Cavium Dives On ‘Stark Shift’ In Strategy After $1.3 Bil QLogic Bid
June 16, 2016 at 12:56 PM EDT
- Cavium's $1.3 billion QLogic bid could prove "technologically prudent," but it starkly deviates from the chipmaker's expected trajectory.
Cavium‘s ( CAVM) $1.3 billion QLogic ( QLGC) bid could prove “technologically prudent,” but it starkly deviates from the chipmaker’s expected trajectory, Canaccord analyst Matthew Ramsay said Thursday as Cavium stock nosedived to a 20-month low.
At least three analysts downgraded Cavium stock Thursday. Ramsay downgraded to a hold rating from buy and cut his price target on Cavium stock to 48 from 61. But Needham and William Blair analysts maintained buy and outperform ratings, respectively.
Cavium stock was down 17%, below 10 and at a 20-month low, while QLogic stock was up nearly 10%, near 5, in early afternoon trading on the stock market today . The market overall dipped Thursday amid global economic worries as the U.K. considers exiting the European Union.
Pacific Crest analyst John Vinh and Canaccord’s Ramsay questioned the need for the acquisition as Cavium prepares to launch an ARM-based server and at least five other new products. Vinh downgraded Cavium stock to sector weight.
“The deal brings with it a stark shift in anticipated strategy, given Cavium is just ahead of several new products ramps, and potentially lowers the long-term growth rate of the company,” Ramsay wrote in a research report.
Other analysts were more upbeat.
QLogic expands Cavium’s total addressable market by $2.2 billion — $1.7 billion in Ethernet and $500 million in Fibre Channel exposure, Needham analyst N. Quinn Bolton wrote in a report. He reiterated his 66 price target on Cavium stock.
Management expects QLogic to add 60-70 cents earnings per share ex items in 2017 and contribute $400 million to $410 million in annualized revenue, Bolton wrote. Cavium sees its non-GAAP gross and operating margins reaching 64%-66% and 30%-35%, respectively, by the end of 2017.
Together, Cavium and QLogic will grow 20% annually, William Blair analyst Anil Doradla predicts. Doradla is more bullish on the “significant and transformative deal.” QLogic’s acquisition fits with Cavium’s goal of becoming a one-stop-shop for the data center world.
He also expects the deal to transform the combined firm “into a highly profitable, mid-teens top-line growth semiconductor company, with close to $1 billion in revenue.”
investors.com |
