19 December 2013

Emulex is a research client of Edison Investment Research Limited

Emulex’s longer-term prospects should become clearer as visibility on its ability to reinstate its position in 10gE and leverage synergies from Endace become apparent. With only modest revenue growth forecast, the $30m cost savings and the $200m share repurchase programme should drive strong earnings growth into 2015. This should support the shares’ value on the downside, and evidence of successful execution of its strategy could see 10-20% rating upside and could drive significant earnings upgrades.

Year end Revenue ($m)

PBT* ($m)

Non-GAAP PBT ($m)

EPS* (c)

Non-GAAP EPS (c)

Non-GAAP P/E (x)

P/E* (x)

06/12 501.8 20.4 85.3 22 88 7.9 32.1 06/13 478.6 29.3 64.6 33 74 9.4 21.3 06/14e 472.4 25.5 61.0 29 63 11.1 24.1 06/15e 475.2 41.4 69.7 51 79 8.8 13.7

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Relaunching redesigned Ethernet solutions Emulex supplies solutions for connecting and monitoring servers, storage and networks within the data centre. Over the past few years its progress in the high-growth 10g Ethernet market has been handicapped by patent litigation, while the FC adaptor market (estimated 49% of 2013 sales) declined at a mid-single digit rate, albeit offset by market share gains. With three patent claims outstanding, further disruption is a risk. However, with the bulk of the mitigation work now completed, Emulex is at last able to readdress its position in 10gE. The $130m acquisition of network monitoring appliance supplier Endace diversifies exposure into a $345m market growing at 25% pa, with significant sales synergies targeted.

Financials: 2014 should be a transitional year Recovery prospects should start to become clearer during 2014 as visibility on the potential leverage from Endace and lead indicators of a recovery in Ethernet start to emerge. Early signs are encouraging with 21% sequential growth at Endace in the September quarter and some meaningful 10gE design wins announced. Incoming CEO Jeff Benck has announced $30m of cost savings to support margins and a $200m accelerated share buyback programme, which means that with even modest growth in revenues the group should report strong earnings growth in 2015; after a forecast 15% contraction in EPS to 63c in 2014, we forecast EPS of 79c in 2015 +26%. If it can successfully execute on its 10gE and Endace strategy, we see scope for EPS forecasts to double by 2016.

Valuation: Evidence of top-line growth needed Emulex trades at a 15-25% P/E discount to peers. The share buyback programme should provide some downside support; meanwhile, evidence of its ability to return the group to a growth trajectory would drive the shares’ valuation. We look to quarterly results to confirm Endace’s growth trajectory and newsflow regarding 10gE OEM wins for evidence that progress here is on track. Delivery on our ‘successful execution’ scenario would put the company on a mere 6x 2016 P/E, justifying significant upside, even at the current 11.1x P/E rating.

Emulex Initiation of coverage

Back in the game

Price US$6.98 Market cap US$644m

Net cash ($m) as at September 2013 105

Shares in issue 91.7m

Free float 99.5%

Code ELX

Primary exchange NYSE

Secondary exchange N/A

Share price performance

% 1m 3m 12m

Abs (9.9) (13.5) (0.1)

Rel (local) (10.9) (17.6) (20.2)

52-week high/low US$8.32 US$5.84

Business description

Emulex is one of two dominant suppliers of interface hardware for the mature Fibre Channel SAN equipment market and is working around patent litigation to develop its position in the 10g Ethernet infrastructure market. It derives 59% of revenues from Asia-Pacific, 26% US, 14% EMEA. and 1% RoW.

Next event

Q2 results January 2014

Analysts

Bridie Barrett Schmidt +44 (0)20 3077 5700

Dan Ridsdale +44 (0)20 3077 5729

tech@edisongroup.com

Edison profile page

Tech hardware & equipment

Emulex | 19 December 2013 2

Investment summary

Company description: Network connectivity and monitoring Emulex supplies solutions for connecting and monitoring servers, storage and networks within the data centre. Network connectivity products generate 73% of sales and are principally Fibre Channel (FC) and 10gE card and chip level Network Adaptors, which are designed into server and storage solutions from leading OEMs. Within the mature FC market Emulex is the leading supplier of FC HBAs (44% market share and c 50% of consolidated sales), and has a 12% share in the fast growing 10gE market (c 24% of sales). The acquisition of Endace in February took the company into the high-growth network monitoring market, which it hopes will help diversify the revenue base as the FC market contracts. Longer term, this could give its connectivity solutions a competitive edge.

Financials: 2014 – a trough year Emulex has faced significant headwinds over the past few years; the $550m FC card market is in decline as technology migrates towards 10g Ethernet; however, its progress in this fast-growing $700m market has been handicapped following patent litigation brought by Broadcom in 2011, where it was found to be infringing two of its patents. The consequences have been far reaching; Emulex has been excluded from more than half of the 10gE market and has seen initial strong share gains reversed. Considerable time, effort and expense have been invested in mitigating the impact of the ruling; in 2013, Emulex reported $14m of costs as it works on ‘mitigation’ efforts, which include redesign work, marketing efforts, legal fees, damages and royalty payments. Consequently, despite strong cash flow, Emulex has not reported a GAAP net profit since 2010.

Looking ahead, Emulex seems close to turning a page on this highly disruptive issue. Although there remains ongoing risk from three outstanding patents that are being contested, the majority of the mitigation work has been completed and Emulex is relaunching its redesigned Ethernet solutions. In the FC card market, it has reported steadily improving market share gains and has the opportunity to take share in the ‘target’ market following the exit of its largest competitor, mitigating to a degree the impact of a market in structural decline. Furthermore, the acquisition of Endace has helped to diversify revenues into a high-margin, growth industry.

Although the $30m cost savings identified will drive earnings growth into 2015, reasserting its position in 10gE and the successful execution of the Endace strategy are key to re-establishing top line growth and offsetting the impact of eroding margins in the legacy network business.

Valuation: 10gE and Endace key to driving value Emulex’s shares trade on an underlying P/E of 11.1x, a 17% discount to its closest peer, despite its 10% exposure to the higher-growth network visibility market. With the overhang from the patent litigation, and given it is early days in the 10gE relaunch, an element of discount could be justified. However, should visibility on either of these issues improve, there is scope for 10-20% upside to its rating. If Emulex can rebuild its share in 10gE and drive sales and margin synergies at Endace, we should see upside to our 2% sales growth forecast in the 2016 timeframe. Assuming this happens, our bull case scenario (average growth of 6%) returns an EPS of 123c, which would rate the business at a mere 6x 2016 earnings.

