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QLogic: Does It Make Any Sense?

While many believe that mergers and acquisitions will rocket, this may not happen. Look at the response to QLogic , which recently announced it would purchase Ancor. QLogic's stock got decimated.

Well, as I expressed in my column yesterday: It seems that investors have become a very skeptical group. Then again, this could mean good value opportunities.

Let's look further into QLogic. It is the clear leader in technology that links I/O boards with storage area networks (SANs). As for Ancor, it is the second largest player in the SAN market. Seems like a great fit, huh? It certainly is. Basically, QLogic will be able to offer its customers a more complete solution.

The leader in the SAN market is Brocade (a company which I have written about in a prior column). Brocade is a major customer of QLogic. After the merger, will Brocade bolt? Brocade has announced that the relationship will continue. After all, QLogic is the Big Player in the bus adapter marketplace. In the new global economy, it is suicidal to make enemies. Companies need to partner to succeed.

However, the marketplace for SANs is red hot. Companies like Brocade and Ancor will have more than enough business between them.

As for QLogic, the company has been growing at a torrid pace, as it takes advantage of its leadership position. In the last quarter, the company recorded revenues of $60.1 million, which was up 71% from the same period a year ago. Top companies like Compaq, Dell, IBM and Sun use QLogic's technology.

The company is profitable, with $18.5 million in net income last quarter. QLogic beat street estimates by three cents.

With the fall in NASDAQ and the fast growth of the Net, M&A will quickly change the landscape of high-tech. QLogic got penalized for broadening its product line, as well as its customer base. It's tough medicine. However, over time, it is a move that should pay off.