RealTime IT News

QLogic Dumps Drive Biz for $225M

QLogic, which makes adapters for fibre channel networks and switches, agreed to sell its hard disk drive controller and tape drive controller business to chipmaker Marvell Technology Group for $225 million.

QLogic's hard drive and tape drive controllers, which power arrays from EMC, HP, IBM and others, make up 25 percent of its revenues.

CEO and President H.K Desai said on a conference call the cost and IP necessary to remain competitive in the hard drive controller market is not aligned with the Aliso Viejo, Calif., company's new strategic direction.

That focus is on becoming a leader in the storage area network infrastructure space, which Desai said is expected to grow 20 to 25 percent annually through 2008, topping $3.6 billion.

"This action also allows us to focus on expanding our existing SAN infrastructure business and enter adjacent and new higher growth markets," he said.

The SAN infrastructure market includes such mainstays as iSCSI host bus adapters and fibre channel blade switches, as well as emerging categories like iSCSI to fibre channel bridges.

Desai said customers can expect a iSCSI to fibre channel product from QLogic next year. Building hardware to support storage virtualization is another area QLogic is interested in.

Acquisitions loom on the horizon for QLogic, according to some analysts.

"Management intends to 'invest in new markets,' which we interpret as an indication of forthcoming acquisitions," said RW Baird analysts in a research note. "Given high operating margins, any acquisition would likely simultaneously lower cash and increase operating expenses."

On the flipside, the HDD and tape drive controllers will add another key component to advance Marvell's integration strategy for storage silicon.

SG Cowen analysts praised the deal in a research note Tuesday.

"Moving forward, we believe this acquisition is beneficial to Marvell as the company's wafer processing costs are roughly one-third those of Qlogic's costs, with additional cost savings flowing directly to the bottom-line," SG Cowen analysts said in a note. Marvell commands better pricing from the foundries as its wafer starts are significantly higher."

Marvell will absorb 93 of Qlogic's employees via this transaction.

QLogic will receive $180 million in cash and $45 million in Marvell common stock for the deal, expected to close within sixty days.