Last week we announced the proposed acquisition of ServerEngines™, our long-time partner in the 10Gb/s Ethernet (10GbE) market. As many of you know, we partnered with ServerEngines over two years ago to build our OneConnect™ Universal Converged Network Adapters (UCNAs). Our partnership has resulted in design wins with Dell, EMC, Hitachi Data Systems, HP, IBM and NetApp. To say that it has been a successful partnership is an understatement.
As Emulex moved deeper into the 10GbE market, it was clear that we had the opportunity to enhance our position in the market by expanding our footprint on the server motherboard for LAN (Local Area Network) on Motherboard (LOM) and other core technologies at the systems level. Historically, a strong position in the LOM market leads to a leadership position in the NIC, adapter and mezzanine add-in card market.
In a recent blog, I mentioned that one of the key goals of every business is to expand their markets and grow their Total Available Market (TAM) and this proposed transaction to acquire ServerEngines helps Emulex do just that. The acquisition of ServerEngines helps expand our TAM by an estimated $350 million by 2013 with the addition of the LOM and integrated management controller markets. This also increases the forecast CAGR from 20% to 30% over the next three years.
ServerEngines has two primary product families focused on the server and storage market:
- ServerEngines’ BladeEngine™ family of 10Gb/s Ethernet ASICs provides a best-of-breed performance, and is architected to meet the cost and footprint requirements for LOM applications. Using this ASIC for board-level products, Emulex’s award-winning OneConnect™ UCNAs have been selected by leading server and storage OEMs, including Dell, EMC, Hitachi Data Systems, HP, IBM and NetApp for connectivity solutions.
- ServerEngines’ Pilot family of Server Management Controllers reside down on the motherboard, enabling remote IP-based “lights out” management capabilities, including Baseboard Management Control, Graphics and KVM-Over-IP for server platforms. Pilot ASICs are currently being used by leading industry standard server OEMs and Original Design Manufacturers (ODMs), including Cisco, HP, NEC and Unisys.
We believe that the addition of LOMs and Pilot Server Management Controllers from the acquisition will broaden our strategic position as a key infrastructure provider to server OEMs by providing a single and simplified interface for customers to engage on future development, support and communications as converged networks move out of the labs and into production environments over the next year. We also expect the acquisition will provide a more cost-effective model in the 10GbE LOM and Converged Network Adapter markets, as well as enabling us to more effectively address opportunities in the target storage market, as our volumes increase in 2011.
Additionally, we expect to expand our OEM relationships as a result of this transaction. It is very rare in this business to execute a transaction such as this without any major questions about cultural fit and customer execution. However, we already know we will not have these traditional problems since we have been working together very closely for the past two years. Our customers are used to working with both teams, and in many cases, encouraged our organizations to come together. As you can see below, we have significant customer overlap and will be better able to serve these combined customers with this transaction.
The joining of Emulex and ServerEngines will bring together the best-of-breed 10GbE ASIC and our world-class Fibre Channel stack. It will enhance Emulex’s Ethernet expertise with the addition of the ServerEniges engineering team and position the combined company for continued leadership in the 10GbE network convergence market.
Emulex Safe Harbor Statement
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: With the exception of historical information, the statements set forth above include forward-looking statements that involve risk and uncertainties. These forward-looking statements include, among other things, statements concerning Emulex’s proposed acquisition of ServerEngines, including anticipated timing of close, anticipated benefits expected from the acquisition, expected impact on the Company’s results of operations and financial condition, and expected market opportunities; as well as expectations of other future events and future performance. Emulex wishes to caution readers that a number of significant factors could cause actual results to differ materially from those in the forward-looking statements. Those factors include among others, the possibility that the transaction will not close or that the closing may be delayed, the anticipated benefits of the combined companies may not be achieved after closing, the combined operations may not be successfully integrated in a timely manner, if at all, and other risks inherent in acquisitions of businesses, including unanticipated costs and expenditures, potential changes in relationships with strategic partners, potential contractual or intellectual property issues, and potential accounting charges and write-downs; as well as changes in economic and industry conditions and the effects of ongoing global economic uncertainty, changes in end user demand for technology solutions; the effect of any actual or potential unsolicited offers to acquire Emulex; Emulex’s dependence on a limited number of customers and the effects of the loss of, or decrease or delays in orders by, any such customers, or the failure of such customers to make payments; the rapidly changing nature of technology, evolving industry standards and frequent introductions of new products and enhancements by competitors; the effect of rapid migration of customers towards newer, lower cost product platforms; slower than expected growth of the storage networking market or the failure of our OEM customers to successfully incorporate our products into their systems; delays in product development; the highly competitive nature of the markets for our products; our ability to gain market acceptance for our products; any inadequacy of Emulex’s intellectual property protection or the potential for third-party claims of infringement; Emulex’s ability to attract and retain skilled personnel; and Emulex’s reliance on third-party suppliers. These and other factors which could cause actual results to differ materially from those in the forward-looking statements are also discussed in Emulex’s filings with the Securities and Exchange Commission, including its recent filings on Forms 8-K, 10-K and 10-Q. Statements in this release are based on current expectations and, except as required by law, Emulex undertakes no obligation to revise or update any forward-looking statements for any reason. All trademarks, trade names, service marks, and logos referenced herein belong to their respective companies.
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