Last week, data storage leader Emulex
Is it worth the price? It very well may be. There are times when seemingly nosebleed valuations result in the best acquisitions. Indeed, while mistakes are made, they often signal an industry poised for growth (why else pay such a big premium?)
And, surely, the growth in e-tailers, search engines, and corporate intranets creates a need for data storage. This is likely to be a long-term trend. After all, technologies are getting more sophisticated. There is also the refresh cycle; old equipment needs to be replaced.
Already, the major storage players -- Brocade
Recently, for example, EMC
As for Vixel, it has managed double-digit sequential growth for the past year, and this looks likely to continue. With Emulex's distribution, this growth can be accelerated. Already, Emulex has affirmed its revenue and net income guidance for the first quarter ending September.
To its credit, Emulex has aggressively funded R&D through the hard times, and this is starting to pay off in terms of patents and cutting-edge features. The Vixel acquisition will only add to the company's impressive portfolio of intellectual property.
Clearly, Emulex could as easily have used its stock to buy Vixel. Apparently, management thinks the stock is too cheap, and preferred to pay in cash. It looks like Emulex is sending a lot of signals and one clear message to investors: buy.
Tom Taulli is the author of six books on investing, including the StreetSmart Guide to Short Selling (McGraw-Hill), as well as a professor of finance at the USC School of Business (don't worry, he does come out of his ivory tower). You can reach him email@example.com.