Click to enlargeAccording to the US Census Bureau, over 12 million unmarried partners were living together by 2007, making up almost 10% of married and unmarried US couples. Another study by Pamela Smock estimates that about 75% of cohabiters plan to marry their partners and 55% of cohabiters do marry within five years of moving in together. Why do couples live together before getting married? Many people say, “Because I want to test drive the car before I buy it.”
As far as I know, there are no statistics for unmarried corporate partners, but Emulex (NYSE:ELX) and ServerEngines announced on June 7th that they would join the 55% of couples who marry within 5 years of cohabitation, and finally wed. It’s easy to see why after test driving the car for only two years Emulex decided the performance of ServerEngines' technology was outstanding and acquired the company. With products based on ServerEngines chip technology, Emulex leap-frogged a large group of Ethernet, Fibre Channel and InfiniBand adapter vendors into the number three position in the Ethernet adapter and LAN-on-Motherboard market behind only Broadcom (BRCM) and Intel (NASDAQ:INTC).
Emulex investors should be ecstatic. The Fibre Channel adapter duopoly that comprises 12% of server network adapter ports and that Emulex shares with QLogic (NASDAQ:QLGC), is a cash cow that will contribute handsomely to the bottom line for years to come. But top line growth will come from Ethernet adapters and LAN-on-Motherboard that comprise 88% of server network adapter ports today, and will approach 100% as Fibre Channel converges onto Ethernet. Here Emulex is well on its way. Emulex’s recently announced design wins at HP (NYSE:HPQ), the largest server vendor in the world, are tangible evidence of Emulex’s impressive new capabilities and competitiveness in their core market of the future.
Competitors predicting the Emulex/ServerEngines partnership would fail, need to elevate their Ethernet adapter and LAN-on-Motherboard game. Broadcom, Emulex and Intel are quickly forming an Ethernet LAN-on-Motherboard triopoly that OEMs trust for chips embedded in their servers, and to later expand with adapter cards for traditional networking and iSCSI storage area networks, which comprise 88% of all the network adapter ports they ship.
The bottom line is the test drive is over and Emulex has secured its future by acquiring the intellectual property that is already positioning the company to grow in the future.
Disclosure: No positions