QLogic, NetXen Deal Continues Data Center Consolidation Trend

QLogic's proposed $21 million acquisition of 10 Gigabit Ethernet product vendor NetXen is the latest move in the consolidation trend in the data center. With the growing use of virtualization breaking down silos in the data center that once separated servers, storage and networking, vendors are looking to add more pieces to their portfolios to offer converged solutions. QLogic's move comes a week after Oracle announced its $7.4 billion bid for Sun Microsystems and Broadcom went public with its proposed $764 million purchase of Emulex.

The consolidation trend in the enterprise data center space is continuing, with QLogic officials saying it will pay $21 million for rival NetXen.

QLogic's announcement, made April 30 during its fourth-quarter earnings announcement, came a week after Broadcom went public with its $764 million hostile takeover bid for Emulex.

In a conference call with analysts during the earnings announcement, QLogic officials said acquiring NetXen will go a long way in helping the company push forward its enterprise 10 Gigabit Ethernet capabilities.

"NetXen's existing products and technology have already gained acceptance from leading server OEMs with several products [actively] shipping," said H.K. Desai, chairman and CEO of QLogic. "NetXen has been highly focused on next-generation Ethernet technology for the past seven years."

In response to a question, Desai pointed out that NetXen has a strong 10G Ethernet portfolio that already has generated OEM wins, while QLogic only now is beginning to ship such products. QLogic has long had widely deployed Fibre Channel, Fibre Channel over Ethernet, InfiniBand and iSCSI offerings, he said.

Coupled with NetXen's 10G Ethernet capabilities, "This combination will address the emerging converged long market for the enterprise servers," Desai said.

The trend toward 10G Ethernet is being fueled by the greater use of such technologies as virtualization, increasing density in the data center and continued data center consolidation. Top-tier networking companies, including Cisco Systems, Juniper Networks, Extreme Networks and Brocade Communications Systems, continue to pump out 10G Ethernet products.

The demand is growing to the point that research company Dell'Oro Group said it believes that 10G Ethernet is the lone bright spot in a stagnant Ethernet moment.

Broadcom's takeover bid for Emulex also highlights the trend toward converged networks, in particular Fibre Channel over Ethernet. Emulex officials have said they are taking Broadcom's proposal under consideration, and have hired outside firms to act as advisers.

However, Emulex reportedly initially rejected Broadcom's bid in December 2008, and Broadcom had sued Emulex to prevent Emulex from adopting a "poison pill" to spike the takeover bid.