Things are heating up between Irvine’s Broadcom Corp. and Costa Mesa’s Emulex Corp.—again.
The battlefield now is the courtroom instead of proxy statements, as was the case during Broadcom’s failed takeover bid earlier this year.
But hard feelings don’t die easily. The companies have filed dueling lawsuits that echo their bruising four-month takeover fight.
The buyout bid ended in July with Broadcom walking away after Emulex rebuffed a final $912 million offer.
Then in September, chipmaker Broadcom sued Emulex, a maker of electronics for data storage networks.
Broadcom’s suit charged Emulex with infringing on 10 of its patents for chips related to high-speed networking and data storage technologies.
A few weeks ago, Emulex fired back at Broadcom with a lawsuit attacking the company’s way of doing business, questioning its credibility and dredging up the legal troubles of its founders.
The legal fight isn’t far removed from the takeover battle, according to analyst Patrick Wang of Wedbush Morgan Securities LLC in New York.
“Broadcom is showing Emulex the hard road,” he said. “The easy road would have been to agree to a sale. I think Broadcom is bullying Emulex, and Emulex is trying its hardest to fight them off. It’s gone from trying for an amicable relationship to something that is just really nasty.”
Battle for Market Share
The heart of the battle is over the future of data storage networking, an area where technology is emerging to help large corporations such as banks and insurance companies cut down on power and costs.
Broadcom’s patent suit against Emulex gave some the appearance of going after a rival for a slice of the emerging market for converged networking, which combines speedy data storage networks with everyday networks of servers and desktop computers.
“These guys are just jockeying for a leadership position before the market takes off,” Wang said.
Beyond strategy, there’s still bad blood, according to Wang.
“Emulex didn’t find Broadcom’s offer compelling and they passed on it, and that” irked Broadcom, Wang said. “They will basically try to get Emulex to think twice about their original offer.”
Broadcom originally offered $764 million for Emulex in April, which Emulex rejected on several occasions. In June, Broadcom upped the offer to $912 million, which also was rejected.
The takeover drama saw both companies publicly trade barbs and sometimes veer into personal attacks.
Broadcom and Emulex declined to comment for this story beyond their recent press release statements.
Emulex’s lawsuit revives part of its takeover defense by trying to paint a picture of corrupt business practices at Broadcom.
The suit cites the legal troubles of Broadcom’s cofounders, Henry Samueli and Henry “Nick” Nicholas, who are awaiting trial or sentencing for their roles in backdating of options at Broadcom.
“Broadcom is a company with a storied history of criminal and civil misconduct, which has become part of its modus operandi in competing in the marketplace to the present day,” Emulex’s lawsuit stated.
Emulex is seeking damages, legal costs and an injunction on particular chips.
Technology
Emulex, which has about $360 million in yearly sales versus Broadcom’s $4.4 billion, sees itself coming head-to-head with Broadcom as more companies switch to faster 10-gigabit Ethernet networks and converged networks.
“Emulex is now a direct threat to Broadcom in the 10-gigabit Ethernet controller market as both companies compete to provide 10-gigabit Ethernet controllers for the next generation of servers,” Emulex said in its complaint.
Broadcom is the top supplier of 10-gigabit Ethernet chips, with a market share of 70% or so.
“I don’t think that Emulex is going to take Broadcom out of that business, but it could seriously hamper its growth there,” Wang said.
Emulex alleges Broadcom is attempting to prevent Emulex’s technology from being built into new servers.
“Stopping or delaying Emulex has become a top priority of Broadcom,” Emulex said. “Broadcom is trying to stomp out Emulex as a competitor.”
The lawsuit goes on to accuse Broadcom of defamation, “predatory and exclusionary conduct” and of maintaining a monopoly on 10-gigabit Ethernet controllers.
Broadcom defends its patent suit against Emulex.
“The steps Broadcom is taking to defend its (intellectual property) are entirely appropriate and within the company’s rights,” the company said. “We believe this is a diversionary tactic to take the focus off of Emulex’s alleged infringement.”
The legal spats “boil down to nothing” in the everyday lives of Broadcom and Emulex, according to Kaushik Roy, an analyst at Wedbush Morgan in San Francisco.
“It’s partly defensive and partly retaliatory,” Roy said. “A lot of it is posturing.”
Still Simmering
• Dec.: Emulex rejects private Broadcom overture
• April: Broadcom goes public with $764 million hostile offer
• May: Emulex twice rejects offer
• May: Broadcom appeals to shareholders, attacks Emulex’s growth record
• June: Emulex invokes legal troubles of Broadcom founders
• June: Broadcom ups offer to $912 million
• July: Emulex rejects higher offer, Broadcom walks away
• Sept.: Broadcom sues Emulex over patents
• Nov.: Emulex sues Broadcom, alleges anti-competitive practices
