##### 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 December 27, 2009
 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(Do not check if a smaller reporting company)
 o þ




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##### 



PAGEPart I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Condensed Consolidated Balance Sheets December 27, 2009 and June 28, 2009
    
    
    3Condensed Consolidated Statements of Income Three and Six months ended December 27, 2009 and December 28, 2008
    
    
    4Condensed Consolidated Statements of Cash Flows Six months ended December 27, 2009 and December 28, 2008
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    34Item 4. Controls and Procedures
    
    
    34Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    34Item 1A. Risk Factors
    
    
    37Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    50Item 4. Submission of Matters to a Vote of Security Holders
    
    
    50Item 6. Exhibits
    
    
    51Signatures
    
    
    52Exhibit 31AExhibit 31BExhibit 32
   2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
  
   December 27,
    
    
    June 28,2009
    
    
    2009AssetsCurrent assets:Cash and cash equivalents
    
    $
    252,737
    
    
    $
    294,136Investments
    
    
    16,086
    
    
    
    8,289Accounts and other receivables, net of
allowance for doubtful accounts of $1,611
and $1,553 as of December 27, 2009 and June
28, 2009, respectively
    
    
    68,207
    
    
    
    51,566Inventories
    
    
    10,717
    
    
    
    10,665Prepaid income taxes
    
    
    17,300
    
    
    
    17,083Prepaid expenses and other current assets
    
    
    9,047
    
    
    
    8,021Deferred income taxes
    
    
    16,289
    
    
    
    16,793Total current assets
    
    
    390,383
    
    
    
    406,553Property and equipment, net
    
    
    67,020
    
    
    
    74,794Goodwill
    
    
    87,840
    
    
    
    87,840Intangible assets, net
    
    
    50,143
    
    
    
    42,990Deferred income taxes
    
    
    22,844
    
    
    
    16,002Other assets
    
    
    45,680
    
    
    
    30,739Total assets
    
    $
    663,910
    
    
    $
    658,918Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    24,834
    
    
    $
    28,786Accrued liabilities
    
    
    31,385
    
    
    
    23,454Total current liabilities
    
    
    56,219
    
    
    
    52,240Other liabilities
    
    
    5,495
    
    
    
    5,826Accrued taxes
    
    
    32,666
    
    
    
    31,408Total liabilities
    
    
    94,380
    
    
    
    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; 90,639,793 and 89,668,255
issued at December 27, 2009 and June 28,
2009, respectively
    
    
    9,064
    
    
    
    8,967Additional paid-in capital
    
    
    1,112,464
    
    
    
    1,106,990Accumulated deficit
    
    
    (383,290
    )
    
    
    (396,070
    )Accumulated other comprehensive loss
    
    
    (468
    )
    
    
    (443
    )Treasury stock, at cost; 10,550,971 and
8,550,971 shares at December 27, 2009 and
June 28, 2009, respectively
    
    
    (168,240
    )
    
    
    (150,000
    )Total stockholders equity
    
    
    569,530
    
    
    
    569,444Total liabilities and stockholders equity
    
    $
    663,910
    
    
    $
    658,918
   3




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Three Months Ended
    
    
    Six Months EndedDecember 27,
    
    
    December 28,
    
    
    December 27,
    
    
    December 28,2009
    
    
    2008
    
    
    2009
    
    
    2008Net revenues
    
    $
    108,290
    
    
    $
    108,661
    
    
    $
    193,817
    
    
    $
    220,357Cost of sales
    
    
    41,506
    
    
    
    42,676
    
    
    
    74,927
    
    
    
    84,420Gross profit
    
    
    66,784
    
    
    
    65,985
    
    
    
    118,890
    
    
    
    135,937Operating expenses:Engineering and development
    
    
    31,680
    
    
    
    31,101
    
    
    
    63,079
    
    
    
    65,884Selling and marketing
    
    
    15,760
    
    
    
    13,270
    
    
    
    28,672
    
    
    
    27,786General and administrative
    
    
    11,896
    
    
    
    9,548
    
    
    
    24,175
    
    
    
    18,964Amortization of other intangible assets
    
    
    1,698
    
    
    
    1,851
    
    
    
    3,396
    
    
    
    3,938Total operating expenses
    
    
    61,034
    
    
    
    55,770
    
    
    
    119,322
    
    
    
    116,572Operating income (loss)
    
    
    5,750
    
    
    
    10,215
    
    
    
    (432
    )
    
    
    19,365Nonoperating (expense) income, net:Interest income
    
    
    93
    
    
    
    1,224
    
    
    
    212
    
    
    
    3,073Interest expense
    
    
    (2
    )
    
    
    (34
    )
    
    
    (4
    )
    
    
    (36
    )Other (expense) income, net
    
    
    (132
    )
    
    
    (127
    )
    
    
    98
    
    
    
    197Total nonoperating (expense) income, net
    
    
    (41
    )
    
    
    1,063
    
    
    
    306
    
    
    
    3,234Income (loss) before income taxes
    
    
    5,709
    
    
    
    11,278
    
    
    
    (126
    )
    
    
    22,599Income tax (benefit) provision
    
    
    (3,233
    )
    
    
    761
    
    
    
    (12,906
    )
    
