Emulex to Acquire Giganet to Expand Into Online Storage

Emulex Corp., a Costa Mesa storage networking company, said Thursday it intends to acquire a privately held developer of Internet-based storage networking equipment for stock worth about $645 million.

The purchase of Giganet Inc. in Concord, Mass., for about 4 million shares and options would give Emulex a new technology to complement its fibre-channel technology, used in products to connect computer networks to data storage files.

Giganet is developing products that will use a technology called gigabit ethernet on circuitry cards to connect networks with storage devices.

The deal is expected to close before April 1.

“It is strategically important for Emulex to have capabilities beyond fibre channel. Storage networking over the next several years will change,” said analyst Edward Sun of Solomon Smith Barney in San Francisco. “This is a way for Emulex to hedge its bets.”

For now, the market is strong for Emulex’s fibre-channel host bus adapters, its main storage networking product. Emulex said it expects revenue from its fibre-channel unit to grow 28% to 30% for its current quarter over the previous three-month period. That’s higher than the 20% to 25% originally anticipated.

Industry research groups predict the market for fibre-channel host bus adapters could be as much as $500 million this year and could reach almost $2 billion by 2003.

Emulex also predicted that it could earn $1.48 a share, excluding acquisition-related charges, on revenue of $285 million for its fiscal year, which ends July 1. Analysts had expected annual earnings of $1.43 a share.

The company released its news after the stock market closed. Its shares lost 44 cents in Nasdaq trading, ending the day at $155.31. In after-hours trading, it lost an additional $4.31 a share.

Emulex already is looking beyond the acquisition of Giganet.

“We see ourselves as partnering with all of the switch companies, not trying to compete with them,” said Mike Rockenbach, Emulex’s chief financial officer. “This is just another way to address the host bus adapter market.”

Giganet, which has 100 employees, is expected to start producing revenue by the second half of 2002, Rockenbach said. But it already is attracting customer agreements. Giganet has “a relationship and contract” with Network Appliance, which had not been an Emulex customer.

Emulex, which controlled about 27% of the market last year for fibre-channel host bus adapters, counts EMC Corp., IBM Corp. and Compaq Computer Corp. as its largest customers.

The company, with 175 employees, said it expects to record a one-time noncash charge of about $10 million as a result of the acquisition.

Emulex’s closest competitor, QLogic Corp., accounted for 13% of the market last year. QLogic, based in Aliso Viejo, was spun off from Emulex in 1994.