QLogic Exits Drive Controller Biz

QLogic has agreed to sell its hard disk and tape drive controller businesses to chipmaker Marvell Technology Group for $225 million.

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

QLogic CEO H.K. Desai said on a conference call that the cost and intellectual property 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 (SAN) 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 host bus adapters (HBA) and Fibre Channel switches, as well as emerging categories such as iSCSI to Fibre Channel bridges.

Desai said customers can expect an iSCSI to FC 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 analysts.

“Management intends to ‘invest in new markets,’ which we interpret as an indication of forthcoming acquisitions,” R.W. Baird analyst Daniel Renouard wrote in a research note. “Given high operating margins, any acquisition would likely simultaneously lower cash and increase operating expenses.”

Renouard told Enterprise Storage Forum that QLogic’s controller business was “definitely impacted by SATAand SAS. This biz at QLogic could play in the SAS arena — they just hadn’t made the necessary investments and wanted to focus on the Fibre Channel business.”

Renouard called the move “the right one longer-term.”

For Marvell, the HDD and tape drive controllers will add another key component to advance the company’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 as part of the transaction.

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

Article courtesy of InternetNews.com