    
    4,581Net income
    
    $
    8,942
    
    
    $
    10,517
    
    
    $
    12,780
    
    
    $
    18,018Net income per share:Basic
    
    $
    0.11
    
    
    $
    0.13
    
    
    $
    0.16
    
    
    $
    0.22Diluted
    
    $
    0.11
    
    
    $
    0.13
    
    
    $
    0.16
    
    
    $
    0.22Number of shares used in per share computations:Basic
    
    
    79,667
    
    
    
    80,169
    
    
    
    79,563
    
    
    
    80,604Diluted
    
    
    80,734
    
    
    
    80,420
    
    
    
    80,505
    
    
    
    81,055
   4




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Six Months EndedDecember 27,
    
    
    December 28,2009
    
    
    2008Cash flows from operating activities:Net income
    
    $
    12,780
    
    
    $
    18,018Adjustments to reconcile net income to net cash provided by (used
in) operating activities:Depreciation and amortization of property and equipment
    
    
    10,567
    
    
    
    10,950Share-based compensation expense
    
    
    8,564
    
    
    
    12,519Amortization of intangible assets
    
    
    12,847
    
    
    
    13,399Provision for losses on accounts and other receivables
    
    
    58
    
    
    
    (36
    )Accrued interest income, net
    
    
    37
    
    
    
    683Loss (gain) on disposal of property and equipment
    
    
    769
    
    
    
    (94
    )Deferred income taxes
    
    
    (8,447
    )
    
    
    (5,570
    )Excess tax benefit from share-based compensation
    
    
    (206
    )
    
    
    (188
    )Foreign currency adjustments
    
    
    (86
    )
    
    
    (157
    )Changes in assets and liabilities:Accounts and other receivables
    
    
    (16,697
    )
    
    
    (3,804
    )Inventories
    
    
    (123
    )
    
    
    4,468Prepaid expenses and other assets
    
    
    (5,971
    )
    
    
    (2,457
    )Accounts payable, accrued liabilities, and other liabilities
    
    
    4,684
    
    
    
    (9,742
    )Accrued taxes
    
    
    1,258
    
    
    
    3,319Income taxes payable and prepaid income taxes
    
    
    (223
    )
    
    
    (52,008
    )Net cash provided by (used in) operating activities
    
    
    19,811
    
    
    
    (10,700
    )Cash flows from investing activities:Net proceeds from sale of property and equipment
    
    
    168
    
    
    
    50Purchases of property and equipment
    
    
    (4,685
    )
    
    
    (14,512
    )Purchases of intangible assets
    
    
    (20,000
    )
    
    
    Investment in and loans to privately-held companies
    
    
    (10,000
    )
    
    
    (947
    )Purchases of investments
    
    
    (24,585
    )
    
    
    (97,715
    )Maturities of investments
    
    
    16,751
    
    
    
    176,392Net cash (used in) provided by investing activities
    
    
    (42,351
    )
    
    
    63,268Cash flows from financing activities:Repurchase of common stock
    
    
    (18,240
    )
    
    
    (39,913
    )Tax withholding payments reimbursed by common stock
    
    
    (3,468
    )
    
    
    (2,416
    )Proceeds from issuance of common stock under stock plans
    
    
    2,687
    
    
    
    3,850Excess tax benefit from share-based compensation expense
    
    
    206
    
    
    
    188Net cash used in financing activities
    
    
    (18,815
    )
    
    
    (38,291
    )Effect of exchange rates on cash and cash equivalents
    
    
    (44
    )
    
    
    (33
    )Net (decrease) increase in cash and cash equivalents
    
    
    (41,399
    )
    
    
    14,244Cash and cash equivalents at beginning of period
    
    
    294,136
    
    
    
    217,017Cash and cash equivalents at end of period
    
    $
    252,737
    
    
    $
    231,261
   5




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1.
    
    Basis of Presentation
   Supplemental Cash Flow Information
 Six Months EndedDecember 27,
    
    
    December 28,2009
    
    
    2008(in thousands)Cash paid during the period for:Interest
    
    $
    3
    
    
    $
    5Income taxes
    
    $
    247
    
    
    $
    60,905Non-cash activities:Purchases of property and equipment not paid, net
    
    $
    1,016
    
    
    $
    779
 Recently Adopted Accounting Standards
    6




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Recently Issued Accounting Standards
   7




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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)December 27, 2009Cash and cash equivalents
    
    $
    252,737
    
    
    $
    
    
    
    $
    
    
    
    $
    252,737Term deposits
    
    
    2,238
    
    
    
    
    
    
    
    
    
    
    
    2,238U.S. Government securities
    
    
    5,496
    
    
    
    
    
    
    
    
    
    
    
    5,496U.S. Government sponsored entity securities
    
    
    8,349
    
    
    
    
    
    
    
    
    
    
    
    8,349$
    268,820
    
    
    $
    
    
    
    $
    
    
    
    $
    268,820June 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)December 27, 2009Term deposits
    
    $
    2,241
    
    
    $
    
    
    
    $
    (3
    )
    
    $
    2,238U.S. Government securities
    
    
    5,497
    
    
    
    
    
    
    
    (1
    )
    
    
    5,496U.S. Government sponsored entity securities
    
    
    8,348
    
    
    
    1
    
    
    
    
    
    
    
    8,349$
    16,086
    
    
    $
    1
    
    
    $
    (4
    )
    
