Industry sources in the investment community have told me that Ethernet NIC vendor ServerEngines may be looking for a buyer. ServerEngines is one of the key providers of 10GbE NIC connectivity. Apparently, there are a number of companies interested in acquiring the vendor, with LSI as the top suitor. LSI, which has seen its adapter business ramp up in recent quarters, wants to capitalize on a window of opportunity and gain market share from established vendors such as Emulex, QLogic and to some extent, Brocade. Should it happen, the acquisition of privately held ServerEngines will provide LSI with the ability to mount a serious challenge in the highly competitive converged networking space. Combined, LSI and ServerEngines form strong competition in this space.
The acquisition could draw into question the whole premise of Emulex's UCNA for IT customers. This reminds me of a situation a few years ago where a fellow purchased a house that was sitting on top of leased land. He owned the house, but he didn't own the land that house sat on. This turned out to be a problem for the home owner as the land owner had intentions for the land that conflicted with the home owner's desires for a bucolic setting. UCNA's silicon and Ethernet stack all belong to another company: ServerEngines. As I see it, should an acquisition by LSI take place, it may leave Emulex with only one choice: develop a unique, in-house, Generation 3 CNA.
Several sources say that Emulex originally planned to develop its own second generation CNA, but then underwent a management change that ushered in the arrival of COO Jeff Benk and his Business Development guru Steve Daheeb. After this personnel change, the idea of cutting off internal development and using another company's intellectual property as the core of the UCNA came to fruition.
Back in 2006, Emulex wanted to get into the iSCSI adapter business and struck up an agreement with privately held Silverback Systems, Inc. Just as Emulex started to ramp up its iSCSI adapter business with Silverback adapter products, Brocade acquired Silverback Systems and within short order, Emulex's iSCSI adapter business evaporated. OEMs were left with no supply. No follow on product. It was game over. Brocade effectively shut the business down.
There is a distinct parallel between the Silverback iSCSI adapter deal and what Emulex has gotten itself into with the ServerEngines Ethernet NIC relationship. Instead of hitting the market hard with its own internally developed second generation CNA, like Brocade and QLogic are doing today, Emulex is now selling a product that it doesn't own. They're using uncertain terms like "Convergonomic" to describe its capabilities. The reason we study history is so that we don't repeat the same mistakes twice.
