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.
Driving Data Center Consolidation
QLogic’s Desai said he expects the consolidation in the space to continue, following the same pattern as in the Fibre Channel market, where as many as two dozen companies offered products, but eventually were whittled down to a handful.
“I think there will be consolidation … because now we view two technologies, either storage [or] data converging on the Ethernet,” Desai said. “So, I think there is going to be some consolidation and we want to be one of the suppliers and we want to survive that to [add to] what we have in Fibre Channel, and I think that’s the reason we [want to] acquire NetXen, so we have more technology now.”
Zeus Kerravala, a Yankee Group analyst, agreed that the proposed QLogic and Broadcom acquisitions are part of a larger consolidation trend throughout the data center, including Oracle’s $7.4 billion bid for Sun Microsystems.
“There’s a land grab going on in the data center, and I would expect to see that continue,” Kerravala said.
The growing use of virtualization is fueling most of the rapid changes going in data centers, he said. It’s the first technology that spans across what had been disparate silos of servers, storage and networking in the facilities. Now, with virtualization, there is a convergence of these technologies, as illustrated by the push by Cisco, Hewlett-Packard, Sun and others to offer integrated solutions that include all three aspects, Kerravala said.
QLogic’s pitch for NetXen makes sense in this context, given the move to converged networks, he said.
Russell Stern, CEO of Solarflare Communications, a 10G Ethernet company and NetXen rival, agreed. In an e-mail, Stern said QLogic’s acquisition of NetXen “validates the importance and growing focus on 10G Ethernet in the enterprise data center, especially the ability of 10G Ethernet to serve as the common wire for LAN-SAN [storage area network] consolidation.”
Stern also said the consolidation trend is only beginning, as “storage and Ethernet networks converge, companies look for top-line revenue growth, and companies figure out how to respond to Cisco’s recent unified communications announcements.”