Will Emulex Buy Finisar?
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A team of auditors from Emulex Corp. (Nasdaq: ELX - message board) reportedly spent the latter part of this week camped in the active components division of Finisar Corp. (Nasdaq: FNSR - message board) in El Monte, Calif. And at least one source, a consultant who requested anonymity, thinks Emulex will soon make a bid for Finisar.
Would it be worth it?
Rumor has it Emulex, which makes adapters for storage-area networking, has been looking for years to buy a transceiver outfit of its very own; and Finisar, which makes a range of data comm transceivers, fits the bill. The consultant quoted above says Emulex already passed on the chance to buy Stratos Lightwave Inc. (Nasdaq: STLWD - message board) months ago. Now, with its eye on 10-Gbit/s Fibre Channel, Emulex could be readier than it's been in the past (see Xilinx, Emulex Create 10-Gig FC and Emulex Cooks Up 10-Gig FC Demo ).
Trouble is, Finisar may not be bargain. It has a market cap of $289.8 million and $112 million in cash at the end of last quarter. Finisar also has about $125 million in debt. "They'd have an enterprise value of about $310 million -- that's what a company would have to pay to take them over," says one financial analyst, who also spoke on condition of anonymity.
Can Emulex afford it? Its last quarterly report boasted revenues of $70.4 million, up 34 percent year-over-year (see Emulex Q1 Profits Rise ). And with about $322.2 million in cash on hand, the company certainly seems to be doing better than some in the industry.
Still, would such a buy be wise? Some have their doubts. "The downturn has marked a profound change in the component business. Transceivers have become commoditized, everything's going to China," said the consultant quoted earlier. He says companies such as Finisar, Optical Communication Products Inc. (OCPI) (Nasdaq: OCPI - message board), and Stratos Lightwave aren't going to be able to compete against the growing roster of resident Chinese, Taiwanese, and Korean competitors who make all kinds of transceivers at margins at least 20 percent lower than competitors elsewhere.
There are other problems. "Finisar spends a lot on R&D and their fixed overhead is very high," says the financial analyst quoted earlier. He says the company's roster of products, while cutting-edge, is very diverse and costly to support and develop.
A spokeswoman for Emulex said she'd never heard the company may be nosing around Finisar. Calls to Finisar went unanswered at press time.
A receptionist at Finisar's active components division, where the Emulex folk were reportedly visiting, at first said she wasn't sure they were still there. Coming back to the phone after checking, she said visitors were there, but Emulex's name wasn't on the roster.
— Mary Jander, Senior Editor, Light Reading
lightreading.com
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