Semiconductor supplier Avago has agreed to purchase storage networking vendor Emulex for $606 million, or $8 per share, to strengthen its play in enterprise storage.
The Singapore-based chipmaker announced the acquisition on Thursday, at the same time it announced first-quarter earnings of $351 million, up significantly from $134 million last year as revenue also grew 131% to $1.63 billion, up from $709 million in the first quarter last year. (See Avago to Acquire Emulex for $606M and Avago Reports Revenues Growth in Fiscal Q1.)
Founded in 2006 as a $2.66 billion buyout from Agilent Technologies Inc. (NYSE: A), Avago Technologies Pte. makes server storage and optical components focused on wireless communications, enterprise storage, wired infrastructure and industrial markets. (See Agilent Becomes Avago and Avago IPO's a Go.)
Emulex -- once a takeover target for Broadcom Corp. (Nasdaq: BRCM) -- makes network connectivity, monitoring and management products, but it has struggled in the past year, slashing its workforce, cutting costs and closing an engineering facility. The Wall Street Journal reports that it was pressured to lift its lagging stock by activist investor Starboard Value LP in 2013, which it did to a degree in its latest quarter. Starboard is no longer a shareholder with the company. (See Broadcom Drops Emulex Offer and Emulex Rejects Broadcom Offer.)
Avago believes the combined company will create "one of the industry's broadest portfolios for Enterprise Storage." The deal adds to its late 2013 acquisition of enterprise storage company LSI for $6.6 billion. Avago sold off its non-core business units, including the LSI Axxia networking chip, to Intel Corp. (Nasdaq: INTC) last year to instead focus on the enterprise. (See Avago to Buy LSI for $6.6B and Intel ARMs Itself for IoT, SDN Opportunities.)
Heavy Reading analyst Simon Stanley says that the acquisition is a significant change of strategy for Avago as Emulex is primarily a network adapter company, but that it will take Avago further into the subsystem business.
"I don't see this having any real impact on the market for adapters as Avago is not a player in this market," Stanley says. "The main synergy between Avago and Emulex is a focus on storage."
Avago's Emulex acquisition has been approved by both companies' boards and is expected to close by November, at which time Avago expects it to immediately add to earnings. Emulex will operate as a business unit within Avago's enterprise storage segment.
The combination of the acquisition and Avago's first-quarter earnings that beat Wall Street estimates caused its shares to rise 11%, or 2.64 points, to $125.32 on Thursday morning.
— Sarah Thomas, , Editorial Operations Director, Light Reading