Electrifying Opportunities with Voltaire; What Acquisition Is Cisco Cooking Up?

Computer switch developer Voltaire (VOLT) reported a fourth quarter non-GAAP net loss of $1.7 million on $13.2 million revenue yesterday (Call Transcript). The company develops server and storage switching and software solutions, primarily for large data storage centers.

The company's products are based on the InfiniBand technology and chips developed by Mellanox Technologies Ltd. (Nasdaq:MLNX), a company whose share I added last week to my portfolio tracked by "Globes".

Voltaire trades with a market cap that is just about its cash level, $55 million. Based on its announcements of upcoming launches of new products, mainly for IBM (NYSE: IBM), and based on a presentation by its managers at an investor conference last week, I believe that in the second half of 2009, it will come back from the recession that has taken hold of the industry.

Cisco (Nasdaq: CSCO) last week raised $4 billion, in order to, among other things, raise its cash level in the U.S. (much of its cash is outside the U.S.). This move added fuel to the fire of rumors that it is set to make acquisitions soon.

Bank of America analyst Tal Liani surveyed the sectors that he thinks interest Cisco, and listed the "vast" data centers market, in which Voltaire operates. There is currently a battle for leadership in the data center market, being waged by IBM, HP (NYSE: HPQ), and Cisco. Cisco relies on Ethernet technology, while IBM and HP rely mostly on InfiniBand.

Liani rates Voltaire a "Sell" because of its losses, and the global crisis which is hurting it, but he mentions it as a potential target for the above-mentioned companies in the data storage space.

He adds that Juniper (Nasdaq: JNPR) is also a potential buyer, if it cannot develop switches for the upper end of the market on its own. In his opinion, Voltaire is interesting because it sells to governments, large computer centers, and to large financial institutions. I would add that in my opinion, Mellanox, with its large cash level, and which wants to move up vertically on the industry's food chain, should be interested in the acquisition of its customer, Voltaire, and through it get into the switch sector.

Liani does not see Cisco making giant acquisitions in the near term in the data center sphere, such as of firms like EMC or VMware (VMW), but rather in the personal consumer sector. Technologies in that sector include streaming video content to computers and televisions, and between the two. Other home based areas also revolve around the Internet.

Liani reminds us that in the past, when Cisco bought Linksys for home networks, or set-top box firm Scientific Atlanta, it surprised the market. It will be the same, in his opinion, with Cisco's next big investment.

Disclosure: Author holds Mellanox shares as part of his portfolio tracked by "Globes".

Published originally by Globes [online], Israel business news - www.globes.co.il

© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on SeekingAlpha with full permission.