Catalysts for a more bullish scenario to become priced in include clear evidence of success in its sales strategy for Endace and evidence of design wins in 10gE possibly triggered by the Ivy Bridge

and Grantley server refresh cycles. Clarity regarding the disputed patents could also help to remove this lingering overhang on the shares, although with no trial date set, this is unlikely to be soon. The $200m share repurchase programme represents approximately 30% of the shares outstanding and may provide some support to the valuation on the downside should revenues deteriorate further.

Emulex | 19 December 2013 3

Company overview: Connecting storage networks

Emulex supplies hardware and software solutions for connecting, monitoring and managing enterprises’ class data storage solutions. The majority of sales relate to board and chip level Network Adaptors designed to connect servers, storage and networks within the data centre. It is one of two dominant suppliers of interface hardware for the mature Fibre Channel SAN equipment market and is working around patent litigation to develop its position in the higher-growth Ethernet infrastructure market. Emulex’s products are used by leading enterprise, cloud, government and telecommunications companies and are designed into server and storage solutions from leading OEMs, including Cisco, Dell, EMC, Fujitsu, Hitachi, HP, Huawei, IBM, NetApp and Oracle; OEMs account for 91% of sales and direct distribution 9%. Its largest client is IBM (35% of 2013 sales), followed by HP (23%). The acquisition of Endace (completed in April 2013), a supplier of high-performance network recording appliances and visualisation solutions, gave the company a strategic entry point into the high-growth network monitoring and performance management market.

Emulex was formed in 1979 and listed on the NYSE in 2003. It is based in Costa Mesa, California, and employs around 1,100 people across offices in the US, Europe, Asia and New Zealand.

Emulex products

Exhibit 1: Sales by division 2014e Exhibit 2: Sales by region 2013

Source: Edison Investment Research Source: Emulex

Reporting is organised along two divisional lines: Connectivity, which includes network and storage connectivity products (NCPs and SCPs) and network visibility products (NVPs).

Network connectivity products – migration of technology away from FC to Ethernet Products consist of a wide range of board level (cards that are inserted into the server) and chip level (ASICs integrated onto the mother board of the server) Network Adaptors for storage servers.

Network Adaptors have two key functions. They connect different parts of a network (eg the LAN to the SAN) and they help to improve overall efficiency and speed of a network by enabling the offloading of data communication processing tasks from the server as information is delivered and sent to the network, helping to free up the host CPU (central processing unit).

Network equipment varies according to protocols used and data transmission speeds. The main competing protocols in storage networking are the more established Fibre Channel Protocol (‘FC’), which has been in decline in recent years as the competing Ethernet protocol is increasingly adopted in storage networks. A suite of other converged protocols (such as FCoE and iSCSI) are also increasingly used, which consolidate both FC and Ethernet characteristics. Emulex’s solutions support a wide range of server operating systems (UNIX accounts for an estimated 25% of product sales, Windows 50% and Linux 25%), server interfaces, industry standard protocols and data rates.

SCP18%

NVP9%

Fibre channel

49%

Ethernet24%

NCP73%

Asia-Pacific59%

US26%

EMEA14%

RoW1%

Emulex | 19 December 2013 4

Fibre Channel (FC) products account for 78% of divisional sales and are marketed under the ‘Emulex LightPulse’ trademark. We estimate Ethernet-based and other converged products represent 22% of divisional sales, and are marketed under the ‘Emulex OneConnect’ trademark.

Key products include:

Adaptor cards: FC cards are referred to as HBAs (Host Bus Adaptors). These are network cards that connect servers to an FC storage network. The Ethernet equivalent is referred to as 10GbE NIC (10Gb/s Ethernet Network Interface Cards).

ASICs (Application Specific Integrated Circuits) have the same role as a HBA or NIC, but are embedded directly into the motherboard of a server. Fibre Channel cards are referred to as FC ASICs; Ethernet equivalents are referred to as LOM (LAN On Motherboard) ASICs.

UCNAs (Universal Converged Network Adaptors). These cards support connectivity over multiple protocols (TCP/IP, Fibre Channel over Ethernet, and iSCSI).

Custom Form Factor Solutions are adaptor cards with non-standard designs for blade servers.

Storage Connectivity and other products (SCOPs) – non-core, division run for cash

These incorporate a range of controllers and switching architectures (embedded switches, bridges and routers) focused on the storage end of the network. SCPs are marketed under ‘Inspeed’ and ‘XE’ trademarks. This division also incorporates Emulex’s ‘advance technology products’, which primarily consists of Pilot iBMCs (integrated baseboard management controllers), which enable the remote monitoring of a server’s physical state (temperature, cooling fan speeds etc). With only two key customers for SCP products, management is running this division for cash and expansionary R&D efforts have all but ceased. Consequently, management expects revenues in this division to decrease as a percentage of overall revenues.

Network visibility products (NVPs) – exposure to a fast-growing, high-margin industry

This division houses the $130m February acquisition of Endace, a supplier of network monitoring and recording appliances, analytics software and ultra-high speed network switches. Its products enable users (typically banks, telecommunications companies and government agencies) to capture, timestamp, record and analyse data flowing through high-speed data networks.

Growth drivers and market dynamics

Emulex’s target addressable market (TAM) increased to over $1.7bn following the Endace acquisition ($700m FC – including $150m target market, $700m Ethernet, $350m network visibility), and forecasts 13% CAGR to 2016. Emulex is facing a number of headwinds that will present significant challenges to achieving this growth; key to shaping Emulex’s growth over the coming years are: 1) storage market trends; 2) speed of technology migration away from FC; 3) opportunity in the FC target market; 4) re-establishing its position in the growing Ethernet market; and 5) how well it can execute the Endace strategy.

Emulex supplies into a growing, but cyclical, market for storage servers The increasing amount of data that is created as a result of big data, cloud storage and social media has made data storage a strategic priority for many enterprises and is increasingly driving the move of storage into the network. This is leading to rapid growth in larger and more complex storage environments with I/O requirements expected to handle increasing volumes of traffic of differing types. IDC forecasts the enterprise storage systems market to grow from $35bn in 2012 at a CAGR of 4% to 2017; meanwhile, capacity is expected to increase at a CAGR of 38% to 2017.

