net Revenues
    
    
    (Decrease)
    
    
    Points Change$
    64,420
    
    
    63
    %
    
    $
    46,802
    
    
    
    60
    %
    
    $
    17,618
    
    
    
    3
    %
  24




---



##### Table of Contents



Engineering and Development.
 Engineering and DevelopmentThree Months Ended
    
    
    
    
    
    Three Months EndedMarch 28,
    
    Percentage of
    
    
    March 29,
    
    
    Percentage of
    
    
    Increase/
    
    
    Percentage2010
    
    Net Revenues
    
    
    2009
    
    
    Net Revenues
    
    
    (Decrease)
    
    
    Points Change$
    31,338
    
    
    31
    %
    
    $
    33,409
    
    
    
    43
    %
    
    $
    (2,071
    )
    
    
    (12
    )%
  Selling and Marketing.
 Selling and MarketingThree Months Ended
    
    
    
    
    
    Three Months EndedMarch 28,
    
    Percentage of
    
    
    March 29,
    
    
    Percentage of
    
    
    Increase/
    
    
    Percentage2010
    
    Net Revenues
    
    
    2009
    
    
    Net Revenues
    
    
    (Decrease)
    
    
    Points Change$
    13,743
    
    
    13
    %
    
    $
    13,775
    
    
    
    18
    %
    
    $
    (32
    )
    
    
    (5
    )%
   25




---



##### Table of Contents



General and Administrative.
 General and AdministrativeThree Months Ended
    
    
    
    
    
    
    Three Months EndedMarch 28,
    
    
    Percentage of
    
    
    March 29,
    
    
    Percentage of
    
    
    Increase/
    
    
    Percentage2010
    
    
    Net Revenues
    
    
    2009
    
    
    Net Revenues
    
    
    (Decrease)
    
    
    Points Change$
    12,099
    
    
    
    12
    %
    
    $
    7,324
    
    
    
    9
    %
    
    $
    4,775
    
    
    
    3
    %
  Amortization of Other Intangible Assets.
 Amortization of Other Intangible AssetsThree Months Ended
    
    
    
    
    
    
    Three Months EndedMarch 28,
    
    
    Percentage of
    
    
    March 29,
    
    
    Percentage of
    
    
    Increase/
    
    
    Percentage2010
    
    
    Net Revenues
    
    
    2009
    
    
    Net Revenues
    
    
    (Decrease)
    
    
    Points Change$
    1,698
    
    
    
    2
    %
    
    $
    699
    
    
    
    1
    %
    
    $
    999
    
    
    
    1
    %
  Nonoperating (Expense) Income, net.
 Nonoperating (Expense) Income, netThree Months Ended
    
    
    
    
    
    
    Three Months EndedMarch 28,
    
    
    Percentage of
    
    
    March 29,
    
    
    Percentage of
    
    
    Increase/
    
    
    Percentage2010
    
    
    Net Revenues
    
    
    2009
    
    
    Net Revenues
    
    
    (Decrease)
    
    
    Points Change$
    (166
    )
    
    
    
    %
    
    $
    788
    
    
    
    1
    %
    
    $
    (954
    )
    
    
    (1
    )%
  Income Taxes
 Income TaxesThree Months Ended
    
    
    
    
    
    
    Three Months EndedMarch 28,
    
    
    Percentage of
    
    
    March 29,
    
    
    Percentage of
    
    
    Increase/
    
    
    Percentage2010
    
    
    Net Revenues
    
    
    2009
    
    
    Net Revenues
    
    
    (Decrease)
    
    
    Points Change$
    (7,933
    )
    
    
    (8
    )%
    
    $
    (1,652
    )
    
    
    (2
    )%
    
    $
    (6,281
    )
    
    
    (6
    )%
  26




---



##### Table of Contents



Nine months ended March 28, 2010, compared to nine months ended March 29, 2009
 Net Revenues.
 Net Revenues by Product Line
  Net Revenues by Product LineNine Months Ended
    
