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

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.

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