QLogic Inches Closer to Cisco

QLogic's $60 million acquisition of SilverStorm not only makes it a major InfiniBand player, it also deepens its relationship with Cisco -- the company many insiders think might eventually consume QLogic. (See QLogic Grabs SilverStorm and QLogic Eyes SilverStorm.)

That's the way it often goes in the business -- even companies with histories of making acquisitions become targets themselves. Veritas is a prime example. (See Symantec & Veritas: It's a Deal.)

But Wall Street analysts say Cisco and QLogic are more likely to remain good friends than become mates because QLogic makes more sense for Cisco as a partner rather than as an acquisition target or potential new business unit.

QLogic's latest acquisition brings it into another partnership with Cisco. Cisco gets its InfiniBand directors from SilverStorm in an OEM deal that carried over from Topspin, the InfiniBand gear startup that Cisco acquired in April 2005. (See Cisco Takes On Topspin.)

Now QLogic has deals in place to supply Cisco with Fibre Channel switches and InfiniBand directors. Cisco also OEMs QLogic's 4-Gbit/s Fibre Channel switch -- a poorly kept secret that both companies still refuse to acknowledge. Cisco might want to expand that relationship to help battle the combined entity of Brocade and McData. (See Brocade Bags McData For $713M and Ericsson Wins Xfera.)Besides the Fibre Channel and InfiniBand switches, acquiring QLogic would give Cisco entry into QLogic's core business, Fibre Channel HBAs. "Cisco is struggling to maintain a 20 percent annual growth," a storage analyst says. "A QLogic acquisition would help do that."

However, financial analysts point out that Cisco rarely buys large companies and is unlikely to fork over billions for QLogic.

"Cisco and QLogic have a very close relationship, and Cisco wants to expand in storage networking," one buyside analyst says. "But at the same time, it doesn't appear to me that Cisco is desperate for QLogic's business. Cisco has its own switch business. It doesn't need QLogic's. The Fibre Channel HBA business is nice, but there is no way Cisco is going to spend $3.5 billion on Fibre Channel HBA cards."

Another buyside analyst points out that QLogic's CEO, H.K. Desai, made it clear he considers his company a buyer since it sold off its controller business in August 2005. Since then, QLogic has acquired storage virtualization startup Troika and InfiniBand firms PathScale and SilverStorm. (See QLogic Bets on InfiniBand, QLogic Picks Up Troika, and QLogic Gives Up Controllers.) QLogic had $558 million in cash at the end of June, leaving it with a large war chest for more acquisitions after the SilverStorm deal.

"H.K.'s going to want a big number," says the analyst, dismissing the prospect of a sale to Cisco.The QLogic-SilverStorm acquisition might put surviving InfiniBand switch startup Voltaire in play (See Voltaire Envisions Mondo-Provisioning.) With InfiniBand chip maker Mellanox going public, Voltaire is the only major private InfiniBand vendor left. QLogic HBA rival Emulex would be a logical choice as it is also diversifying its business. However, insiders say Emulex doesn't consider InfiniBand as hot a technology as QLogic does.

Dave Raffo, News Editor, Byte and Switch