    
    Percentage
    
    
    Nine Months Ended
    
    
    PercentageMarch 28,
    
    
    of Net
    
    
    March 29,
    
    
    of Net
    
    
    Increase/
    
    
    Percentage(in thousands)
    
    2010
    
    
    Revenues
    
    
    2009
    
    
    Revenues
    
    
    (Decrease)
    
    
    ChangeHost Server Products
    
    $
    215,792
    
    
    
    73
    %
    
    $
    221,275
    
    
    
    74
    %
    
    $
    (5,483
    )
    
    
    (2
    )%Embedded Storage Products
    
    
    79,906
    
    
    
    27
    %
    
    
    77,203
    
    
    
    26
    %
    
    
    2,703
    
    
    
    4
    %Other
    
    
    323
    
    
    
    
    
    
    
    447
    
    
    
    
    
    
    
    (124
    )
    
    
    (28
    )%Total net revenues
    
    $
    296,021
    
    
    
    100
    %
    
    $
    298,925
    
    
    
    100
    %
    
    $
    (2,904
    )
    
    
    (1
    )%
   Net Revenues by Major Customers
  Net Revenues by Major CustomersDirect Revenues
    
    
    Total Direct and Indirect Revenues (2)Nine Months Ended
    
    
    Nine Months Ended
    
    
    Nine Months Ended
    
    
    Nine Months EndedMarch 28,
    
    
    March 29,
    
    
    March 28,
    
    
    March 29,2010
    
    
    2009
    
    
    2010
    
    
    2009Net revenue percentage (1):OEM:EMC
    
    
    
    
    
    
    
    
    
    
    12
    %
    
    
    14
    %Hewlett-Packard
    
    
    13
    %
    
    
    17
    %
    
    
    14
    %
    
    
    17
    %IBM
    
    
    22
    %
    
    
    23
    %
    
    
    31
    %
    
    
    30
    %
 
 (1)
    
    Amounts less than 10% are not presented.(2)
    
    Customer-specific models purchased or marketed indirectly through distributors, resellers,
and other third parties are included with the OEMs revenues in these columns rather than as
revenue for the distributors, resellers or other third parties.  27




---



##### Table of Contents



Net Revenues by Sales Channel
  Net Revenues by Sales ChannelNine Months Ended
    
    
    Percentage
    
    
    Nine Months Ended
    
    
    PercentageMarch 28,
    
    
    of Net
    
    
    March 29,
    
    
    of Net
    
    
    Increase/
    
    
    Percentage(in thousands)
    
    2010
    
    
    Revenues
    
    
    2009
    
    
    Revenues
    
    
    (Decrease)
    
    
    ChangeOEM
    
    $
    249,498
    
    
    
    84
    %
    
    $
    242,662
    
    
    
    81
    %
    
    $
    6,836
    
    
    
    3
    %Distribution
    
    
    46,214
    
    
    
    16
    %
    
    
    56,176
    
    
    
    19
    %
    
    
    (9,962
    )
    
    
    (18
    )%Other
    
    
    309
    
    
    
    
    
    
    
    87
    
    
    
    
    
    
    
    222
    
    
    
    255
    %Total net revenues
    
    $
    296,021
    
    
    
    100
    %
    
    $
    298,925
    
    
    
    100
    %
    
    $
    (2,904
    )
    
    
    (1
    )%
  Net Revenues by Geographic Territory
  Net Revenues by Geographic TerritoryNine Months Ended
    
    
    Percentage
    
    
    Nine Months Ended
    
    
    PercentageMarch 28,
    
    
    of Net
    
    
    March 29,
    
    
    of Net
    
    
    Increase/
    
    
    Percentage(in thousands)
    
    2010
    
    
    Revenues
    
    
    2009
    
    
    Revenues
    
    
    (Decrease)
    
    
    ChangeUnited States
    
    $
    95,672
    
    
    
    32
    %
    
    $
    109,602
    
    
    
    37
    %
    
    $
    (13,930
    )
    
    
    (13
    )%Europe, Middle East, and Africa
    
    
    93,396
    
    
    
    32
    %
    
    
    98,656
    
    
    
