Cavium To Acquire QLogic, Create IP, Storage Networking Heavyweight

Cavium, a developer of networking semiconductors and solutions, is planning to acquire QLogic, a top provider of high-speed storage networking solutions.

San Jose, Calif.-based Cavium on Wednesday unveiled a definitive agreement to acquire Aliso Viejo, Calif.-based QLogic for $1.36 billion. That purchase price includes QLogic's cash on hand of $355 million, giving the deal a total enterprise value of just over $1 billion.

The proposed purchase price included a premium of more than 14 percent over QLogic's total market capitalization based on that company's share prices at the end of the trading day Wednesday.

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Wall Street reaction to news of the proposed acquisition, which was revealed after the close of trade Wednesday, was strong. In after-hours trading about three and a half hours after the close of the market, Cavium's share price fell over 8 percent, while QLogic's share price rose nearly 13 percent.

Cavium expects QLogic's intelligent server and storage connectivity solutions to complement Cavium's networking, compute and security solutions and enable it to provide complete end-to-end offerings to enterprise, cloud, data center, storage, telco and networking customers and OEMs.

Cavium offers a series of networking and storage processors that complement QLogic's Ethernet and converged networking interface cards as well as its Ethernet-based and Fibre Channel-based adaptors and controllers. According to Cavium, there is only a 10 percent revenue overlap between the two companies.

For Cavium, the acquisition also adds to its OEM and business customer base.

QLogic has of late been a strong force in the channel, said Dan Molina, chief technology officer at Nth Generation Computing, a San Diego-based solution provider and QLogic channel partner.

"QLogic has in the last few years been working more with us as other competitors got quieter," Molina told CRN. "This is especially true after QLogic exited the storage switch market and partnered more closely with Brocade."

QLogic and Brocade have been working very closely with Nth's main storage vendor, Hewlett Packard Enterprise, Molina said. "We've been at a lot of HPE events where QLogic has been featured, and where it has been reminding everyone of the importance of the storage 'plumbing,' " he said. "It's a good message along with Brocade."

Molina said he is not surprised that QLogic was able to get a good premium on its market capitalization given the number of customers it works with.

He also said he expects Cavium to continue to partner with Brocade. "Cavium seems to have a strong focus on Ethernet," he said. "So it might still be a partner with Brocade on the Fibre Channel side."

The acquisition of QLogic will help make Cavium a diversified pure-play infrastructure semiconductor leader, said Cavium President and CEO Syed Ali in a statement.

"QLogic's industry leading products extend our market position in data center, cloud and storage markets, and further diversifies our revenue and customer base. In addition to the compelling strategic benefits, the manufacturing, sales and operating synergies will create significant value for our shareholders," Ali said in the statement.

Christine King, executive chairman of QLogic, said in a statement that the combined $1 billion revenue of Cavium and QLogic will benefit their customers.

"The scale of operations of a nearly $1 billion revenue business will allow the combined company to deliver better solutions for customers and create more career opportunities for employees," King said in the statement.

Spokespeople for Cavium and QLogic were unable to reply to requests for more information by publication time. However, Cavium said replays of a Wednesday conference call focused on the planned acquisition will be available on Cavium's website.

The boards of directors of both Cavium and QLogic have already approved the acquisition, which is expected to close some time in the third quarter of this year.