    $
    16,083June 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
  December 27,
    
    
    June 28,2009
    
    
    2009(in thousands)Raw materials
    
    $
    4,315
    
    
    $
    4,330Finished goods
    
    
    6,402
    
    
    
    6,335$
    10,717
    
    
    $
    10,665
 Goodwill and Intangible Assets, net
   December 27,
    
    
    June 28,2009
    
    
    2009(in thousands)Intangible assets subject to amortization:Core technology and patents
    
    $
    72,145
    
    
    $
    92,228Accumulated amortization, core technology and patents
    
    
    (47,674
    )
    
    
    (82,381
    )Developed technology
    
    
    68,500
    
    
    
    77,312Accumulated amortization, developed technology
    
    
    (44,525
    )
    
    
    (46,488
    )Customer relationships
    
    
    38,670
    
    
    
    38,670Accumulated amortization, customer relationships
    
    
    (37,548
    )
    
    
    (37,227
    )Tradename
    
    
    4,639
    
    
    
    4,639Accumulated amortization, tradename
    
    
    (4,064
    )
    
    
    (3,763
    )$
    50,143
    
    
    $
    42,990
  9




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2010 (remaining 6 months)
    
    $
    12,8472011
    
    
    21,7112012
    
    
    7,5852013
    
    
    4,0002014
    
    
    4,000Thereafter
    
    
    $
    50,143
 Other Assets
  December 27,
    
    
    June 28,2009
    
    
    2009(in thousands)Note receivable
    
    $
    24,466
    
    
    $
    15,000Equity investment in privately-held company
    
    
    11,184
    
    
    
    11,184Other
    
    
    10,030
    
    
    
    4,555$
    45,680
    
    
    $
    30,739
    10




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Accrued Liabilities
  December 27,
    
    
    June 28,2009
    
    
    2009(in thousands)Payroll and related costs
    
    $
    17,125
    
    
    $
    11,410Warranty liability
    
    
    1,926
    
    
    
    2,462Deferred revenue and accrued rebates
    
    
    3,939
    
    
    
    3,499Other
    
    
    8,395
    
    
    
    6,083$
    31,385
    
    
    $
    23,454
  (in thousands)Balance as of June 28, 2009
    
    $
    2,462Accrual for warranties issued
    
    
    488Changes to pre-existing warranties (including changes in estimates)
    
    
    (461
    )Settlements made (in cash or in kind)
    
    
    (563
    )Balance as of December 27, 2009
    
    $
    1,926
 Commitments and Contingencies
 Litigation
   11




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13




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Broadcom Unsolicited Takeover Proposal
  Other Commitments and Contingencies
     14




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Treasury Stock
  Stock-Based Compensation
   Three Months
    
    
    Three Months
    
    
    Six Months
    
    
    Six MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 27,
    
    
    December 28,
    
    
    December 27,
    
    
    December 28,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)Total cost of
stock-based payment
plans during the
period
    
    $
    3,590
    
    
    $
    5,735
    
    
    $
    8,493
    
    
    $
    12,518Amounts capitalized
in inventory during
the period
    
    
    (83
    )
    
    
    (165
    )
    
    
    (203
    )
    
    
    (344
    )Amounts recognized
in income for
amounts previously
capitalized in
inventory
    
    
    120
    
    
    
    179
    
    
    
    274
    
    
    
    345Amounts charged
against income,
before income tax
benefit
    
    $
    3,627
    
    
    $
    5,749
    
    
    $
    8,564
    
    
    $
    12,519Amount of related
income tax benefit
recognized in
income, excluding
tax impact of stock
option exchange
program (see Note
11)
    
    $
    1,438
    
    
    $
    1,574
    
    
    $
    3,067
    
    
    $
    3,490
   15




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Three Months Ended
    
    Six Months EndedDecember 27,
    
    December 28,
    
    December 27,
    
    December 28,2009
    
    2008
    
    2009
    
    2008Expected volatility
    
    46%  49%
    
    50%  51%
    
    46%  49%
    
    42%  51%Weighted average expected volatility
    
    48%
    
    51%
    
    47%
    
    43%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
    
    1.49%  2.50%
    
    1.12%  1.50%
    
    1.49%  2.50%
    
    1.12%  3.02%
  Three Months Ended
    
    
    Six Months EndedDecember 27,
    
    
    December 28,
    
    
    December 27,
    
    
    December 28,2009
    
    
    2008
    
    
    2009
    
    
    2008Expected volatility
    
    
    43
    %
    
    
    49
    %
    
    
    43
    %
    
    
    49
    %Expected dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected term (in years)
    
    
    0.49
    
    
    
    0.5
    
    
    
    0.49
    
    
    
    0.5Risk-free rate
    
    
    0.17
    %
    
    
    1.13
    %
    
    
    0.17
    %
    
    
    1.13
    %
  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
    
    
    423,000
    
    
    $
    9.81Options exercised
    
    
    (26,973
    )
    
    $
    2.73Options canceled
    
    
    (4,159,933
    )
    
    $
    22.83Options forfeited
    
    
    (495,744
    )
    
    $
    16.98Options outstanding at December 27, 2009
    
    
    7,920,754
    
    
    $
    20.81
    
    
    
    3.04
    
    
    $
    2.7Options vested and expected to vest at December 27, 2009
    
    
    7,853,859
    
    
    $
    20.89
    
    
    