    33
    %
    
    
    (5,260
    )
    
    
    (5
    )%Asia Pacific
    
    
    102,855
    
    
    
    35
    %
    
    
    86,119
    
    
    
    29
    %
    
    
    16,736
    
    
    
    19
    %Rest of world
    
    
    4,098
    
    
    
    1
    %
    
    
    4,548
    
    
    
    1
    %
    
    
    (450
    )
    
    
    (10
    )%Total net revenues
    
    $
    296,021
    
    
    
    100
    %
    
    $
    298,925
    
    
    
    100
    %
    
    $
    (2,904
    )
    
    
    (1
    )%
   28




---



##### Table of Contents



Gross Profit.
 Gross ProfitNine Months Ended
    
    
    
    
    
    
    Nine Months EndedMarch 28,
    
    
    Percentage of Net
    
    
    March 29,
    
    
    Percentage of Net
    
    
    Increase/
    
    
    Percentage Points2010
    
    
    Revenues
    
    
    2009
    
    
    Revenues
    
    
    (Decrease)
    
    
    Change$
    183,310
    
    
    
    62
    %
    
    $
    182,739
    
    
    
    61
    %
    
    $
    571
    
    
    
    1
    %
  Engineering and Development.
 Engineering and DevelopmentNine Months Ended
    
    
    
    
    
    
    Nine Months EndedMarch 28,
    
    
    Percentage of Net
    
    
    March 29,
    
    
    Percentage of Net
    
    
    Increase/
    
    
    Percentage Points2010
    
    
    Revenues
    
    
    2009
    
    
    Revenues
    
    
    (Decrease)
    
    
    Change$
    94,417
    
    
    
    32
    %
    
    $
    99,293
    
    
    
    33
    %
    
    $
    (4,876
    )
    
    
    (1
    )%
  Selling and Marketing.
 Selling and MarketingNine Months Ended
    
    
    
    
    
    
    Nine Months EndedMarch 28,
    
    
    Percentage of Net
    
    
    March 29,
    
    
    Percentage of Net
    
    
    Increase/
    
    
    Percentage Points2010
    
    
    Revenues
    
    
    2009
    
    
    Revenues
    
    
    (Decrease)
    
    
    Change$
    42,415
    
    
    
    14
    %
    
    $
    41,561
    
    
    
    14
    %
    
    $
    854
    
    
    
    
    %
   29




---



##### Table of Contents



General and Administrative.
 General and AdministrativeNine Months Ended
    
    
    
    
    Nine Months EndedMarch 28,
    
    Percentage of Net
    
    
    March 29,
    
    
    Percentage of Net
    
    
    Increase/
    
    
    Percentage Points2010
    
    Revenues
    
    
    2009
    
    
    Revenues
    
    
    (Decrease)
    
    
    Change$
    36,274
    
    
    12
    %
    
    $
    26,288
    
    
    
    9
    %
    
    $
    9,986
    
    
    
    3
    %
  Amortization of Other Intangible Assets.
 Amortization of Other Intangible AssetsNine Months Ended
    
    
    
    
    Nine Months EndedMarch 28,
    
    Percentage of Net
    
    
    March 29,
    
    
    Percentage of Net
    
    
    Increase/
    
    
    Percentage Points2010
    
    Revenues
    
    
    2009
    
    
    Revenues
    
    
    (Decrease)
    
    
    Change$
    5,094
    
    
    2
    %
    
    $
    4,637
    
    
    
    1
    %
    
    $
    457
    
    
    
    1
    %
  Nonoperating Income, net.
 Nonoperating Income, netNine Months Ended
    
    
    
    
    Nine Months EndedMarch 28,
    
    Percentage of Net
    
    
    March 29,
    
    
    Percentage of Net
    
    
    Increase/
    
    
    Percentage Points2010
    
    Revenues
    
    
    2009
    
    
    Revenues
    
    
    (Decrease)
    
    
    Change$
    140
    
    
    
    %
    
    $
    4,022
    
    
    
    1
    %
    
    $
    (3,882
    )
    
