Network Computing is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Emulex & ServerEngines: A New Beginning or Armageddon?

Emulex may have surprised a few people with their purchase of ServerEngines; however, many in the industry knew for some time that the company was sorely lacking control of their own destiny with regard to their struggling FCoE offering. Those keeping track of the players in the FCoE space have watched Emulex run around for nearly two years promoting the heck out of privately held ServerEngines, and ultimately it appears as though Emulex will have to cough up an absurd pile of money to finally buy the company--a staggering $225M.

This amount represents nearly 1/3rd of Emulex's valuation and half their enterprise value. For $225M, Emulex gets 170 employees, a couple of 10GbE NIC designs, LAN On Motherboard chips (LOMs), and about $4M in incremental revenue per quarter. If Emulex thinks that ServerEngines has such compelling technology, then why didn't they just buy the company when they first performed due diligence on the core Ethernet technology they planned to use as the basis for their "UCNA?"  Why spend tens of millions of dollars promoting the technology and pump up the valuation of a company that nobody ever heard of prior to their public endorsement of ServerEngines' products?  

I understand how some can view this acquisition as a wedding of two connectivity technology vendors, but this wedding is sure costing a lot of money, and Emulex is on a spending spree. To say Emulex's spending is getting out of control may be understatement. For example, the company recently paid for the band Smash Mouth to perform for channel partners in Las Vegas. Next week, Emulex is renting out the House of Blues in Las Vegas for a party it's throwing for more channel partners - and giving away a $20,000 Harley Davidson motorcycle as well!  

I haven't seen spending like this since the dot com companies spent bundles of cash with no real revenue recognition to support the spending. Sadly, we all viewed the collapse of the dot com segment in what was a stunning debacle. Okay, I understand that vendors need to spend on promotional activity and marketing events, and Emulex is recognizing revenue, but this is 2010, and Emulex is busy spending like it's 1999.

Does Emulex really think that a sales person having a free beer and listening to Smash Mouth is going to sell more Emulex adapters?  Who's running the show at Emulex these days? I speak to a lot of vendors every week, and "austerity" is the watchword these days - keep it simple and keep the investors or shareholders confident that spending is down and revenue is growing.  Spending nearly a quarter-of-a-billion dollars on an acquisition that should have been made long ago at a much lower purchase price, and arguably frivolous spending that mirrors expenditures of companies that have gone out with a bang, leaves one to wonder about the company's strategy.

  • 1