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Emulex: First a Big Buy, Then a Big Executive Change

I’ve been pressing Paul Folino to do a story about Emulex Corp.’s executive ranks and its management culture for the Business Journal’s Corner Offices feature.

Folino, ever the diplomat, said he’d love to. But we’d have to wait for some news to come out of Costa Mesa-based Emulex first, he said.

Now we know.

Folino said last week he is handing over the chief executive’s title to become executive chairman. James M. McCluney, who up to now has served as president and chief operating officer, takes over as chief executive.

The news wasn’t entirely surprising. Folino said he’s worked closely with McCluney on a transition for the past three years.

As executive chairman, Folino said he plans to work with McCluney and on integrating two recent acquisitions, including the Aug. 29 deal to buy Roseville-based Sierra Logic Inc. for about $180 million.

Earlier this year, Folino said he was looking to make some acquisitions. At the time, Emulex, a networking gear maker, hadn’t made any buys since 2003 and had gone through a sort of restructuring to get its sales and profit growth back on line.

Meanwhile, its war chest had swelled to roughly $600 million.

In April, the company said it would pay $39 million for Aarohi Communications Inc., a supplier of networking components and software for data centers. The move got the company into India’s engineering pool.

Nice. But then came the big buy of Sierra Logic. The company makes components that go in the big data storage boxes that connect into storage area networks.

After the Sierra Logic news broke, I spoke with Brian Reed, vice president of business development at Emulex.

He said this is a big buy for Emulex, offering a great way to diversify away from its core adapters that connect servers. They make up about 85% of sales.

A key reason: Emulex’s customers. EMC Corp., Hitachi Ltd. and Hewlett-Packard Co. and others want to see this kind of consolidation.

“They want to buy from fewer vendors,” Reed said.

Emulex gets diversification from the move. But it also puts the company in a growing segment,a market pegged at close to $800 million in the next few years.

Essentially, Sierra Logic’s components are tapping into growing demand for big storage boxes that are packed with high-capacity disk drives that come at a lower cost. The drives are cheaper because it takes longer to extract data from them.

But companies are backing up more and more of their data,they don’t need to get at that data as often and as quickly. That makes slower drives a bargain.

Sierra Logic’s products help drive-laden boxes connect to storage area networks.

Emulex’s last big acquisition in 2003 was for Bothell, Wash.-based Vixel Corp. It paid $310 million for the company, which helps connect the low-cost drives together within the data storage boxes.

New Chief Executive McCluney hails from Vixel.


Ready for Take-Off

A startup that’s going after the market for in-flight entertainment recently landed a second round of funding.

Irvine-based Lumexis Corp. recently raised nearly $1 million from Zone Ventures Management Co. in Los Angeles, Monitor Venture Partners LP in Santa Monica and some angel investors.

The company received about $200,000 in its first round, and counts Tyco International Ltd. among its financial backers.

Lumexis has been developing a technology that first came out of Lockheed Martin Corp.’s labs. It aims to cut the costs of beaming music, video and maps to airline passengers.

The latest round of funding will get the company to the next stage in 2007, when it will begin to do some early installations.

Douglas Cline, chief executive and cofounder, is an industry veteran.

He formerly led Sony Corp.’s foray into the industry with Sony TransCom in Irvine. The other founder is Richard Salter, who helped start Tustin’s AirShow Inc. Rockwell Collins Inc. bought both operations.

Cline said his technology not only is low-cost, it isn’t as heavy as others, a crucial consideration for airlines.

It uses fiber optics to move movies and other big files, eliminating the need for a box under every seat in the plane, the company said.

Also, fiber optics can carry a lot more data, allowing for individualized video streams for movies or TV, seat-to-seat videoconferencing and multipassenger video games, the company said.

Technology upgrades are easy, Cline said.

Lumexis projects yearly sales of $100 million in the coming years.

Cline knows his competition is tough, including Paris-based Thales’ in-flight unit in Irvine and Panasonic Avionics Corp., part of Japan’s Matsushita Electric Industrial Co., which has its major site in Lake Forest.


Tech Sector Watch

Some news from Ingram Micro Inc. may be a positive for the technology industry.

The Santa Ana-based technology products distributor recently reaffirmed its guidance for the third quarter.

The company said it expects third-quarter sales of $7.3 billion to $7.5 billion, in line with estimates of $7.41 billion, up 6.5% compared a year ago.

Net income is expected to be at $49 million to $56 million, compared with estimates of $54.4 million, which would be down about 11% from a year ago.

With less than a month to go in the quarter, that should be good news. Ingram has been expanding its market share in the past year and expanding its role as a bellwether for the tech industry.

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