Emulex | 19 December 2013 5

Despite this backdrop of supposed structural growth, most network and storage equipment companies have reported subdued numbers over the past four quarters as the macroeconomic environment weighs on storage investment. The majority of storage companies are expected to report year-on-year declines in calendar 2013 (average decline of 8% in Q1, and 6.6% in Q2 according to Bloomberg). Forecasts for 2014 are more optimistic. IDC forecasts consolidated blade and rack server revenues to rise 4.8% in 2014, following a decline of 0.9% in 2013.

Technology change is both a boon and a drag for Emulex There are two broad technology migrations occurring within the storage sector: 1) the move to faster 16G FC from earlier standards (2G, 4G, 8G), and 2) a move away from the legacy FC standard entirely to 10g Ethernet and converged products.

Fibre Channel, the more mature technology, was preferred to Ethernet as it is a more reliable and faster technology and it remains the dominant protocol in enterprise class storage networks. For smaller, lower-end facilities, cheaper 1G Ethernet networks are more common. However, as Ethernet standards and speeds have improved, and as prices come down, 10G Ethernet is increasingly taking share from FC, which has seen its share of the market decline driven by:

Convergence and a desire for simplicity in data centres. Every data communication starts and ends in Ethernet. Extending this technology to the storage network from the LAN should mean fewer connections, cables, power consumption, etc. This in turn should mean fewer mistakes, lower costs and a cleaner data centre. Furthermore, properly configured FC requires significant know-how as vendors have differing core standards, whereas Ethernet runs over the well-known TCP/IP protocol. This is a key advantage for SMEs with limited resources.

Enterprises looking to ‘future proof’ networks may choose Ethernet due to its fast increasing bandwidth; generational increases in Ethernet occur in multiples of 10, rather than FC’s four times. Plans are already afoot for 40G and 100G, whereas FC is looking to 32G. Furthermore, for many, Ethernet’s ability to run multiple storage protocols is an advantage.

Server virtualisation trends see larger amounts of traffic directed to fewer servers, and has motivated storage teams to look to technology that can better accommodate higher throughput.

Emulex is gaining share in the shrinking FC card market Market opinion on the future rate of decline of FC is split. FC is deeply entrenched in today’s data centres; in 2012, storage companies EMC and NetApp estimated FC is deployed by 57-67% of storage networks and Gartner estimates the asset value of FC installed infrastructure at over $50bn. This large installed base makes it likely that a significant number of customers will want to protect their investment and rather than move to Ethernet, they will chose to upgrade to 16G FC (and then 32G FC) technology to meet capacity demands. Despite this, Crehan Research reports declines in the FC card market of 5%, 3% and 9% over 2010, 2011 and 2012. For 2013, it forecasts single-digit declines, helped by the ramp-up in 16G shipments, which should account for 8% to 10% of FC shipments by the year end (and which are priced at a 40% premium to 8G).

Exhibit 3: FC 16G HBA revenue market share (standalone and mezzanine cards) Q112 Q212 Q312 Q412 Q113 Q213 Emulex 37% 40% 44% 46% 55% 60% QLogic 58% 56% 51% 49% 35% N/A Source: Dell Oro, Emulex

The FC HBA market is a two-man race between Emulex and QLogic (with Brocade a distant third). Emulex has had a first-to-market advantage in 16G FC solutions, which are being rapidly provisioned and this, along with a reworked ‘go to market’ strategy, has driven its c 5pp share gain over the past 12 months, helping it outperform in this shrinking market (although its FC revenues

Emulex | 19 December 2013 6

were still reported down 5% in fiscal 2013). We do not see any obvious technology disruption to change the competitive status quo, at least until the transition to 32G, scheduled for 2016.

Exhibit 4: FC card market share

Source: Dell Oro

Opportunity to take share in the FC target market following the exit of PMC Emulex also has an opportunity to gain market share in the FC ‘target’ market (embedded solutions) following the exit of PMC – the previous market leader in this segment with 80% market share. This market is worth $150 to $200m overall, although the incremental opportunity for Emulex is closer to $60-80m. With fairly long server replacement cycles, this incremental business is likely to feed in gradually over the next few years and could help to mitigate the overall forecast decline.

The faster growing Ethernet market is more contested Ethernet is winning the ‘protocol battles’ across different parts of the network, and the same trend is occurring in storage networking. Industry observers predict that storage market growth is being driven mainly by large cloud providers (Google, Baidu, Amazon, Facebook etc), and by SMEs. They have less need for FC quality, and are provisioning Ethernet driven by the idea of simplicity. Storage relating to big data, clouds and entry level systems are forecast to grow at a CAGR to 2017 of 34%, 20% and 7% respectively.

Emulex has developed an extensive range of Ethernet and converged products, and initially it made quick progress in gaining share in a fairly fragmented market. However, the impact of patent litigation has created a significant obstacle to progressing in 10gE and growth has stalled since 2011. Intel is the market leader, followed by Emulex, Mellano, Broadcom, QLogic, Brocade, Chelsio, Cisco, Myrocom, and Solar Flare.

Exhibit 5: 10gE market share Fiscal year to June 2008 2009 2010 2011 2012 2013 Emulex 1% 7% 11% 16% 17% 12.5% Source: Crehan Research, Emulex

Patent litigation has handicapped Emulex’s progress in 10gE In 2010, Broadcom Corporation filed patent litigation against Emulex, asserting that six of its patents were being infringed. In October 2011, the courts ruled against Emulex on two of the six patents (patent 150 and 691), which relate to an analogue/digital converter in Romley-based ASICs. A third patent (relating to Emulex FC switch products) was found not to have been infringed, but the remaining patent claims (‘194 patents’ have three claims against them) are outstanding. A trial date is pending the outcome of Emulex’s appeal against the original claim.

These ruling have proved very disruptive, with the following consequences:

20%25%30%35%40%45%50%55%60%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Emulex QLogic

Emulex lost share in the transition to 4G as it had little exposure to Windows/Linux and the blade server market

Emulex has regained share in 16G

Emulex | 19 December 2013 7

Along with the time, effort and direct costs involved in a lengthy and complex litigation process, Emulex has had to direct resources into engineering and development to design around, modify, develop, test and re-qualify affected products. Sales and marketing efforts have been diverted to customer support, pre-production samples and training. Management estimates this incremental cost at $14m in 2013.

On 3 July 2012 a part Settlement Agreement was reached, which granted a limited worldwide licence to the patents for certain fields of use. Under the terms of the Settlement Agreement, Emulex paid Broadcom a lump sum release and licence fee of $58.0m in cash in July 2012.

