The wide-open spaces and mostly silent halls of QLogic’s new headquarters, an elegantly Spartan building of ivory, silver and glass that overlooks the spring-green hills of Aliso Viejo, seem to defy the chaotic activity of the industry they serve.
And for the employees who work at the 165,000-square-foot center, the firm’s new quarters mean far more than a new place to labor. Rather, they are a symbolic final break from Emulex Corp., the parent company QLogic spun out of seven years ago.
Former relatives and now rivals, both companies have benefited nicely from an explosion in high-speed networking and data storage, needs that coalesce into a technology called fibre channel and give Orange County a dominant position in an industry poised to erupt.
Despite operating as separate, independent companies, the two firms until recently had remained physically adjacent in Costa Mesa, even sharing a courtyard and its ping-pong table.
“It’s a friendly rivalry,” says H.K. Desai, QLogic’s chief executive and a longtime Emulex manager before that. He says he admires his Emulex counterpart, Paul Folino, as a worthy competitor. “We have a very good, pleasant relationship with them because we both believe it’s a big market.”
It’s a big market all right, with huge upside potential. Under current projections, the fibre channel market for host bust adaptors and hubs alone, the markets QLogic and Emulex specialize in, are expected to grow from about $670 million now to more than $4 billion over the next three years.
Mushrooming Market
Thanks to a rapidly mushrooming market for fibre-channel technology , a high-speed data transfer protocol well suited to storage-area networks, which play to QLogic’s storage know-how and Emulex’s networking savvy , both companies’ stocks have skyrocketed over the past year. Emulex has risen from just less than $7 per share to more than $200; QLogic has jumped from around $16 per share to about $145 last week.
And between the two of them, they’ve captured about 70% of the market for host bus adapters, the plug-in cards used to connect computers to fibre-channel networks.
QLogic, which has specialized for years in components for storage devices,such as disk drives and tape drives,saw fibre channel as a natural extension of its existing business, mostly because of the storage-area network concept. Storage-area networks, or SANs, allow clusters of storage units to act as a single device, making it easier to access centralized data without overloading any one component. The standard SCSI (small computer systems interface) protocol QLogic specialized in can’t transmit data over the longer distances required by SANs, making fibre channel an obvious direction.
“We’ve been sticking to the script we’ve been using for years,” Desai says. “We’ve been talking about the strategy for years, and (investors) have finally started to believe us.”
Logical Progression
Though Emulex can make an equally valid claim that fibre channel was a logical progression of its business, the company came to the market from the opposite direction as QLogic. With its focus on networking equipment, the company grew interested in fibre-channel products as SANs became an extension of the networking environment.
As e-commerce becomes commonplace and businesses rely more heavily on information flow, computers will require more storage and better performance and reliability. SANs allow the addition of new storage devices into the network without disrupting the system and easy access to the information stored there.
“There’s no stopping the avalanche of data,” says Karen Mulvany, Emulex’s newly appointed vice president for business planning and development. “Once most of your data is generated externally over the Internet, you just have to do everything you can to accommodate that ongoing expansion.”
She says that considering the companies’ common histories and early fibre-channel investments, Orange County’s dominance in the market shouldn’t come as a surprise. Still, the two are the only Orange County companies directly in the fibre-channel market, though several make products for SANs and related network-attached storage units, specialized storage devices often used in SANs.
Similarities and Differences
Despite their overlapping markets, officials from both companies are quick to elucidate their differences.
QLogic has been the most immediate beneficiary of the fibre-channel craze, with a $11.2 billion market cap that outshines its former parent by more than $4 billion. Though it begrudgingly acknowledges Emulex’s “early niche-market success,” QLogic claims a No. 1 in market share for host bus adapters and an exclusive supplier relationship with Sun Microsystems. In addition to its rapidly growing fibre-channel business, QLogic has a strong business with old-fashioned SCSI devices and other peripherals.
The company boasts the industry’s only single-chip fibre-channel devices, which are cheaper and more efficient.
Emulex, meanwhile, offers host bus adapters and fibre-channel hubs, centralized components that tie together different elements of a SAN. QLogic has no hubs in its product line. And taking a page from QLogic’s playbook, Emulex shut down its manufacturing operations last year to outsource that function.
Though the companies command a dominant position now, both will face significant challenges during the next year. In addition to the usual struggle to continue to innovate in a sector famous for overnight obsolescence, the fibre-channel protocol, though supported by nearly every manufacturer in the industry, has not yet been adopted by users as a standard. And newer technologies, including a high-performance version of the trusted SCSI protocol, could stand in the way.
Still, fibre-channel advocates contend that the industry has nowhere to go but up, especially as smaller businesses begin to demand the high-end computer systems of their larger competitors.
“We’re still in the early stages,” Mulvany says. “There have been (competing) technologies that have come and gone since, so fibre-channel has clearly won that battle.” n
