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QLogic rumored as EMC takeover target

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With only two companies in the world who make host adapters for networking servers to external storage - and one of them trying to shake off a hostile takeover - it is no surprise that the other one is rumored to be the target for a takeover too.

Barron's, the offshoot of the Wall Street Journal that used to be a weekly paper rag and is now a blog of sorts for stock watchers, is reporting that there are rumors that storage juggernaut EMC might be interested in acquiring QLogic.

Last week, chip maker Broadcom launched a $764m hostile takeover of QLogic's only rival, Emulex. As it turns out, Broadcom had approached Emulex to do a deal last year, but the talks broke down. Earlier today, Emulex said its third quarter of fiscal 2009 sales fell by 39 per cent to $78.6m, and it posted a net loss of just under $6m.

Emulex has a market capitalization of $862.6m as we go to press, which makes the Broadcom deal look a bit stingy. But then again, Emulex is under pressure from QLogic, and Fibre Channel connectivity to storage is under pressure from SAS switches and iSCSI Ethernet alternatives too.

QLogic, by comparison, has a market cap of $1.62bn as we go to press, and its stock has jumped by 6.5 per cent today, presumably just based on the potential acquisition rumors. QLogic has not reported its financial results for the first quarter (which coincides with Emulex's third fiscal quarter) as yet. But in 2008, it had sales of $597.9m and brought $96.2m to the bottom line. Emulex, by contrast, had sales of $461m in the same twelve month period for all of calendar 2008 and lost $16.9m. If you want host bus adapters, Emulex is the more affordable company to chase.

With Broadcom getting an $891m settlement from wireless communications chip maker Qualcomm this week, with the first $200m due on June 30, the company certainly has cash to up the bidding for Emulex. And it might even be tempted, based on the settlement, to take a run at QLogic.

Both Emulex and QLogic have been successful precisely because they are independent vendors who can provide connectivity products to all the major server makers without causing a fuss. EMC has done a pretty good job in positioning its VMware subsidiary as a separate entity - taking it public for what was probably the last gasp of the IT boom sure helped to seal that impression in people's minds - and EMC could do the same with QLogic if it wanted to expand into host bus adapters and switches and not freak out its server and networking partners. If the rumor turns out to be anything at all.

Other companies that might be interested in QLogic include Hewlett-Packard and IBM, which both partner with the QLogic. There's some chatter about networking giant Cisco Systems (which is moving into servers) being interested, but the whole proposition in its "California" Unified Computing System is to offer Fibre Channel over Ethernet and collapse the networks. Cisco has tip-toed around acquiring QLogic before, back in 2006, but is really a competitor now. It is hard to imagine Cisco being enthusiastically greeted as QLogic's new owner by the server makers it is annoying right now thanks to the California launch. Dell seems much more likely as a buyer for QLogic than Cisco - and not very likely at all considering what it would probably cost.

Bootnote: Yes, I had forgotten that Brocade recently jumped into the HBA market. Deepest apologies. ®

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