    
    (1
    )%
  Income Taxes
 Income TaxesNine Months Ended
    
    
    
    
    Nine Months EndedMarch 28,
    
    Percentage of Net
    
    
    March 29,
    
    
    Percentage of Net
    
    
    Increase/
    
    
    Percentage Points2010
    
    Revenues
    
    
    2009
    
    
    Revenues
    
    
    (Decrease)
    
    
    Change$
    (20,839
    )
    
    (7
    )%
    
    $
    2,929
    
    
    
    1
    %
    
    $
    (23,768
    )
    
    
    (8
    )%
   30




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Critical Accounting Policies
   Revenue Recognition.
 Warranty.
 Allowance for Doubtful Accounts
 Intangible Assets and Other Long-Lived Assets
  31




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Inventories
 Goodwill
  Income Taxes
  Stock-Based Compensation
  32




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Litigation Costs
 Recently Adopted Accounting Standards
  Recently Issued Accounting Standards
  Liquidity and Capital Resources
      33




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Payments Due by Period(in thousands)RemainingTotal
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    ThereafterLeases (1)
    
    $
    12,988
    
    
    $
    1,558
    
    
    $
    5,839
    
    
    $
    3,980
    
    
    $
    1,611
    
    
    $
    
    
    
    $
    Purchase commitments
    
    
    40,382
    
    
    
    40,218
    
    
    
    164
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other commitments (2)
    
    
    13,486
    
    
    
    3,155
    
    
    
    10,326
    
    
    
    4
    
    
    
    1
    
    
    
    
    
    
    
    Total
    
    $
    66,856
    
    
    $
    44,931
    
    
    $
    16,329
    
    
    $
    3,984
    
    
    $
    1,612
    
    
    $
    
    
    
    $
    
 
 (1)
    
    Lease payments include common area maintenance (CAM) charges.(2)
    
    Consists primarily of commitments for professional services of
approximately $8.8 million and non-recurring engineering services of
approximately $2.6 million but excludes approximately $30.0 million of
unrecognized tax benefits for which we cannot make a reasonably
reliable estimate of the period of payment. 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Interest Rate Risk
    34




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Foreign Currency Exchange Risk
  
 Item 4. Controls and Procedures
   
 PART II: OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Litigation
   35




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Item 1A. Risk Factors
 The recent economic downturn has resulted in a reduction in information technology spending in
general, or spending on computer and storage systems in particular, that will adversely affect our
revenues and results of operations in the near term and possibly beyond.
  Our markets are highly competitive and our business and results of operations may be adversely
affected by entry of new competitors into the markets, aggressive pricing, and the introduction or
expansion of competitive products and technologies.
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A significant portion of our business depends upon the continued growth of the storage networking
market and our business will be adversely affected if such growth does not occur, occurs more
slowly than we anticipate, or declines.
  Because a significant portion of our revenues is generated from sales to a limited number of
customers, none of which are subject to exclusive or long-term contracts, the loss of one or more
of these customers, or our customers failure to make timely payments to us, could adversely
affect our business.
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Our operating results are difficult to forecast and could be adversely affected by many factors
and our stock price may decline if our results fail to meet expectations.
  
    
    Changes in the size, mix, timing and terms of OEM and/or other customer orders;
    
    Changes in the sales and deployment cycles for our products and/or desired inventory
levels for our products;
    
    Acquisitions or strategic investments by our customers, competitors or us;
    
    Timing and market acceptance of new or enhanced product introductions by us, our OEM
customers and/or competitors;
    
    Market share losses or difficulty in gaining incremental market share;
    
    Fluctuations in product development, procurement, resource utilization and other
operating expenses;
    
    Reduced demand from our customers if there is a shortage of, or difficulties in
acquiring, components or other products, such as Fibre Channel or serial advanced
technology attachment (SATA) disk drives and optical modules, used in conjunction with our
products in the deployment of systems;
    
    Inability of our electronics manufacturing service providers or suppliers to produce
and distribute our products in a timely fashion;
    
