One of Orange County’s great rivalries isn’t as close as it used to be.
Aliso Viejo-based QLogic Corp. has upped its lead over Costa Mesa’s Emulex Corp. in a piece of profitable electronics used in data storage networks.
QLogic held 49.2% of the market for host bus adapters last year, according to Redwood City-based market tracker Dell’Oro Group.
The company’s share of the market was up 13% from 2005.
Host bus adapter are circuit boards that link computers that make up data storage networks. They allow for data to be accessed across a network by multiple servers and users. They’re a staple of corporate networks and other big data repositories.
Emulex came in at 38% of the market last year, down from 42% in 2005.
“One of the things that has been hard for Emulex is that such a high percentage of their business comes from such a small number of” customers, said Tam Dell’Oro, president of Dell’Oro Group. “Over 60% of their business comes from two customers. At QLogic, no one is more than 15% of revenue.”
Emulex was hurt last year when big customer IBM Corp. delayed the rollout of its I series servers.
“That’s not a big deal to IBM, but it was devastating to Emulex,” Dell’Oro said.
Diversifying Emulex has been a top goal of new Emulex Chief Executive Jim McCluney, who took over late last year. About 75% of Emulex’s $450 million in yearly sales are from host bus adapters.
“I call it the Pepsi-Coke war; it’s winning market share,” McCluney said in an interview earlier this year.
“Most of Emulex’s business went into the high-end servers, and they’ve been trying to broaden their business to approach the lower-featured products for small business,” Dell’Oro said. “I think they’ve done that.”
Prices for Emulex host bus adapters, according to Dell’Oro, now are more in line with those of QLogic, which has gone after smaller companies for adapter sales. Historically, Emulex’s prices have been 10% to 20% higher, she said.
Emulex Chief Financial Officer Mike Rockenbach said at last week’s Goldman Sachs Technology Investment Symposium in Las Vegas that the company is adding to its product mix.
But “the bulk of our business is going to continue to be HBAs,” he said. “I think you’ll see a modest decline of gross margins over the next couple of years, but I’m reasonably confident we’ll keep those margins about 60%.”
The company is moving into adapters for blade servers,computers that are designed to easily slip into racks inside data storage rooms,and mezzanine cards, which pack several functions into one.
“We’re going to get tailwind from that,” McCluney said.
Sales of blade servers are growing 30% to 50% on a quarterly basis for some computer makers, according to Dell’Oro.
“The overall market has been growing at 50% to 100% year over year,” she said. “Now, it’s a very small market. Nevertheless, it’s a good breadwinner, a very successful line of products.”
QLogic sells blade adapters to IBM, Hewlett-Packard Co., Dell Inc. and Sun Microsystems Inc.
The company doesn’t break out adapter sales. It also makes switches and other networking gear, which, combined make up 95% of its $590 million in yearly sales.
In late 2005, QLogic sold off its business making chips that control the flow of data from disk drives to Marvel Technology Group Ltd. for $225 million.
QLogic and Emulex largely have the adapter market to themselves. Milpitas-based LSI Logic Corp. was third last year with only 4.5% market share, according to the Dell’Oro survey.
H.K. Desai, QLogic’s chief executive, said at the Goldman Sachs conference that smaller players are in his sights.
“If you look at the No. 1 and No. 2, we’re at 88%,” Desai said, referring to QLogic and Emulex. “We believe there’s real share to be gained because there’s no way in this business, with the investment you require for the silicon and software, that people can survive at 5% market share. There’s a 12-point market share to be gained.”
That’s part of what makes the rivalry with Emulex interesting.
The other part: Emulex spawned QLogic in the early 1990s.
QLogic once was a division of Emulex that spun off in 1994. The two companies were neighbors for years until QLogic moved from Costa Mesa to Aliso Viejo in 1999.
The two have had a friendly competition in adapters.
Things got a little tense in 2004 when QLogic sued Emulex for alleged patent infringement.
The suit stemmed from Emulex’s 2003 buy of Vixel Corp., a Seattle area company from which Chief Executive McCluney hails.
Vixel made a line of data networking switches that QLogic said infringed on its patent.
_________________________________________________________
Tax Settlement Helps Gatway’s 2006 Profit
|
|
||
|
Gateway HQ: added director |
Gateway Inc. said last week that 2006 income was more than $2.5 million better than previously stated thanks to a tax settlement.
The company said a tax benefit related to European operations prior to 2002 pushed year-end income to $9.6 million for the year.
Preliminary results released earlier this month showed net income of $6.9 million.
The Irvine-based computer maker also named industry veteran Dave Russell to its board, expanding the number of members to 10.
Russell is managing director at Avalon Energy Corp. and vice president of Avalon Capital Group Inc., which was founded by Ted Waitt, who started Gateway and still holds a significant stake in the company.
The appointment of Russell ends a long board battle at the struggling computer company.
Firebrand Partners LLC, which owns about 10.7% of Gateway, threatened to run its own board candidates after the company refused a buyout bid.
The dust-up led to the expansion of the board. Scott Galloway, an associate professor at New York University and a managing member of Firebrand, was installed in December.
Firebrand signed off on Russell’s appointment.
,Dan Anderson
