AMCC Looks to Buy JNI

Looking to diversify, Applied Micro Circuits Corp. (AMCC) (Nasdaq: AMCC) is heading into storage networking, having announced plans to acquire HBA (host bus adapter) vendor JNI Corp. (Nasdaq: JNIC) (see AMCC to Buy JNI for $190M).

The deal, announced just after the U.S. stock markets closed today, would have AMCC paying $7 per common share of JNI, or roughly $190 million. JNI closed trading at $5.79 today.

The companies expect to conclude the deal by the end of the year.

The acquisition continues the consolidation in the storage networking sector, which has seen a flurry of M&A activity recently (see CNT Digests Inrange, McData Sweeps Up Nishan, Sanera, Ciena Plunks Down $45M for Akara, and LightSand Buys SANcastle).

JNI, which sells Fibre Channel HBAs primarily for the Sun Solaris market, was the subject of acquisition rumors in July. Emulex Corp. (NYSE: ELX) -- which along with QLogic Corp. (Nasdaq: QLGC) leads the HBA market -- was said to be interested (see JNI Soars on Emulex Rumor).Similarly, AMCC has been seen as a buyer. With $1 billion in cash, company officials have hinted that they're looking for acquisitions, but all that's come up so far is a product line from chip firm Cicada (see AMCC May Go Shopping and AMCC Snacks on Cicada Scraps).

It's no secret that storage is one of the few bright spots in networking, so the acquisition seems sensible for AMCC, particularly as the company's long-haul markets continue to languish (see Chip Trio Faces Post-Bubble Blues).

JNI gains a substantial backer (remember that $1 billion in cash) and access to AMCC's engineering resources.

AMCC hasn't made a major acquisition in years, as CEO Dave Rickey pointed out during a conference call announcing the JNI deal. Almost gloating, Rickey noted that AMCC's stingy acqusition strategy played out well, compared with competitors who "gobbled up and then shut down many non-ideal acquisitions" (see PMC-Sierra Pulls Packet Silicon and Vitesse Drops Some Packets).

In an interview with Light Reading, Rickey said AMCC's lack of acquisitions was not for lack of trying. The problem has been the price tags."We're looking at acquisitions every day. During the downturn, so many companies' valuations got so convoluted, nobody knew what was going on," Rickey says. "AMCC's stock is down 90 percent, but startups were telling us they didn't go down at all. A $300 million startup was still $300 million."

As "valuation reality" sets in, Rickey hopes to find more chances to move AMCC's $1 billion. During the conference call, he hinted at SAN acquisitions to come: "You can conclude the obvious, which is that AMCC would not have ambitions in such a space and then stop at JNI," he said.

Craig Matsumoto, Senior Editor, Light Reading