    Difficulties with updates, changes or additions to our information technology systems;
    
    Breaches of our network security, including viruses;
    
    Changes in general social and economic conditions, including but not limited to natural
disasters, terrorism, public health crises, slower than expected market growth, reduced
economic activity, delayed economic recovery, loss of consumer confidence, increased energy
costs, adverse business conditions and liquidity concerns, concerns about inflation or
deflation, recession, and reduced business profits and capital spending, with resulting
changes in customer technology budgeting and spending; and
    
    Seasonality.
  A number of factors including relatively small backlog of unfilled orders, possible customer
delays or deferrals and our tendency to generate a large percentage of our quarterly sales near
the end of the quarter contribute to possible fluctuations in our operating results that could
have an adverse impact on our results of operations and stock price.
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Our industry is subject to rapid technological change, thus our results of operations could be
adversely affected if we are unable to keep pace with the changes to successfully compete.
  We have experienced losses in our history and may experience losses in our future that may
adversely affect our financial condition.
  The timing of migration of our customers toward newer product platforms varies and may have a
significant adverse effect.
  The migration of our customers from purchasing our products through the distribution channel and
toward OEM server manufacturers may have a significant adverse effect.
   41




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Any failure of our OEM customers to keep up with rapid technological change and to successfully
market and sell systems that incorporate new technologies could adversely affect our business.
  Rapid changes in the evolution of technology, including the unexpected extent or timing of
the transition from board level solutions to lower priced ASIC solutions, could adversely affect
our business.
  If customers elect to use lower-end HBAs in higher-end environments or applications, our business
and financial condition could be negatively affected.
  Advancement of storage device capacity technology may not allow for additional revenue growth.
  A decrease in the average unit selling prices or an increase in the manufactured cost of our
products due to inflation or other factors could adversely affect our revenue, gross margins and
financial performance.
   42




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Delays in product development could adversely affect our business.
  
    
    Difficulties in hiring and retaining necessary employees and independent contractors;
    
    Difficulties in reallocating engineering resources and other resource limitations;
    
    Unanticipated engineering or manufacturing complexity, including from third party
suppliers of intellectual property such as foundries of our ASICs;
    
    Undetected errors or failures in our products;
    
    Changing OEM product specifications;
    
    Delays in the acceptance or shipment of products by OEM customers; and
    
    Changing market or competitive product requirements.
  Our joint development activities may result in products that are not commercially successful or
that are not available in a timely fashion.
  A change in our business relationships with our third party suppliers or our electronics
manufacturing service providers could adversely affect our business.
  
    
    Discontinued production by a supplier;
    
    Required long-term purchase commitments;
    
    Undetected errors, failures or production quality issues, including projected failures
that may constitute epidemic failure rates specified in agreements with our customers or
that may require us to make concessions or accommodations for continuing customer
relationships;
    
    Timeliness of product delivery;
    
    Sole sourcing and components made by a small number of suppliers, including the
inability to obtain components and finished goods at reasonable cost from such sources and
suppliers;
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
    
    Financial stability and viability of our suppliers and electronics manufacturing
service (EMS) providers;
    
    Changes in business strategies of our suppliers and EMS providers;
    
    Increases in manufacturing costs due to lower volumes or more complex manufacturing
process than anticipated;
    
    Disruption in shipping channels;
    
    Natural disasters;
    
    Inability or unwillingness of our suppliers or EMS providers to continue their business
with us;
    
    Environmental, tax or legislative changes in the location where our products are
produced or delivered;
    
    Difficulties associated with international operations; and
    
    Market shortages.
   Unsolicited takeover proposals may be disruptive to our business and may adversely affect our
operations; results and our ability to retain key employees.
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If our intellectual property protections are inadequate, it could adversely affect our business.
    Third party claims of intellectual property infringement could adversely affect our business.
   The inability or increased cost of attracting, motivating, or retaining key managerial and
technical personnel could adversely affect our business.
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Our international business activities subject us to risks that could adversely affect our
business.
  
    
    Imposition of or changes in governmental controls, taxes, tariffs, trade restrictions,
and regulatory requirements to our current or future operations;
    
    Costs and risks of localizing products for international countries;
    
    Longer accounts receivable payment cycles;
    
    Changes in the value of local currencies relative to our functional currency;
    
    Fluctuations in freight costs and potential disruptions in the transportation
infrastructure for our products and components;
    
    Import and export restrictions;
    
    Loss of tax benefits or increases in tax expenses;
    
    General economic and social conditions within international countries;
    
    Taxation in multiple jurisdictions;
    
    Difficulty maintaining management oversight and control of remote locations;
    
    Potential restrictions on transferring funds between countries and difficulties
associated with repatriating cash generated or held outside of the U.S. in a tax-efficient
manner;
    
    The increased travel, infrastructure, accounting, and legal compliance costs associated
with multiple international locations; and
    
    Political instability, war, or terrorism.
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Potential acquisitions or strategic investments may become more costly or less profitable than
originally anticipated and may adversely affect the price of our common stock.
  
    
    Difficulties in the assimilation of the operations, technologies, products, and
personnel of the acquired company;
    
    Purchased technology that is not adopted by customers in the way or the time frame we
anticipated;
    
    Diversion of managements attention from other business concerns;
    
    Risks of entering markets in which we have limited or no prior experience;
    
    Risks associated with assuming the legal obligations of the acquired company;
    
    Losses incurred by our strategic investments that may be required to be reflected in
our results;
    
    Risks related to the effect that the acquired companys internal control processes
might have on our financial reporting and managements report on our internal controls over
financial reporting;
    
    Potential loss of key employees of the company we invested in or acquired;
    
    Risks related to companies we invest in not being able to secure additional funding,
obtain favorable investment terms for future financings, or to take advantage of liquidity
events such as initial public offerings, mergers, and private sales; and
    
    There may exist unknown defects of an acquired companys products or assets that may
not be identified due to the inherent limitations involved in the due diligence process of
an acquisition.
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Our stock price is volatile, which has and may result in lawsuits against us and our officers and
directors.
  
    
    Quarterly variations in customer demand and operating results;
    
    Announcements of new products by us or our competitors;
    
    The gain or loss of significant customers or design wins;
    
    Changes in analysts earnings estimates;
    
    Changes in analyst recommendations, price targets, or other parameters that may not be
related to earnings estimates;
    
    Rumors or dissemination of false information;
    
    Pricing pressures;
    
    Short selling of our common stock;
    
    General conditions in the computer, storage, or communications markets;
    
    Events affecting other companies that investors deem to be comparable to us; and
    
    Offers to buy us or a competitor for a premium over recent trading price.
   Terrorist activities and resulting military and other actions could adversely affect our
business.
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Our corporate offices and principal product development facilities are located in regions that are
subject to earthquakes and other natural disasters.
   Our certificate of incorporation, provisions of Delaware law, and any shareholders rights plan
could adversely affect the performance of our stock.
  Our system of internal controls may be inadequate.
  Changes in laws, regulations, and financial accounting standards may affect our reported results
of operations.
  The final determination of our income tax liability may be materially different from our income
tax provisions and accruals and our tax liabilities may be adversely affected by changes in
applicable tax laws.
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Changes in our provision for income taxes or adverse outcomes resulting from examination of our
income tax returns could adversely affect our results
  
    
    Earnings being lower than anticipated in countries that have lower tax rates and
higher than anticipated in countries that have higher tax rates;
    
    Changes in domestic and foreign tax laws including possible U.S. changes to the
taxation of earnings of foreign subsidiaries, the deductibility of expenses
attributable to foreign income and changes to foreign tax credit rules;
    
    Expiration or lapses of federal and state research credits;
    
    Unfavorable results from income tax audits;
    
    Changes in transfer pricing regulations;
    
    Changes in allocation of income and expenses related to cost sharing arrangements,
including adjustments related to changes in the corporate structure, acquisitions or
law changes;
    
    Tax effects of increases in nondeductible compensation;
    
    Changes in accounting rules or principles, including the potential adoption of
international financial reporting standards (IFRS) and changes in the valuation of
deferred tax assets and liabilities.
  We may need additional capital in the future and such additional financing may not be available on
favorable terms.
  
    
    Take advantage of unanticipated opportunities, including more rapid international
expansion or acquisitions of complementary businesses or technologies;
    
    Develop new products or services;
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
    
    Repay outstanding indebtedness; and
    
    Respond to unanticipated competitive pressures.
  Global warming issues may cause us to alter the way we conduct our business.
 
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Issuer Purchases of Equity Securities
 Total Number of
    
    
    Approximate DollarShares Purchased as
    
    
    Value of SharesTotal Number
    
    
    Average
    
    
    Part of Publicly
    
    
    that May Yet Beof Shares
    
    
    Price Paid
    
    
    Announced Plans
    
    
    Purchased under thePeriod
    
    Purchased
    
    
    per Share
    
    
    Or Programs
    
    
    Plans or ProgramsDecember 28, 2009  January 24, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    81,760,136January 25,
2010  February 21, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    81,760,136February 22, 2010  March 28, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    81,760,136Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    81,760,136
  51




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Item 6. Exhibits
 Exhibit 3.1
    
    Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 3.1 to the Companys 1997 Annual Report
on Form 10-K).Exhibit 3.2
    
    Certificate of Amendment of Certificate of Incorporation of
the Company (incorporated by reference to Exhibit 3.4 to the
Companys Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 2000).Exhibit 3.3
    
    Amended and restated Bylaws of the Company (incorporated by
reference to Exhibit 3.1 to the Companys Current Report on
Form 8-K filed on October 2, 2009).Exhibit 3.4
    
    Amended and Restated Certificate of Designations, Preferences
and Rights of Series A Junior Participating Preferred Stock of
Emulex Corporation, incorporated by reference to Exhibit 3.1
to the Companys Form 8-K filed with the Securities and
Exchange Commission on January 16, 2009.Exhibit 31A
    
    Certification of the Principal Executive Officer Pursuant to
17 CFR 240.13a-14(a), as Adopted Pursuant to § 302 of the
Sarbanes-Oxley Act of 2002.Exhibit 31B
    
    Certification of the Principal Financial Officer Pursuant to
17 CFR 240.13a-14(a), as Adopted Pursuant to § 302 of the
Sarbanes-Oxley Act of 2002.Exhibit 32
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to § 906 of the Sarbanes-Oxley Act of 2002.
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SIGNATURES
   EMULEX CORPORATIONBy:
    /s/ James M. McCluneyJames M. McCluneyPresident and Chief Executive OfficerBy:
    /s/ Michael J. RockenbachMichael J. RockenbachExecutive Vice President and 
Chief Financial Officer

(Principal Financial and Chief Accounting Officer)  53




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Exhibit 3.1
    
    Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 3.1 to the Companys 1997 Annual Report
on Form 10-K).Exhibit 3.2
    
    Certificate of Amendment of Certificate of Incorporation of
the Company (incorporated by reference to Exhibit 3.4 to the
Companys Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 2000).Exhibit 3.3
    
    Amended and restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 to the Companys Current Report on
Form 8-K filed on October 2, 2009).Exhibit 3.4
    
    Amended and Restated Certificate of Designations, Preferences
and Rights of Series A Junior Participating Preferred Stock of
Emulex Corporation, incorporated by reference to Exhibit 3.1
to the Companys Form 8-K filed with the Securities and
Exchange Commission on January 16, 2009.Exhibit 31A
    
    Certification of the Principal Executive Officer Pursuant to
17 CFR 240.13a-14(a), as Adopted Pursuant to § 302 of the
Sarbanes-Oxley Act of 2002.Exhibit 31B
    
    Certification of the Principal Financial Officer Pursuant to
17 CFR 240.13a-14(a), as Adopted Pursuant to § 302 of the
Sarbanes-Oxley Act of 2002.Exhibit 32
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to § 906 of the Sarbanes-Oxley Act of 2002.
  54