Broadcom Sues Emulex

Broadcom Corporation (BRCM - Analyst Report) yesterday announced that it put forth litigation charges against Emulex Corporation (ELX - Snapshot Report) for infringement of Broadcom patents related to networking and communications technologies. California based Broadcom Corporation is a leading chipmaker of products used in wired and wireless communications. 

California-based Emulex designs, develops, and supplies storage networking infrastructure solutions that connect storage, servers, and networks. 

Broadcom filed a complaint in a district court alleging that Emulex infringed 10 of the company’s patents. Broadcom stated that it will seek monetary damages and an injunction to stop Emulex from further infringement. These patents are among Broadcom's portfolio of more than 3,580 U.S. patents, 1,350 foreign patents and 7,350 additional pending patent applications. 

Enterprise network equipment moves corporate data and communications between computers, servers, mainframes and storage systems. There are two technologies for moving data in this market – Fibre channel, which Emulex dominates, and Ethernet, which is Broadcom’s forte. But, a combined technology has emerged namely, Fibre Channel over Ethernet, or FCoE, which costs less to deploy. Emulex and partner ServerEngines are in FCoE, but not Broadcom. 

Management added that as Broadcom developed plans for the Fibre Channel over Ethernet market, the company discovered that Emulex is infringing multiple Broadcom patents in an effort to use Broadcom technology to compete against both our existing and future products. Management believes that Emulex’s infringement is pervasive. 

Meanwhile, Emulex stated that it is reviewing the patents associated with the complaint filed today by Broadcom. 

Both the companies have b involved in a hostile takeover battle since May, which ended in July after Emulex declined Broadcom’s final acquisition offer of $912 million. