Broadcom Gulps Gadzoox

Broadcom Corp. (Nasdaq: BRCM) has officially won the right to acquire bankrupt Fibre Channel switch vendor Gadzoox Networks Inc. (OTC: ZOOX) -- for the net price of about $4.9 million -- marking the end of one of the storage networking industry's pioneers (see Broadcom Bids for Gadzoox).

Last month Broadcom, which develops chips for broadband and networking equipment, submitted an $8.5 million bid for Gadzoox's assets. At a bankruptcy auction today, Broadcom's offer was approved after no other parties came forward, says Nels Nelsen, a partner with Alliant Partners, who advised Gadzoox in its bankruptcy filing.

"It was a little disappointing, because there were a number of other parties who had submitted bids, but in the last two days they indicated that they were not going to move forward," he says. Four other companies put in bids for Gadzoox, but Nelsen would not name them.

Broadcom spokesman Bill Blanning said, "We're delighted with the outcome." He added that the deal for Gadzoox is expected to close in the next 10 days, but declined to comment further.

Gadzoox, founded in 1992, went public in a spectacular IPO in July 1999 and hit a market capitalization of $2 billion that December. The company appeared positioned to become a major player in the Fibre Channel switch market. But it failed to find a way to beat Brocade Communications Systems Inc. (Nasdaq: BRCD), the undisputed leader in the space today, and finally filed for Chapter 11 bankruptcy in August 2002 (see Gadzoox Runs Out of Road and Gadzoox Throws Hail Mary).In the end, Broadcom will pay $4.9 million for Gadzoox, which doesn't include the value of certain inventory, cash, and receivables. Carl Berg, CEO of real estate developer Mission West Properties, will acquire Gadzoox's legacy product line inventory, according to Nelsen.

So what's Broadcom going to do with Zoox? Industry analysts speculate that it will try to reengineer Gadzoox's Fibre Channel technology into special-purpose chips for server and storage systems vendors to embed into their products.

But Broadcom's entry into the storage silicon market "will require significant investment in firmware and drivers to move beyond switches," said Robert Montague, an analyst with RBC Capital Markets, who first identified Broadcom as a bidder for Gadzoox in a research note last month.

Broadcom will also face formidable incumbent suppliers, including QLogic Corp. (Nasdaq: QLGC) and Emulex Corp.