    3.02
    
    
    $
    2.6Options exercisable at December 27, 2009
    
    
    7,102,489
    
    
    $
    21.79
    
    
    
    2.82
    
    
    $
    2.1
  WeightedAverage GrantNumber of
    
    
    Date FairAwards
    
    
    ValueAwards outstanding and unvested at June 28, 2009
    
    
    2,721,606
    
    
    $
    12.85Awards granted
    
    
    1,521,008
    
    
    $
    8.66Awards vested
    
    
    (988,460
    )
    
    $
    15.48Awards forfeited
    
    
    (161,618
    )
    
    $
    14.15Awards outstanding and unvested at December 27, 2009
    
    
    3,092,536
    
    
    $
    9.88
   16




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Income Taxes
   Net Income Per Share
   17




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedDecember 27,
    
    
    December 28,
    
    
    December 27,
    
    
    December 28,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands, except per
    
    
    (in thousands, except pershare data)
    
    
    share data)Numerator  Net income
    
    $
    8,942
    
    
    $
    10,517
    
    
    $
    12,780
    
    
    $
    18,018Less: Undistributed earnings
allocated to participating
securities
    
    
    (111
    )
    
    
    (272
    )
    
    
    (210
    )
    
    
    (465
    )Undistributed earnings allocated
to common shareholders for basic
net income per share
    
    $
    8,831
    
    
    $
    10,245
    
    
    $
    12,570
    
    
    $
    17,553Undistributed earnings allocated
to common shareholders for
diluted net income per share
    
    $
    8,832
    
    
    $
    10,245
    
    
    $
    12,573
    
    
    $
    17,555Denominator:Denominator for basic net income
per share  weighted average shares
outstanding
    
    
    79,667
    
    
    
    80,169
    
    
    
    79,563
    
    
    
    80,604Effect of dilutive securities:Dilutive options outstanding,
unvested stock units and ESPP
    
    
    1,067
    
    
    
    251
    
    
    
    942
    
    
    
    451Denominator for diluted net income
per share  adjusted weighted
average shares outstanding
    
    
    80,734
    
    
    
    80,420
    
    
    
    80,505
    
    
    
    81,055Basic net income per share
    
    $
    0.11
    
    
    $
    0.13
    
    
    $
    0.16
    
    
    $
    0.22Diluted net income per share
    
    $
    0.11
    
    
    $
    0.13
    
    
    $
    0.16
    
    
    $
    0.22Antidilutive options and unvested
stock excluded from the
computations
    
    
    8,338
    
    
    
    15,787
    
    
    
    8,987
    
    
    
    15,292Average market price of common stock
    
    $
    10.55
    
    
    $
    7.86
    
    
    $
    10.09
    
    
    $
    10.02
   18




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-Looking Statements
    19




---



##### Table of Contents



Executive Overview
  ®
 ®
      20




---



##### Table of Contents



Global Initiatives
   Results of Operations
  Percentage of Net Revenues
    
    
    Percentage of Net RevenuesThree Months Ended
    
    
    Six Months EndedDecember 27,
    
    
    December 28,
    
    
    December 27,
    
    
    December 28,2009
    
    
    2008
    
    
    2009
    
    
    2008Net revenues
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Cost of sales
    
    
    38
    
    
    
    39
    
    
    
    39
    
    
    
    38Gross profit
    
    
    62
    
    
    
    61
    
    
    
    61
    
    
    
    62Operating expenses:Engineering and
development
    
    
    29
    
    
    
    28
    
    
    
    33
    
    
    
    30Selling and marketing
    
    
    15
    
    
    
    12
    
    
    
    15
    
    
    
    13General and
administrative
    
    
    11
    
    
    
    9
    
    
    
    12
    
    
    
    8Amortization of
other intangible
assets
    
    
    2
    
    
    
    2
    
    
    
    2
    
    
    
    2Total operating
expenses
    
    
    57
    
    
    
    51
    
    
    
    62
    
    
    
    53Operating income (loss)
    
    
    5
    
    
    
    10
    
    
    
    (1
    )
    
    
    9Nonoperating (expense)
income, net:Interest income
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other (expense)
income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
nonoperating
(expense) income,
net
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Income (loss) before
income taxes
    
    
    5
    
    
    
    11
    
    
    
    (1
    )
    
    
    10Income tax (benefit)
provision
    
    
    (3
    )
    
    
    1
    
    
    
    (7
    )
    
    
    2Net income
    
    
    8
    %
    
    
    10
    %
    
    
    6
    %
    
    
    8
    %
  21




---



##### Table of Contents



Three months ended December 27, 2009, compared to three months ended December 28, 2008
 Net Revenues.
 Net Revenues by Product Line
  Net Revenues by Product LineThree Months
    
    
    
    
    
    
    Three MonthsEnded
    
    
    Percentage
    
    
    Ended
    
    
    PercentageDecember 27,
    
    
    of Net
    
    
    December 28,
    
    
    of Net
    
    
    Increase/
    
    
    Percentage(in thousands)
    
    2009
    
    
    Revenues
    
    
    2008
    
    
    Revenues
    
    
    (Decrease)
    
    
    ChangeHost Server Products
    
    $
    81,923
    
    
    
