QLogic Shares Drop on Plan to Buy Ancor

Chip maker QLogic Corp. said Monday that it plans to buy a fellow maker of equipment for data storage networks in a stock swap initially valued at $1.7 billion, but the news sent its shares--and the value of the deal--tumbling 25%.

QLogic said it will acquire Ancor Communications Inc. to help it expand into a new area of the rapidly growing market for fiber-channel communications.

Analysts said investors questioned the addition of a money-losing company, the impact on individual shareholder stakes and, most worrisome, the likelihood that the deal would erode QLogic’s relationship with a major ally.

By the end of the day, QLogic’s shares had fallen $25.19 a share to $74.75 on Nasdaq, putting the value of the acquisition at $1.3 billion.

The deal puts Aliso Viejo-based QLogic squarely in competition with Brocade Communications Systems Inc., a San Jose company that controls about 90% of the market for so-called fiber-channel switches.

The two companies support each other’s products, which speed communications between computers and storage devices. Investors are concerned that the purchase of Ancor, Brocade’s closest competitor, may deter Brocade from recommending QLogic to customers as it does now.

News of the deal drew an icy reaction from Brocade’s president, Gregory Reyes Jr.: “The nature of the relationship changes when you come home and tell your girlfriend that you’re getting married.”

But Larry Fortmuller, QLogic’s vice president of marketing, said, “There’s been cooperative activity among all those players over the years, and we expect that to continue.”

Analysts called the drop in QLogic’s share price an overreaction.

Shares of Eden Prairie, Minn.-based Ancor gained $7 a share, or 22%, to close at $38.19. Brocade lost $12.06, or nearly 9%, to close at $124 a share. Both trade on Nasdaq.