Ripple Effects Of QLogic, Ancor Deal

Host bus adapter vendor QLogic Corp. erased nearly half of its market capitalization and got on the blacklist of a key technology partner last Monday when it unveiled plans to acquire Fibre Channel switch vendor Ancor Communications Inc.

While investors booed the deal with their dollars, other industry observers, including integration partners, applauded the marriage as one that will help get past interoperability issues among Fibre Channel peripheral vendors.

QLogic, based here, said last week it will acquire Ancor, Eden Prairie, Minn., in a stock swap that would have valued Ancor at $1.7 billion as of the close of market the Friday before. This represented a 68 percent premium over Ancor's market capitalization at the time.

However, on the day of the announcement, QLogic's stock dropped more than 25 percent, followed by a further 17 percent plummet on Tuesday.

Reaction by Brocade Communications Systems Inc., a San Jose, Calif.-based vendor that claims to have a 90 percent share of the Fibre Channel switch market, was just as swift.

Brocade will continue to work with QLogic in terms of interoperability, said Jay Kidd, vice president of product marketing at Brocade. However, Brocade will cut QLogic out of the picture and improve relations with that company's competitors when it comes to sharing information related to product road maps and trends, he said.

"There is a difference between a partner you need to work with on interoperability, and one you want to work with on advancing the industry," Kidd said.

The acquisition was good news to QLogic competitor JNI Corp., said Scott Ruple, vice president of marketing at the San Diego-based host bus adapter vendor.

"The first time I heard of the acquisition, I thought someone was joking. . . . [QLogic risks] alienating the biggest player in the Fibre Channel industry,Brocade," Ruple said.

The combined QLogic-Ancor will help the industry focus on a higher level of SAN interoperability at the risk of limiting the choice of switches and host bus adapters, said Jeff Vogel, vice president of marketing and system integration services at McData Corp., a Broomfield, Colo.-based switch vendor.

SAN integrators see the marriage as having a positive effect on the industry.

There will be no huge impact on SAN integration in the short term, said Scott Robinson, chief technology officer of Datalink Corp., Minneapolis. "Any time anyone acquires another company, there is a better chance of interoperability," he said.

The acquisition will be good for the industry in terms of interoperability and could make it easier for integrators to work with Fibre Channel switches, said Terry Grulke, product manager at Vangard Technology Inc., Pleasanton, Calif.

While Ancor's main sales are to OEMs, QLogic is big in distribution, said Grulke. "Putting the two together will hopefully make it easier for the Vangards, the Datalinks and the [other integrators]," he said.

Robert Gray, research director at Framingham, Mass.-based IDC, said the investor community is failing to see the synergy of the deal. "People who buy Fibre Channel components like to buy from a single supplier . . . so as the market matures, most component suppliers will look to broaden their supply," Gray said.

The acquisition is expected to close by September and is still subject to shareholder and regulatory approvals.CRN

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