$0.4m damages have been awarded and Emulex was obliged to pay a licence fee of 9% of sales of related products made in the sunset period ($0.1m reported in 2012 and 2013).

Furthermore, while Emulex has been redesigning its products it has not been able to participate in almost half of this fast-growing market, while its competitors continue to advance. After five years of strong share gain, it has seen its market share reverse (Exhibit 5).

Emulex may now be turning a corner in 10gE Here Emulex may be turning a corner. Management has pre-emptively engaged in mitigation work on all of the disputed patents – not only those that have been found to be in breach. As such, should the pending trial ultimately go against Emulex, it should not be as disruptive as the initial patent decisions in 2011, and while damages and royalties may be incurred, it is unlikely that it will suffer another disruptive and lengthy period of patent work-arounds. Furthermore, the patents disputed relate to older Romley-based processors, whereas redesigns and marketing efforts are targeting the newer (un-infringed) Ivy Bridge-based processors.

On Emulex’s Q4 results conference call, CEO Jeff Benck expressed his view that the company is well along the track of incorporating new technology into ASIC designs, which would enable it to fully participate in the Ivy Bridge and Grantley server refresh cycles. This should enable Emulex, after three years, to get back in the game. At the Q1 results on 30 October, the company indicated it had had a busy quarter for product launches and a number of OEM Ivy Bridge storage platforms were planning on incorporating its designs. This is unlikely to be visible in terms of revenues until 2015, and at this stage management is guiding to flat Ethernet revenues for the current fiscal year (against a market forecast to grow at 15-25%).

Convergence may lead to a smaller overall industry One of the questions the industry faces in the longer term is whether network convergence will lead to fewer ports, sold more cheaply. Ethernet prices and margins are lower than 16G FC, and convergence in theory should mean that fewer ports are required; a host server typically has six to eight ports; however, new virtualisation servers tend to only provision a pair of fast 10gE ports. Another potential issue is the ‘shift to the mid range’ – advancements in technology enable significant increases in data throughput to be achieved with lower-cost installations, which tend to have fewer ports.

Endace (network visibility products) Emulex entered the network visibility market through the February 2013 acquisition of Endace, a UK-listed, New Zealand-based supplier of network monitoring and recording appliances, analytics software and ultra-high speed network switches. Endace reported revenues of $41.2m for the full year to March 2012 (+7.3% year-on-year). Sales for H113 were $19.2m (+3.4%) with the company operating at a break-even position. Emulex’s $130m cash offer was a 65% premium to the previous day’s close and equated to a rating of 3x sales and 103x earnings to March 2012.

Emulex | 19 December 2013 8

100% packet capture

Endace’s products enable users to capture, timestamp, record and then analyse data flowing through high-speed data networks. Its key differentiating factor is its ability to capture 100% of the packets running even at leading-edge 40Gbps and 100Gbps network speeds, whereas many competing solutions either operate on a sample basis or drop packets, particularly at faster network speeds. Management is targeting market share gains into the 10gE migration. The business’s fundamental proposition is very simple, in that without full visibility over every packet, there will always be a risk that something critical will be missed. Historically, the customer base has included major banks and trading houses, government agencies and telecom companies where systems are deployed across a range of applications, including latency management, network diagnostics, cyber and homeland security. More recently the focus has been on addressing the broader enterprise market where the technology is applicable to both security and network management operations.

A horizontal, semi-open network recording fabric

The company’s approach is also differentiated by its focus on providing a layer of infrastructure for recording network traffic (‘a network monitoring fabric’) on top of which a broad range of third-party, proprietary or open source applications are able to run. A semi-open architecture and interfaces facilitate the integration of applications and an eco-system program is being developed to promote third-party support. Partners include Compuware (application performance management), Splunk (security information and event management) and Velocimetrics (trade latency monitoring).

Applicability across a broad range of applications and industries

This approach differs from that of some competitors, such as NetScout and Riverbed, which have developed/acquired proprietary software offerings and would therefore typically seek to sell a vertically integrated solution embracing both hardware and applications into those markets. Many other niche network performance/security companies also operate appliance business models, whereby software and hardware are integrated. This has resulted in corporations suffering from ‘appliance fatigue’, whereby they are forced to buy and deploy ever more equipment to solve each new problem. Endace’s ‘network monitoring fabric’ approach was conceived to provide a more efficient architecture, through enabling multiple applications to leverage the same recording infrastructure, reducing hardware redundancy and improving system manageability.

Diversification into a high-growth end market

The logic for the acquisition is not immediately obvious, in that Emulex is essentially an adaptor/connector supplier that sells primarily to OEMs, whereas Endace is an appliance supplier (ie an OEM) selling mainly direct to enterprise customers. However, Emulex expects to generate robust sales leverage in the near term and in the longer run significant differentiation is seen from combining the two companies’ technologies. On a standalone basis, the acquisition gives Emulex access to a market estimated at c $345m in 2013 (source: Frost and Sullivan), expected to grow at a CAGR of 22.4% through 2017. This revenue diversification may provide a useful hedge given the transitional phase the core business is currently going through.

Technology, sales and cost synergies targeted

Looking at the synergies in more detail:

Sales leverage – pre-acquisition, Endace was significantly constrained by its inability to invest in rapidly scaling its sales force – the company was operating at close to break even and had limited cash resources ($4.3m at end H2). Since acquisition, it has begun to expand the NVP sales team into the established Emulex footprint, senior sales hires have been made, including the recruitment of a head of worldwide sales (Todd Palmer, previously VP of channel sales at NetApp) and it is progressing towards its target of driving 75% of sales through its distribution partners. It is worth noting that, while Emulex’s customer base is largely OEMs, it also has a

Emulex | 19 December 2013 9

well-developed sales, system engineering and technical marketing presence at major end users and with channel partners. Endace should therefore also gain some direct leverage from these relationships sales as well as from Emulex’s larger footprint and stronger financial platform. In the quarter to September, sequential sales growth was 22%.

Cost synergies – while very much secondary to sales leverage, savings in administrative costs are being implemented by eliminating the cost of maintaining a London listing and other corporate overheads in order to ‘self fund’ the increased investment in sales and marketing.

