This 3-Horse Race Just Lost a Pony
The chip designer has been working with EZchip (NAS: EZCH) for years to develop and market high-speed networking processors. Indeed, the two companies just announced their intentions to produce a next-generation solution that's twice as fast as the current state of the art. The dynamic duo is particularly cozy with networking giant Cisco Systems (NAS: CSCO) , and EZchip expects the EZchip-Cisco-Marvell partnership to drive sales growth for years to come.
But that wasn't Marvell's biggest networking news on Wednesday. Instead, the company said that it has acquired Swedish high-speed networker Xelerated for an undisclosed sum.
Xelerated is one of only two chief competitors in EZchip's books, the other one being Broadcom (NAS: BRCM) through its acquisition of Sandburst six years ago.
This acquisition expands Marvell's networking portfolio considerably -- and makes EZchip investors nervous. Marvell promises to continue working with EZchip on the current and just-announced networking chips and "is committed to the long term relationship with EZchip."
The Xelerated deal actually closed last week -- perhaps the disclosure was delayed to line up with the calming next-generation-chip announcement. If so, the tactic didn't work all that well -- EZchip shares fell as much as 3.3% on a pretty flat market day. Marvell itself hardly moved on the news, but Broadcom went down by nearly a full percent.
With Xelerated and EZchip both depending on Marvell, Broadcom is now the only other horse in a two-pony race. This comes just as super-fast network backbones are becoming more important than ever -- mobile computing and digital video are just two of the many bandwidth-hungry drivers of dramatic growth in this space.
Marvell is making a smart move here. You'd be equally smart to follow this storyline with a keen eye, because there's real money to be made here. The Fool is here to help: add Marvell, Broadcom, and EZchip to your Foolish watchlist in a single click.
At the time this article was published Fool contributorAnders Bylundholds no position in any of the companies mentioned. The Motley Fool owns shares of Marvell and Cisco and has also created a bull call spread position on Cisco.Motley Fool newsletter serviceshave recommended buying shares of Cisco. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check outAnders' holdings and bio, or follow him onTwitterandGoogle+. We have adisclosure policy.
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