Aarohi Mum on Acquisition Talk

If Emulex rumors are true, vendor may pounce by end of the month

April 13, 2006

3 Min Read
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SAN component maker Aarohi Communications may be up for sale, and Emulex could be the buyer.

Though neither company would comment by press time, rumors about a possible pairing have circulated for weeks, and one industry analyst, who asked not to be named, says it may be nearly a done deal.

A potential merger could make sense. Emulex yesterday lowered its revenue forecast by 17 percent, promising more detail when full results are reported on April 27. (See Emulex Below Forecast.) Execs blame the deferral of 4-Gbit/s products by two big OEMs from the most recent quarter to the one that ends in June. One of those OEM customers is almost certainly IBM, which accounted for about a third of Emulex revenue last quarter.

Regardless of circumstance, Emulex, which last quarter earned 100 percent of net revenue from Fibre Channel I/O and switching components, has been eyeing new directions, particularly in virtualization, where Aarohi claims expertise. Here's what Emulex CEO Paul Folino said in January: "In server virtualization environments, SAN connectivity attach rates can reach 80 percent, far surpassing the 5 percent attach rates in the general-purpose server market today, making server virtualization a killer app for SANs."

Enter Aarohi, which offers chips to virtualize and streamline intelligent SAN switches and SAN links to blade servers. The startup is shipping its wares to McData for inclusion in that vendor's Application Services Module (ASM), an add-on to McData switches that McData says will improve scaleability and enable switches to deliver multiple services across virtual links. The ASM is set to ship in the second half of this year, McData says. Aarohi also has a deal with Intel to develop storage processors.McData was a past investor in Aarohi, as was Intel Capital. (See Aarohi Announces Funding... Again.)

At the same time, Aarohi is at a juncture. Having scored $36 million in funding by 2005, the startup was looking for more by early last year, and execs had moved a sizeable development operation to India. (See Aarohi Advances Action Plan.)

Emulex, meanwhile, has about $590 million in cash at the moment and a history of acquiring technology firms it hopes will help it diversify its offerings: In 2001, Emulex bought iSCSI technology from Giganet, which it hasn't much exploited, considering that no sizeable revenue comes to Emulex from iSCSI. And in 2003, it bought FC switchmaker Vixel for $310 million and acquired the IP of Trebia for $2 million. (See Emulex Drops Cash for Vixel and Emulex Gets Steal on Trebia's Carcass.)

No one's talking publicly about how much Emulex might offer for Aarohi. At least one source says the price could be in the ballpark of the $36 million Emulex competitor QLogic paid for another virtualization chip maker, Troika, back in October 2005. (See QLogic Picks Up Troika.)

If it materializes, could an Emulex/Aarohi match be made in heaven? Opinions differ. "It definitely makes sense for Emulex to buy Aarohi. Aarohi has a very good storage processor, and Emulex needs to diversify out of just Fibre Channel HBAs," wrote one financial analyst in an email a few weeks ago."It doesn't make sense to me. I can't think what Emulex will gain from this. Aarohi has good technology, but it's like a solution looking for a problem," says another source, who also asked not to be named.

Aarohi has been definitely keeping a low profile. Despite numerous calls and emails from Byte and Switch, new VP of marketing Taufik Ma has not surfaced in a couple of weeks. (See Aarohi Adds Marketing Exec.) A spokeswoman from the vendor's PR agency has nothing to say. And sources familiar with the company, while they've heard the rumors, aren't committing themselves either way.

Bottom line? If there's fire behind the smoke, chances are it will appear in time for Emulex's end-of-month earnings report.

Mary Jander, Site Editor, Byte and Switch

Organizations mentioned in this article:

  • Aarohi Inc.

  • Emulex Corp. (NYSE: ELX)

  • Intel Corp. (Nasdaq: INTC)

  • McData Corp.0

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