Voltaire Should Acquire QLogic's InfiniBand Business

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Includes: MLNX, QLGC, VOLT
by: Frank Berry

InfiniBand switch manufacturer Voltaire (VOLT) was riding a streak of three consecutive quarters of declining revenue through Q1 of their fiscal year. The company pulled out of it in a big way with 39% quarter-over-quarter growth in Q2. Better yet, it sounds like this is the beginning of a trend. Voltaire management said on their conference call they expected to reach $50 million in revenue this year. Given the company has produced a little over $18 million of revenue at the halfway mark, they’re expecting over $30 million of revenue in the second half of the year.

Voltaire switch sales are taking off just in time to put some distance between themselves and their closest competitors, QLogic (NASDAQ:QLGC) and Mellanox (NASDAQ:MLNX). Voltaire is the market share leader for InfiniBand switches provided to customers for high performance computing (HPC) applications. But according to the IT Brand Pulse Q1CY09 InfiniBand Market Share Report, QLogic produced about $7 million of InfiniBand switch revenue in Q1, coming tantalizingly close to unseating Voltaire in revenue market share. Preliminary estimates from IT Brand Pulse for Q2 indicate that Mellanox produced a little less than $7 million of InfiniBand switch revenue in Q2, QLogic produced a little more than $7 million, while Voltaire produced closer to $10 million. If Voltaire delivers the $15+ million needed in each of the next two quarters to get to their goal for the year, they should again exit the year as the InfiniBand switch market share leader.

The problem with Voltaire is profitability. Their product cost is extraordinarily high because big Voltaire InfiniBand Director switches are built with large quantities of expensive switch ASICs manufactured by their now arch-rival Mellanox. Until the company finds a cost-effective source for InfiniBand switch ASICS, profitability is going to be challenging.

Now is the time for Voltaire to acquire the InfiniBand business of QLogic. QLogic has world-class InfiniBand ASIC technology that Voltaire needs. As for QLogic, the company entered the InfiniBand networking market when the industry believed the market was soon going to grow to over $1 billion in revenue and double-digit market share represented hundreds of millions of revenue. IT Brand Pulse estimates the size of the InfiniBand networking market in 2008 was a little over $200 million. QLogic will generate about $30 million in InfiniBand switch revenue in 2009, less than 10% of overall revenue. Selling the InfiniBand switch business to Voltaire would allow QLogic to focus on their core business of controllers and host bus adapters.

To see Q1CY09 overall InfiniBand networking market share by vendor, visit www.itbrandpulse.com.

Disclosure: No positions