    76
    %
    
    $
    81,063
    
    
    
    75
    %
    
    $
    860
    
    
    
    1
    %Embedded Storage Products
    
    
    26,284
    
    
    
    24
    %
    
    
    27,454
    
    
    
    25
    %
    
    
    (1,170
    )
    
    
    (4
    )%Other
    
    
    83
    
    
    
    
    
    
    
    144
    
    
    
    
    
    
    
    (61
    )
    
    
    (42
    )%Total net revenues
    
    $
    108,290
    
    
    
    100
    %
    
    $
    108,661
    
    
    
    100
    %
    
    $
    (371
    )
    
    
    
    %
  ® ®
  Net Revenues by Major Customers
  Net Revenues by Major CustomersDirect Revenues
    
    
    Total Direct and Indirect Revenues (2)Three Months
    
    
    Three Months
    
    
    Three Months
    
    
    Three MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 27,
    
    
    December 28,
    
    
    December 27,
    
    
    December 28,2009
    
    
    2008
    
    
    2009
    
    
    2008Net revenue
percentage (1):OEM:EMC
    
    
    
    
    
    
    
    
    
    
    12
    %
    
    
    14
    %Hewlett-Packard
    
    
    13
    %
    
    
    18
    %
    
    
    14
    %
    
    
    18
    %IBM
    
    
    23
    %
    
    
    23
    %
    
    
    33
    %
    
    
    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.  22




---



##### Table of Contents



Net Revenues by Sales Channel
  Net Revenues by Sales ChannelThree Months
    
    
    
    
    
    
    Three MonthsEnded
    
    
    Percentage
    
    
    Ended
    
    
    PercentageDecember 27,
    
    
    of Net
    
    
    December 28,
    
    
    of Net
    
    
    Increase/
    
    
    Percentage(in thousands)
    
    2009
    
    
    Revenues
    
    
    2008
    
    
    Revenues
    
    
    (Decrease)
    
    
    ChangeOEM
    
    $
    91,194
    
    
    
    84
    %
    
    $
    87,410
    
    
    
    80
    %
    
    $
    3,784
    
    
    
    4
    %Distribution
    
    
    16,992
    
    
    
    16
    %
    
    
    21,173
    
    
    
    20
    %
    
    
    (4,181
    )
    
    
    (20
    )%Other
    
    
    104
    
    
    
    
    
    
    
    78
    
    
    
    
    
    
    
    26
    
    
    
    33
    %Total net revenues
    
    $
    108,290
    
    
    
    100
    %
    
    $
    108,661
    
    
    
    100
    %
    
    $
    (371
    )
    
    
    
    %
  Net Revenues by Geographic Territory
  Net Revenues by Geographic TerritoryThree Months
    
    
    
    
    
    
    Three MonthsEnded
    
    
    Percentage
    
    
    Ended
    
    
    PercentageDecember 27,
    
    
    of Net
    
    
    December 28,
    
    
    of Net
    
    
    Increase/
    
    
    Percentage(in thousands)
    
    2009
    
    
    Revenues
    
    
    2008
    
    
    Revenues
    
    
    (Decrease)
    
    
    ChangeUnited States
    
    $
    33,324
    
    
    
    31
    %
    
    $
    41,499
    
    
    
    38
    %
    
    $
    (8,175
    )
    
    
    (20
    )%Asia Pacific
    
    
    40,172
    
    
    
    37
    %
    
    
    28,084
    
    
    
    26
    %
    
    
    12,088
    
    
    
    43
    %Europe, Middle
East, Africa and
rest of the world
    
    
    34,794
    
    
    
    32
    %
    
    
    39,078
    
    
    
    36
    %
    
    
    (4,284
    )
    
    
    (11
    )%Total net revenues
    
    $
    108,290
    
    
    
    100
    %
    
    $
    108,661
    
    
    
    100
    %
    
    $
    (371
    )
    
    
    
    %
   23




---



##### Table of Contents



Gross Profit.
 Gross ProfitThree Months Ended
    
    Percentage of
    
    
    Three Months Ended
    
    
    Percentage of
    
    
    Increase/
    
    
    PercentageDecember 27, 2009
    
    Net Revenues
    
    
    December 28, 2008
    
    
    Net Revenues
    
    
    (Decrease)
    
    
    Points Change$66,784
    
    
    62
    %
    
    $
    65,985
    
    
    
    61
    %
    
    $
    799
    
    
    
    1
    %
  Engineering and Development.
 Engineering and DevelopmentThree Months Ended
    
    Percentage of
    
    
    Three Months Ended
    
    
    Percentage of
    
    
    Increase/
    
    
    PercentageDecember 27, 2009
    
    Net Revenues
    
    
    December 28, 2008
    
    
    Net Revenues
    
    
    (Decrease)
    
    
    Points Change$31,680
    
    
    29
    %
    
    $
    31,101
    
    
    
    28
    %
    
    $
    579
    
    
    
    1
    %
  Selling and Marketing.
 Selling and MarketingThree Months Ended
    
    Percentage of
    
    
    Three Months Ended
    
    
    Percentage of
    
    
    Increase/
    
    
    PercentageDecember 27, 2009
    
    Net Revenues
    
    
    December 28, 2008
    
    
    Net Revenues
    
    
    (Decrease)
    
