Irvine’s Broadcom Corp. said last week it’s paying $178 million to buy an Israeli maker of chips used to speed the flow of data from servers providing software and other files over the Internet.
Broadcom, which makes chips for everything from servers to iPhones, is acquiring Dune Networks Inc., which is functionally based near Tel Aviv with its headquarters in Sunnyvale.
Privately held Dune makes fabric switches, or chips that speed up the flow of data among computers and servers on networks.
The move is a bet by Broadcom on what’s known as cloud computing, or the outsourcing of software applications and data storage to massive data centers accessed via the Internet.
“This technology will enable us to address new market applications,” said Martin Lund, general manager of Broadcom’s network switching unit.
One of the biggest proponents of cloud computing is Google Inc., whose Gmail service takes e-mails and contacts off corporate servers and makes them available via the Web.
In other cases, companies use cloud computing to access accounting or other business software as needed from remote servers.
Cloud computing requires the development and expansion of massive data centers to store and dish up data on demand.
Dune’s fabric switches help direct the flow of information in large-scale data centers.
The company is set to be folded into Broadcom’s network switching business unit, which makes chips that go into the switches, routers and servers that make up the backbone of large data centers.
Other Companies
Two other Orange County companies, Costa Mesa’s Emulex Corp. and Aliso Viejo’s QLogic Corp., also make network switches.
Broadcom’s switches run on Ethernet networks, or the most common type of corporate network. Emulex’s and QLogic’s switches run on fibre channel networks, or faster, specialized networks designed to quickly serve up data.
“The chipset that we are getting from Dune is complementary to what we have in our Ethernet business,” Lund said. “It means we can build some large, scalable solutions for our networking customers.”
Broadcom could be looking to expand its business with Cisco Systems Inc. with the deal.
Cisco still develops its own switches, Jag Bolaria, an analyst at Mountain View-based chip market tracker Linley Group, told International Data Group’s ITNews.com.
Dunes switches could become appealing to Cisco as part of Broadcom, which already supplies other chips to the networking gear maker, Bolaria said.
Dune started in 2000. It raised some $24 million in an initial venture round in 2002.
In 2005, it landed a strategic investment from a unit of Siemens AG.
A $12 million funding round came in 2008.
Investors include Menlo Park-based U.S. Venture Partners, Europe’s Alta Berkeley Venture Partners and Israel’s Jerusalem Venture Partners, Evergreen Venture Partners and Aurum Ventures MKI Ltd.
Workers
Dune has some 100 workers in all.
Its Silicon Valley office has about 10 people who do marketing and sales. Dune’s executives are based at a design center in Yakum, Israel, about 30 miles outside Tel Aviv.
The executives are expected to join Broadcom after the deal closes.
Oppenheimer & Co. analyst Daniel Morris estimates that Dune saw 2008 revenue of about $27 million and is on track to see 2009 sales of $30 million to $40 million.
The company’s sales are expected to grow, according to Morris.
“We believe Dune has market leading technology and very strong design wins,” he said in a research note. “However, only 30% of its design wins are currently shipping.”
Broadcom said it expects the acquisition to have no impact or add “slightly” to profits next year.
Wall Street likes the move.
“As the leader in a relatively nascent market, we see the pickup as a nice complementary technology to bolster Broadcom’s strategic aims in the data center,” Morris said.
At an investor conference late last year, Broadcom Chief Executive Scott McGregor said that during the downturn he’s looking for deals with “companies that have talented people developing products that fit with (Broadcom’s) strategy.”
Broadcom makes an average of three buys per year, he said.
In April, Broadcom launched a hostile bid to buy Emulex, which ended with Broadcom walking away in July after a lot of bad blood, lawsuits and barbs traded in public that veered into the personal.
