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.

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