    
    Points Change$15,760
    
    
    15
    %
    
    $
    13,270
    
    
    
    12
    %
    
    $
    2,490
    
    
    
    3
    %
   24




---



##### Table of Contents



General and Administrative.
 General and AdministrativeThree Months Ended
    
    Percentage of
    
    
    Three Months Ended
    
    
    Percentage of
    
    
    Increase/
    
    
    PercentageDecember 27, 2009
    
    Net Revenues
    
    
    December 28, 2008
    
    
    Net Revenues
    
    
    (Decrease)
    
    
    Points Change$11,896
    
    
    11
    %
    
    $
    9,548
    
    
    
    9
    %
    
    $
    2,348
    
    
    
    2
    %
  Amortization of Other Intangible Assets.
 Amortization of Other Intangible AssetsThree Months Ended
    
    Percentage of
    
    
    Three Months Ended
    
    
    Percentage of
    
    
    Increase/
    
    
    PercentageDecember 27, 2009
    
    Net Revenues
    
    
    December 28, 2008
    
    
    Net Revenues
    
    
    (Decrease)
    
    
    Points Change$1,698
    
    
    2
    %
    
    $
    1,851
    
    
    
    2
    %
    
    $
    (153
    )
    
    
    
  Nonoperating (Expense) Income, net.
 Nonoperating (Expense) Income, netThree Months Ended
    
    Percentage of
    
    
    Three Months Ended
    
    
    Percentage of
    
    
    Increase/
    
    
    PercentageDecember 27, 2009
    
    Net Revenues
    
    
    December 28, 2008
    
    
    Net Revenues
    
    
    (Decrease)
    
    
    Points Change$(41)
    
    
    
    
    
    $
    1,063
    
    
    
    1
    %
    
    $
    (1,104
    )
    
    
    (1
    )%
   25




---



##### Table of Contents



Income Taxes
 Income TaxesThree Months Ended
    
    Percentage of
    
    
    Three Months Ended
    
    
    Percentage of
    
    
    Increase/
    
    
    PercentageDecember 27, 2009
    
    Net Revenues
    
    
    December 28, 2008
    
    
    Net Revenues
    
    
    (Decrease)
    
    
    Points Change$(3,233)
    
    
    (3
    )%
    
    $
    761
    
    
    
    1
    %
    
    $
    (3,994
    )
    
    
    (4
    )%
  Six months ended December 27, 2009, compared to six months ended December 28, 2008
 Net Revenues.
 Net Revenues by Product Line
  Net Revenues by Product LineSix Months
    
    
    
    
    
    
    Six MonthsEnded
    
    
    Percentage
    
    
    Ended
    
    
    PercentageDecember 27,
    
    
    of Net
    
    
    December 28,
    
    
    of Net
    
    
    Increase/
    
    
    Percentage(in thousands)
    
    2009
    
    
    Revenues
    
    
    2008
    
    
    Revenues
    
    
    (Decreas)
    
    
    ChangeHost Server Products
    
    $
    146,068
    
    
    
    75
    %
    
    $
    162,266
    
    
    
    74
    %
    
    $
    (16,198
    )
    
    
    (10
    )%Embedded Storage Products
    
    
    47,558
    
    
    
    25
    %
    
    
    57,818
    
    
    
    26
    %
    
    
    (10,260
    )
    
    
    (18
    )%Other
    
    
    191
    
    
    
    
    
    
    
    273
    
    
    
    
    
    
    
    (82
    )
    
    
    (30
    )%Total net revenues
    
    $
    193,817
    
    
    
    100
    %
    
    $
    220,357
    
    
    
    100
    %
    
    $
    (26,540
    )
    
    
    (12
    )%
    26




---



##### Table of Contents



Net Revenues by Major Customers
  Net Revenues by Major CustomersDirect Revenues
    
    
    Total Direct and Indirect Revenues (2)Six Months
    
    
    Six Months
    
    
    Six Months
    
    
    Six MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 27,
    
    
    December 28,
    
    
    December 27,
    
    
    December 28,2009
    
    
    2008
    
    
    2009
    
    
    2008Net revenue percentage (1):OEM:EMC
    
    
    
    
    
    
    
    
    
    
    11
    %
    
    
    14
    %Hewlett-Packard
    
    
    14
    %
    
    
    17
    %
    
    
    15
    %
    
    
    17
    %IBM
    
    
    23
    %
    
    
    22
    %
    
    
    33
    %
    
    
    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.  Net Revenues by Sales Channel
  Net Revenues by Sales ChannelSix Months
    
    
    
    
    
    
    Six MonthsEnded
    
    
    Percentage
    
    
    Ended
    
    
    PercentageDecember 27,
    
    
    of Net
    
    
    December 28,
    
    
    of Net
    
    
    Increase/
    
    
    Percentage(in thousands)
    
    2009
    
    
    Revenues
    
    
    2008
    
    
    Revenues
    
    
    (Decrease)
    
    
    ChangeOEM
    
    $
    163,481
    
    
    
    84
    %
    
    $
    174,921
    
    
    
    79
    %
    
    $
    (11,440
    )
    
    
    (7
    )%Distribution
    
    
    30,203
    
    
    
    16
    %
    
    
    45,291
    
    
    
    21
    %
    
    
    (15,088
    )
    