360 degrees of visibility – longer term, management believes it can gain a unique competitive advantage from combining the Emulex and Endace solutions to enable the monitoring of traffic running over both the broader LAN/WAN network and between nodes within the data centre. Currently Endace’s solutions (and those of its competitors) monitor only what is termed north-south traffic – typically used to machine traffic over LAN or WAN network. However, with the explosive growth in virtualisation, the volume of traffic running between (often virtual) nodes within the data centre (east-west traffic) is increasing very significantly. This traffic is not typically captured by conventional network monitoring equipment that taps into the physical network, as much of it resides solely within a virtual (ie software simulated) environment. However, all east-west traffic is passed through the interface cards on the equipment. Thus, management believes that through integrating Endace’s monitoring and search capability with Emulex’s cards, it will be uniquely placed to offer solutions that give organisations complete visibility of the north-south and east-west traffic running over their networks.

Exhibit 6: Network recording market share .

Exhibit 7: Network recording market – growth forecasts

Source: Frost and Sullivan Source: Frost and Sullivan

Management and company strategy

Activist investors lobby for change

In July 2009, Broadcom (a leading networking and wireless chip supplier) made a bid for 100% of Emulex at $11/share ($880m). The board rejected this bid and, as outlined on page 6, has subsequently been embroiled in patent litigation with Broadcom. Although there is a 99.5% free float, the share ownership is fairly concentrated with 65% of shares owned by only seven investing groups. Activist hedge fund Elliott Management (9.8% holding), which has one nominee on Emulex’s board, and Altai Capital Management (5.9%) have been lobbying for change.

In May, Altai sent an open letter to management, expressing its concern regarding the change of strategy following the Endace acquisition, arguing that the board should have accepted the Broadcom offer, and strongly recommending Emulex reinitiate a sale process or, “Altai wants the board members who rejected the Broadcom bid to resign and will consider all its options to achieve this, including a threat of a shareholder vote proxy war at Emulex's next annual general meeting”.

NetScout25%

Network Instruments

16%Riverbed

12%Emulex

11%

NIKSUN10%

EMC (RSA NetWitness)

9%

Others17%

20%

21%

22%

23%

24%

25%

26%

27%

0

500

1,000

1,500

2,000

2,500

2011 2013e 2015e 2017e 2019e

Growth

Reve

nue (

$m)

Revenue Growth Rate

Emulex | 19 December 2013 10

Board restructuring

During 2013, a number of board level changes have been announced; Jeff Benck, COO since 2010, was appointed CEO in July, replacing CEO and executive chairman James McCluney, who will leave the group in February 2014. Michael J Rockenbach (FD since 1997) is retiring at the end of the year. This leaves two board level positions open. Emulex announced on 11 November that is plans to reduce the size of its board from 12 to 11, and is actively interviewing three new candidates in order to bring new expertise at board level.

Summary biographies of key management can be found at the back of this report.

Initiatives to improve profitability announced on 11 November 2013

On 11 November, management announced three initiatives, developed in co-operation with major shareholders, to drive shareholder value. The initiatives are: a $30m cost saving programme, a $200m accelerated share buyback programme (30% of outstanding shares) funded by the issue of $150m of convertible debt and operating cash flow, and as outlined above, the search for three new board-level executives to help drive the company’s transformation.

We now see four key pillars to Emulex’s strategy:

Managing 10gE migration. The group’s strong position in 16G FC and opportunities in the target market go some way to help to mitigate the declines in the FC card market. However, re-establishing itself in the 10gE segment is fundamental to growth. With the bulk of the litigation work done, and the launch of redesigned solutions, management may be able to turn a page on this chapter of the company’s history and re-establish its position in this growing, but still contested market.

Revenue diversification. Driving share in Ethernet in itself may not be enough to return the group to a sustainable position of profitable growth in the longer term. Ethernet is a lower-price, lower-margin product, and in the longer term migration to Ethernet and converged products risks creating a lower-volume industry. Although the acquisition of Endace has been greeted with some scepticism in the markets, we welcome the revenue diversification that it introduces.

‘Connect, manage, monitor’. Through Endace, Emulex hopes to add a differentiating factor to its connectivity solutions, enabling it to offer solutions that give organisations complete visibility of the north-south and east-west traffic running over their networks.

Cost savings. By simplifying the product portfolio, discontinuing some low-return products and pursuing more cost consolidation opportunities, management has identified $30m of cost savings, which should start to have an impact on results through 2014, and be at full run rate in 2015. Further efficiencies are being sought on an ongoing basis.

Sensitivities

Takeover speculation aside, the key catalysts to share performance relate to:

Patent litigation. If an unfavourable verdict is reached, this could affect Emulex’s ability to sell its products and may result in the payment of compensation. Although redesign efforts have been done pre-emptively, further redesign work cannot be ruled out. Any clarity on the likely outcome from the remaining patent disputes would affect the share. However, with no trial date set, unless Emulex wins its appeal against the original verdict, this is unlikely to be soon.

Technology migration. This introduces uncertainties surrounding pricing and volume trends, and the risks of new competition and new product adoption. Emulex’s current market share is significantly lower in Ethernet-based products than in legacy FC. Should the migration occur at a much faster or slower rate than forecast, this would have a significant impact on its top line. A 1pp increase in the rate of decline of FC reduces our DCF by 3%.

Emulex | 19 December 2013 11

Success of its 10gE ‘Go to market’ strategy. Evidence that Emulex is able to move past the patent litigation and drive forward its redesigned Ethernet products would positively affect the share. The Ivy Bridge and Grantley server refresh cycles may act as a catalyst. A sustained 1pp improvement in Ethernet market share returns an 11% increase in EPS.

Endace. The market for Endace’s network monitoring solutions remains fairly nascent. Growth is lumpy and the business model is evolving. Evidence that management is able to execute the Endace strategy and drive top-line synergies would help the share.

Cost savings. Management has identified $30m of annualised cost savings for the coming year. The cost base is currently affected by the integration of Endace and patent mitigation work. If further cost savings and synergies can be identified, this would lead to upgrades.

Other sensitivities include:

OEMs: Emulex supplies OEMs, and as a result, its success is directly linked to their success. For instance, when Cisco, which has a background in Ethernet, entered the market and rapidly took share in the Ethernet based blade server market, Emulex was wrong-footed. Huawei has recently expanded into servers and storage. Although its current market share is small (less than 1% in 2012), it is a significant challenger and, should it compete on price, this may be damaging for component suppliers (Emulex has a solid relationship with Huawei).

Macro issues: The networking equipment market is a cyclical sector. The duration and depth of the current global recession will inevitably take its toll.

Customer concentration: The OEM end market is fairly concentrated; Emulex’s two largest customers HP and IBM account for 58% of its revenues.

Currency: Emulex reports in US dollars, but 59% of revenues are derived from Asia-Pacific and 14% EMEA.