    
    (33
    )%Other
    
    
    133
    
    
    
    
    
    
    
    145
    
    
    
    
    
    
    
    (12
    )
    
    
    (8
    )%Total net revenues
    
    $
    193,817
    
    
    
    100
    %
    
    $
    220,357
    
    
    
    100
    %
    
    $
    (26,540
    )
    
    
    (12
    )%
  Net Revenues by Geographic Territory
  Net Revenues by Geographic TerritorySix Months
    
    
    
    
    
    
    Six MonthsEnded
    
    
    Percentage
    
    
    Ended
    
    
    PercentageDecember 27,
    
    
    of Net
    
    
    December 28,
    
    
    of Net
    
    
    Increase/
    
    
    Percentage(in thousands)
    
    2009
    
    
    Revenues
    
    
    2008
    
    
    Revenues
    
    
    (Decrease)
    
    
    ChangeUnited States
    
    $
    60,090
    
    
    
    31
    %
    
    $
    81,298
    
    
    
    37
    %
    
    $
    (21,208
    )
    
    
    (26
    )%Asia Pacific
    
    
    69,338
    
    
    
    36
    %
    
    
    60,558
    
    
    
    27
    %
    
    
    8,780
    
    
    
    14
    %Europe, Middle
East, Africa and
rest of the world
    
    
    64,389
    
    
    
    33
    %
    
    
    78,501
    
    
    
    36
    %
    
    
    (14,112
    )
    
    
    (18
    )%Total net revenues
    
    $
    193,817
    
    
    
    100
    %
    
    $
    220,357
    
    
    
    100
    %
    
    $
    (26,540
    )
    
    
    (12
    )%
  27




---



##### Table of Contents



Gross Profit.
 Gross ProfitSix Months Ended
    
    Percentage of
    
    
    Six Months Ended
    
    
    Percentage of
    
    
    Increase/
    
    
    PercentageDecember 27, 2009
    
    Net Revenues
    
    
    December 28, 2008
    
    
    Net Revenues
    
    
    (Decrease)
    
    
    Points Change$118,890
    
    
    61
    %
    
    $
    135,937
    
    
    
    62
    %
    
    $
    (17,047
    )
    
    
    (1
    )%
  Engineering and Development.
 Engineering and DevelopmentSix Months Ended
    
    Percentage of
    
    
    Six Months Ended
    
    
    Percentage of
    
    
    Increase/
    
    
    PercentageDecember 27, 2009
    
    Net Revenues
    
    
    December 28, 2008
    
    
    Net Revenues
    
    
    (Decrease)
    
    
    Points Change$63,079
    
    
    33
    %
    
    $
    65,884
    
    
    
    30
    %
    
    $
    (2,805
    )
    
    
    3
    %
   28




---



##### Table of Contents



Selling and Marketing.
 Selling and MarketingSix Months Ended
    
    Percentage of
    
    
    Six Months Ended
    
    
    Percentage of
    
    
    Increase/
    
    
    PercentageDecember 27, 2009
    
    Net Revenues
    
    
    December 28, 2008
    
    
    Net Revenues
    
    
    (Decrease)
    
    
    Points Change$28,672
    
    
    15
    %
    
    $
    27,786
    
    
    
    13
    %
    
    $
    886
    
    
    
    2
    %
  General and Administrative.
 General and AdministrativeSix Months Ended
    
    Percentage of
    
    
    Six Months Ended
    
    
    Percentage of
    
    
    Increase/
    
    
    PercentageDecember 27, 2009
    
    Net Revenues
    
    
    December 28, 2008
    
    
    Net Revenues
    
    
    (Decrease)
    
    
    Points Change$24,175
    
    
    12
    %
    
    $
    18,964
    
    
    
    8
    %
    
    $
    5,211
    
    
    
    4
    %
  Amortization of Other Intangible Assets.
 Amortization of Other Intangible AssetsSix Months Ended
    
    Percentage of
    
    
    Six Months Ended
    
    
    Percentage of
    
    
    Increase/
    
    
    PercentageDecember 27, 2009
    
    Net Revenues
    
    
    December 28, 2008
    
    
    Net Revenues
    
    
    (Decrease)
    
    
    Points Change$3,396
    
    
    2
    %
    
    $
    3,938
    
    
    
    2
    %
    
    $
    (542
    )
    
    
    
  Nonoperating Income, net.
 Nonoperating Income, netSix Months Ended
    
    Percentage of
    
    
    Six Months Ended
    
    
    Percentage of
    
    
    Increase/
    
    
    PercentageDecember 27, 2009
    
    Net Revenues
    
    
    December 28, 2008
    
    
    Net Revenues
    
    
    (Decrease)
    
    
    Points Change$306
    
    
    
    
    
    $
    3,234
    
    
    
    1
    %
    
    $
    (2,928
    )
    
    
    (1
    )%
  29




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##### Table of Contents



Income Taxes
 Income TaxesSix Months Ended
    
    Percentage of
    
    
    Six Months Ended
    
    
    Percentage of
    
    
    Increase/
    
    
    PercentageDecember 27, 2009
    
    Net Revenues
    
    
    December 28, 2008
    
    
    Net Revenues
    
    
    (Decrease)
    
    
    Points Change$(12,906)
    
    
    (7
    )%
    
    $
    4,581
    
    
    
    2
    %
    
    $
    (17,487
    )
    
    
    (9
    )%
  Critical Accounting Policies
   Revenue Recognition.
 Warranty.
  30




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Allowance for Doubtful Accounts
 Intangible Assets and Other Long-Lived Assets
 Inventories
 Goodwill
  Income Taxes
   31




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Stock-Based Compensation
 Litigation Costs
 Recently Adopted Accounting Standards
  Recently Issued Accounting Standards
  Liquidity and Capital Resources
    32




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Payments Due by Period(in thousands)RemainingTotal
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    ThereafterLeases (1)
    
    $
    14,492
    
    
    $
    3,080
    
    
    $
    5,857
    
    
    $
    3,907
    
    
    $
    1,648
    
    
    $
    
    
    
    $
    Purchase commitments
    
    
    38,102
    
    
    
    37,938
    
    
    
    164
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other commitments (2)
    
    
    18,095
    
    
    
    7,851
    
    
    
    10,239
    
    
    
    4
    
    
    
    1
    
    
    
    
    
    
    
    Total
    
    $
    70,689
    
    
    $
    48,869
    
    
    $
    16,260
    
    
    $
    3,911
    
    
    $
    1,649
    
    
    $
    
    
    
    $
    
 
 (1)
    
    Lease payments include common area maintenance (CAM) charges.(2)
    
    Consists primarily of commitments for professional fees of
approximately $8.8 million, joint-development agreements of
approximately $3.5 million, and non-recurring engineering services of
approximately $3.0 million, but excludes approximately $32.5 million
of unrecognized tax benefits under FIN 48 for which we cannot make a
reasonably reliable estimate of the period of payment.  33




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Interest Rate Risk
   Foreign Currency Exchange Risk
   
 Item 4. Controls and Procedures
   
 PART II: OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Litigation
   34




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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.
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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.
  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.
   38




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##### Table of Contents



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;
    
    Seasonality.
  39




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##### Table of Contents



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.
  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.
   40




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##### Table of Contents



The migration of our customers from purchasing our products through the distribution channel and
toward OEM server manufacturers may have a significant adverse effect.
  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 HBA solutions or embedded switch box solutions to lower priced ASIC solutions,
could adversely affect our business.
  If customers elect to utilize 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.
   41




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##### Table of Contents



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;
  42




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##### Table of Contents




    
    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;
    
    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.
    43




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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.
    44




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##### Table of Contents



The inability or increased cost of attracting, motivating, or retaining key managerial and
technical personnel could adversely affect our business.
  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;
  45




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##### Table of Contents




    
    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.
  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.
  46




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##### Table of Contents



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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##### Table of Contents



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.
   48




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##### Table of Contents



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.
    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;
    
    Repay outstanding indebtedness; and
    
    Respond to unanticipated competitive pressures.
  Global warming issues may cause us to alter the way we conduct our business.
 
  49




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##### Table of Contents



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 ProgramsSeptember 28, 2009  October 25, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    81,760,136October 26, 2009  November 22, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    81,760,136November 23, 2009  December 27, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    81,760,136Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    81,760,136
 
 Item 4. Submission of Matters to a Vote of Security Holders
  Nominee
    
    In Favor
    
    
    WithheldFred B. Cox
    
    
    59,939,380
    
    
    
    6,080,584Michael P. Downey
    
    
    59,807,503
    
    
    
    6,212,461Bruce C. Edwards
    
    
    59,773,278
    
    
    
    6,246,686Paul F. Folino
    
    
    60,007,410
    
    
    
    6,012,554Robert H. Goon
    
    
    59,727,080
    
    
    
    6,292,884Don M. Lyle
    
    
    59,515,289
    
    
    
    6,504,675James M. McCluney
    
    
    60,095,773
    
    
    
    5,924,191Dean A. Yoost
    
    
    60,549,370
    
    
    
    5,470,594
  For
    
    
    65,099,478Against
    
    
    828,064Abstain
    
    
    92,422Broker non-votes
    
    
    
  50




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##### Table of Contents



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 4.1
    
    Rights Agreement, dated as of January 15, 2009, with Mellon
Investor Services LLC, as rights agent, which includes as
Exhibit B the Form of Rights Certificate, incorporated by
reference to Exhibit 4.1 to the Companys Form 8-K filed with
the Securities and Exchange Commission on January 16, 2009.Exhibit 4.2
    
    Amendment to Rights Agreement, dated October 1, 2009, with
Mellon Investor Services LLC, as rights agent, incorporated by
reference to Exhibit 4.1 to the Companys Form 8-K filed with
the Securities and Exchange Commission on October 2, 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.
  51




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##### Table of Contents



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)  52




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##### Table of Contents



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 4.1
    
    Rights Agreement, dated as of January 15, 2009, with Mellon
Investor Services LLC, as rights agent, which includes as
Exhibit B the Form of Rights Certificate, incorporated by
reference to Exhibit 4.1 to the Companys Form 8-K filed with
the Securities and Exchange Commission on January 16, 2009.Exhibit 4.2
    
    Amendment to Rights Agreement, dated October 1, 2009, with
Mellon Investor Services LLC, as rights agent, incorporated by
reference to Exhibit 4.1 to the Companys Form 8-K filed with
the Securities and Exchange Commission on October 2, 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.
  53