Financials

2013 results overview – initial impact of Endace acquisition In 2013, net revenues decreased by 5% to $478.6m. Excluding Endace, the networking segment (NCP and SCP) decreased by 7%. Within the largest NCP division, FC revenues declined by 5% (mainly pricing effects) and Ethernet solutions were down 9%, hindered by the impact of the permanent injunction, alongside customers running down 2012 inventory levels. SCP saw revenues decline 24% as some product lines reached the end of their life. Non-GAAP gross margins edged up to 63.8% from 63.2% in 2012 due to the inclusion of the higher-margin Endace business. Operating profit of $69.5m was down from 2012’s $84.9m and operating margins decreased to 14.5% (from 16.9%) flowing from the operational gearing effect of the lower revenues. $70.2m of ‘exceptional’ costs were recorded in 2013 – lower than the $94.8m in 2012 mainly due to the Broadcom settlement during 2012, driving a GAAP operating loss of $0.7m (vs 2012 reported loss of $9.9m).

Despite the extra costs incurred since the 2011 injunction, and the recent Endace acquisition, the group is cash generative and has a strong balance sheet with net cash of $106m at the end of September.

Q1 update – pick up in network visibility growth helps offset declines elsewhere For the quarter to September, revenues of $114.8m decreased 3.7% y-o-y. Network visibility saw a pick up in momentum with sequential revenue growth of 21.7%, while in a seasonally weak quarter network connectivity products declined 19.4%. Gross margins at 65.4% continue to benefit from the impact of the Endace acquisition but with a weaker top line, non-GAAP operating margins of 11.7% continued to decline (17.1% Q113).

Emulex | 19 December 2013 12

Management has said it expects non-GAAP gross margins to remain broadly stable as the impact of consolidating 12 months of the higher-margin Endace business offsets the 1-2pp margin decline expected from the networking business. At a revenue level, Ethernet is expected to be broadly flat year-on-year, with recent design wins starting to affect results in 2015. Endace should account for roughly 10% of overall sales this year. In 2014, mitigation expenses relating to the permanent injunction are expected to be in the region of $6-7m. For Q2, revenues have been guided to $118-124m (-3% to +2% y-o-y), and non-GAAP EPS of 15c to 17c.

Initiation of forecasts – 2014 a transitional year 2014 is unlikely to be year of spectacular financial performance; despite the benefit of a full year integration of Endace, we forecast revenue to be down slightly in 2014, and expect non-GAAP operating margins (company’s definition – see Exhibit 9) to contract to 13.4% from 14.5% due a weaker performance in network connectivity and increased investment in sales and marketing to drive growth at Endace. We forecasts non-GAAP EPS of 63c (-15% y-o-y).

In 2015, Emulex should start to see the benefit of recent design wins in 10gE and we forecast a return to modest revenue growth of 1%, but margin expansion to 15.2%, driven by the recently announced cost savings initiatives. With the impact of a reduced share count and higher leverage, we forecast 2015 non-GAAP EPS growth of 26% to 79c.

Looking at our forecasts in more detail:

Revenues: We assume the market for FC cards and adaptors shrinks by 7% annually, but Emulex continues to benefit from further modest market share gains in the current year. We also assume a 2pp reduction in FC revenues as a result of the discontinuation of low ROI product lines. For Ethernet products, we assume market growth of 15%, but expect to see further decreases in Emulex’s market share until the end of 2014 when we forecast the benefits of recently announced design wins to start to have an impact on results. In line with the group’s strategy, we are forecasting SCP revenues to decrease over the coming years. For Endace, we assume a return to double-digit growth in the current year as the company’s sales efforts start to bear fruit.

Margins: With the bulk of mitigation work completed, these incremental costs should start to decline, although litigation costs are likely to remain relatively high until the outstanding patent claims are resolved. We have reflected $11m of costs in 2014 and $7m in 2015 (vs to $14m reported in 2013). We have incorporated $12.5m of the targeted $30m cost savings in 2014, and the full $30m in 2015.

Exhibit 8 summarises our key revenue and gross margin assumptions.

Exhibit 8: Revenue and margin assumptions Key revenue assumptions Non-GAAP gross margin assumptions 2013 2014 2015 2016 2014 2015 2016 FC market growth rate (14.8%) (7.0%) (7.0%) (7.0%) Emulex FC market share 41.5% 44.2% 44.2% 44.2% Emulex FC revenue growth rate

(6.3%) (7.0%) (7.0%) FC margins 68% 68% 67%

Ethernet market growth rate 40.3% 15.0% 15.0% 15.0% 10gE 59% 58% 57% Emulex Ethernet market share 12.5% 10.5% 11.5% 12.5% Emulex Ethernet growth rate

(3.4%) 26.0% 25.0%

Total divisional NCP growth (0.4%) (6.7%) 2.7% 6.2% NCP 65% 63% 62% SCP growth rate (25.1%) (15.0%) (15.0%) (10.0%) SCP 61% 61% 61% NVP growth rate 1.8% 15.0% 15.0% 15.0% NVP margins 73% 73% 73% Total revenue growth rate (4.6%) (1.3%) 0.6% 4.6% Group 65% 64% 63% Source: Edison Investment Research

Emulex | 19 December 2013 13

Earnings sensitivity If Frost and Sullivan’s estimate of 25% market growth in the network visibility segment is correct, and if Emulex succeeds in gaining share into the 10gE transition, Emulex could grow at a substantially higher rate than our forecasts, driving operationally geared margin expansion.

Given the low from which the earnings forecasts are coming, they are relatively sensitive to small changes in assumptions. For instance, our forecasts include $12.5m of annualised costs savings identified by management for 2014 and $30m in 2015. Every incremental $1m of cost savings (0.3% of 2013 operating expenses) adds 1c (1.5%) to 2014 non-GAAP net income. At a revenue level, if the market for FC declines at a slower pace than forecast (eg -5% rather than -7%) this would drive a $5m increase in revenues and a 3c increase in net earnings (5%). We estimate that a 1pp gain in FC market share translates into $5m of revenues (c 5% earnings). A 1pp gain/loss in Ethernet market share translates into $11m of revenues (11% to net income). Although only 10% of revenues, due to its higher gross margin, a 1pp increase in revenues from Endace could drive a 0.3c (0.5%) increase in non-GAAP net income.

Adjustments Our presentation of forecasts differs from Emulex’s non-GAAP method owing to our inclusion of amortisation on capitalised technology expenses and the cost of patent litigation and mitigation on the basis that this relates to the ongoing cost of running the business. We present a reconciliation of non-GAAP, Edison and GAAP forecasts in Exhibit 9.

Exhibit 9: Reconciliation of forecasts – non-GAAP, Edison and ‘reported’ basis 2013 2014e 2015e 2016e Revenue ($m) 478.6 472.4 475.5 497.2 Gross profit ($m) Non-GAAP 305.6 305.4 304.2 312.5 Amortisation 21.8 24.5 21.2 20.3 Patent mitigation expenses 5.0 5.0 5.0 2.0 Edison and reported 278.8 275.9 279.0 290.2 Operating profit ($m) Non-GAAP 69.5 63.1 72.2 73.5 Non-GAAP operating margin 63.8% 64.6% 64.05 62.8% Amortisation 21.8 24.5 21.2 20.3 Cost of mitigation and litigation work 13.6 11.0 7.0 2.0 Edison 34.1 27.7 44.0 51.2 Stock based compensation 21.8 20.0 20.0 20.0 Amortisation of acquired intangibles 5.9 6.1 5.3 5.1 Exceptional items 7.1 10.4 5.0 0.0 Reported operating profit (0.7) (8.8) 13.7 26.1 PBT ($m) Non-GAAP 64.6 61.0 69.7 71.0 Edison 29.3 25.5 41.4 48.7 Reported (5.6) (11.0) 11.1 23.6 EPS (c) Non-GAAP 74.0 63.0 79.0 82.0 Edison 33.0 29.0 51.0 61.0 Reported (6.0) (13.0) 13.0 27.0 Source: Edison Investment research

Valuation

Speculation of a trade sale has evaporated and Emulex now trades on a 15-25% P/E discount to peers. Visibility on the outstanding patent issues and evidence of the success of the re-launched 10gE products and Endace’s growth potential could see the rating move up towards peer levels and could drive earnings upgrades; our bull case scenario could see earnings double from forecast levels to 123c by 2016, and would put the shares on 6x P/E. The share buyback programme should provide a degree of downside protection.

Emulex | 19 December 2013 14

Takeout speculation has dissipated since the share buyback announcement

The shares jumped 25% to $8.30 on 2 July on press speculation that the group had appointed advisers to seek a trade buyer. Following the 11 November announcement of the accelerated share buyback, the shares were marked down 10%, and currently trade c 11% below our core DCF of $7.80 (WACC 10.0%, perpetuity growth from 2020 2%), suggesting this premium has largely dissipated. However, in a cyclical sector that faces structural challenges, we are reluctant to place too much weight on longer-term forecasts and prefer multiple-based valuations to a DCF.

Peer comparison – trades at a significant discount to peers

On consensus estimates, Emulex trades at a 17% discount to its closest peer QLogic on an 11.1x P/E for FY14. This is despite the higher forecast earnings growth in 2015 and its 10% exposure to the higher rated network visibility segment (18-20x P/Es typical). Excluding outlier Xyratex, a peer group rating, adjusted for its 10% revenue exposure to the network visibility segment, implies a comparable peer rating of 13.0x P/E in 2014 and 11.7x in 2015, considerably above that of Emulex. With the overhang from the patent litigation, and given it is early days in the 10gE re-launch, an element of discount could be justified. However, should visibility on either of these issues improve, there is scope for 10-20% upside to its rating.

Note: While we have shown EV/EBITDA multiples in exhibit 10, Emulex does not disclose depreciation, and as such these multiples are not a reliable valuation tool.

Exhibit 10: Peer valuations Share

price (local)

Market cap

(local m)

Current EV/S

Next EV/S

Current EV/

EBITDA

Next EV/ EBITDA

Current P/E

Next P/E Sales growth

yr 1

Sales growth

yr 2 Emulex (non-GAAP, Edison forecasts) 6.98 644 1.1x 1.1x 6.4x 5.9x 11.1x 8.8x -1.3% 0.6% Network connectivity peers: QLogic 11.40 989 1.2x 1.1x 5.5x 5.7x 13.4x 12.9x -5.8% 2.1% Brocade Communications 8.56 3,800 1.6x 1.5x 5.4x 5.1x 10.7x 10.0x -1.0% 2.2% Other storage equipment manufacturers Xyratex 10.38 281 0.2x 0.2x 8.2x 7.6x 35.8x 38.4x -27.7% -5.5% NetApp 39.95 13,616 1.4x 1.3x 6.7x 6.2x 14.8x 13.2x 1.9% 4.5% Endace Peers NetScout 27.5 1,142 2.5x 2.3x 8.7x 7.6x 18.5x 16.4x 11.6% 11.6% Riverbed 17.0 2,759 2.8x 2.6x 9.2x 8.6x 17.6x 15.3x 24.7% 7.4% Weighted average (excluding outliers)

1.4x 1.4x 5.9x 5.8x 13.0x 11.7x 0.3% 3.4%

Source: Bloomberg. Note: Priced as at 17 December.

Accelerated share repurchase programme – 30% of outstanding shares

The $200m share buyback programme announced on 11 November represents 30% of the outstanding shares. $100m is targeted by the end of fiscal 2014 through individually negotiated transactions and entry into an ASR (Accelerated Share Repurchase Programme). The second phase will begin immediately after. Emulex has issued a $150 convertible to fund the buyback, which alongside the $106m of cash (reported at September 2013) and solid free cash flow generation, will leave the balance sheet fairly strong. We forecast 2015 year-end net cash of $59m.

Scenarios

A great deal depends upon the re-launch of 10gE products, and Emulex’s ability to execute on Endace’s sales strategy. We see 2014 as a critical year in determining the direction of Emulex’s top line in the medium term. Given the ongoing uncertainties, we present a bull vs bear scenario:

Bull: Emulex now has a complete product range and should be able to rapidly rebuild its market share in Ethernet. We are currently forecasting a modest increase in market share from next year (1pp pa to 2017). However, if it can drive its market share back up to its historic high of 16% by 2016, and alongside this, Endace grows in line with industry expectations for the sector (c 25% pa), our average revenue growth for the three years to 2016 would increase to 6% (from 2%) with

Emulex | 19 December 2013 15

margins peaking at 20%. This would point to 2016 EPS of 123c (15% tax rate), implying a rating of 6x at the current price.

Bear: If Emulex’s market share in 10gE has been permanently eroded and Endace’s growth remains at the low end of industry expectations (ie high-single digits), revenues would decline by an average of 1.5pp per year and margins would consequently fall to 10.6%, pointing to a 2016 EPS of 55c, an implied rating of 12.7x.

Exhibit 11: Financial summary $'000s 2012 2013 2014e 2015e 2016e 2017e Year end 30 June GAAP GAAP GAAP GAAP GAAP GAAP PROFIT & LOSS Revenue 502 479 472 475 497 510 Cost of Sales (246) (200) (196) (196) (207) (211) Gross Profit 256 279 276 279 290 299 EBITDA 38 54 48 64 70 72 Operating Profit (before amort. and except.) 20 34 28 44 51 54 Intangible Amortisation (7) (6) (6) (5) (5) (5) Exceptional costs (1) (7) (10) (5) 0 0 Stock based compensation (22) (22) (20) (20) (20) (20) Operating Profit (10) (1) (9) 14 26 29 Net Interest (including FX) 0 (5) (2) (3) (3) (3) Profit Before Tax (norm) 20 29 25 41 49 51 Profit Before Tax (FRS 3) (10) (6) (11) 11 24 26 Tax (2) 0 0 (1) (3) (5) Profit After Tax (norm) 19 30 25 40 46 46 Profit After Tax (FRS 3) (11) (5) (11) 10 21 21 Average Number of Shares Outstanding (m) 86.6 90.3 88.0 78.9 75.8 76.4 EPS - normalised (c) 21.7 32.8 29.0 51.1 60.5 60.0 EPS - normalised and fully diluted (c) 21.7 32.8 29.0 51.1 60.5 60.0 EPS - (IFRS) (c) (12.8) (5.7) (12.5) 12.7 27.4 27.4 Dividend per share (p) 0.0 0.0 0.0 0.0 0.0 0.0 Gross Margin (%) 51.0 58.3 58.4 58.7 58.4 58.6 EBITDA Margin (%) 7.6 11.3 10.2 13.4 14.1 14.2 Operating Margin (before GW and except.) (%) 4.0 7.1 5.9 9.3 10.3 10.5 BALANCE SHEET Fixed Assets 371 450 419 393 370 348 Intangible Assets 282 388 360 336 313 291 Tangible Assets 60 62 59 57 57 57 Investments 29 0 0 0 0 0 Current Assets 342 260 351 357 371 438 Stocks 20 24 19 19 20 21 Debtors 102 107 104 104 108 110 Cash 201 106 203 209 219 283 Other 18 24 24 24 24 24 Current Liabilities (103) (72) (72) (72) (72) (72) Creditors (103) (72) (72) (72) (72) (72) Short term borrowings 0 0 0 0 0 0 Long Term Liabilities (35) (51) (201) (201) (201) (201) Long term borrowings 0 0 (150) (150) (150) (150) Other long term liabilities (35) (51) (51) (51) (51) (51) Net Assets 575 588 497 477 467 513 CASH FLOW Operating Cash Flow 79 11 68 76 80 81 Net Interest 0 (0) 0 0 0 0 Tax 0 0 0 0 0 0 Capex (15) (16) (20) (20) (21) (21) Acquisitions/disposals 0 (108) 0 0 0 0 Financing 7 17 50 (50) (50) 5 Dividends 0 0 0 0 0 0 Net Cash Flow 71 (95) 98 6 9 65 Opening net debt/(cash) (130) (201) (106) (53) (59) (69) HP finance leases initiated 0 0 0 0 0 0 Other 0 0 (150) 0 0 0 Closing net debt/(cash) (201) (106) (53) (59) (69) (133) Source: Emulex accounts, Edison Investment Research

Emulex | 19 December 2013 16

Contact details Revenue by geography 3333 Susan Street Costa Mesa California- 92626 US +1 (714) 662 5600 www.emulex.com

CAGR metrics Profitability metrics Balance sheet metrics Sensitivities evaluation EPS CAGR 2012-16 29.2% EPS CAGR 2014-16 44.5% EBITDA CAGR 2012-16 16.5% EBITDA CAGR 2014-16 20.6% Sales CAGR 2012-16 (0.2%) Sales CAGR 2014-16 2.6%

ROCE 2015e 9.9% Avg ROCE 2012-16 9.6% ROE 2015e 8.5% Gross margin 2015e 58.7% Operating margin 2015e 9.3% Gross mgn/Op mgn 6.3

Gearing 2015e N/A Interest cover 2015e N/A CA/CL 2015e 5.0 Stock days 2015e 14.8 Debtor days 2015e 79.6 Creditor days 2015e 55.0

Litigation/regulatory Pensions Currency Stock overhang Interest rates Oil/commodity prices

Key management President and CEO: Jeffrey W Benck (board member) CFO: Michael J Rockenbach Mr Benck was appointed CEO in July 2013. He joined Emulex in 2008 from QLogic, Emulex’s largest competitor, where he was COO. He was appointed COO of Emulex in 2010. Prior to QLogic, he worked for 18 years at International Business Machines Corporation in various capacities.

Mr Rockenbach has been with Emulex since 1991. He was appointed CFO in 1997 after working in senior finance and accounting positions within the company. Prior to Emulex he served in various manufacturing finance positions.

Executive chairman: James McCluney (board member) Senior VP worldwide sales: Perry Mulligan Mr McCluney is a storage industry veteran. He was appointed executive chairman in July 2013, having served as CEO since 2006. He joined Emulex in 2003 on the acquisition of Vixel where he was president and COO. Prior to this he worked in a senior capacity (finally COO) at Crag Technologies (previously Ridge Technologies), a storage system manufacturer, and Apple Computer.

Mr Mulligan has over 30 years of experience in global operations, supply chain management and procurement. Prior to joining Emulex, he worked for QLogic as SVP of operations, Solectron and Celestica.

Principal shareholders (%) Blackrock Group companies 12.8 Altai Capital Management 10.5 Vanguard Group companies 10.0 Starboard Value LP 6.6 Elliot Management Corporation 9.8 Dimensional Fund Advisors 7.8 Wellington Management Group 7.8

Companies named in this report QLogic (QLGC), Brocade (BRCD US), Broadcom (BRCD US), EMC Corp (EMC US), Net App (NTAP US), Seagate Technology (STX US), Western Digital Corp (WDC US), Xyratex Ltd (XRTX US), Dot Hill Systems (HILL US), Teradata Corp (TDC US), Huawei Technology (002502.SZ), Hewlett -Packard (HPQ US)

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59% 26% 14%%

Asia-Pacific US EMEA ROW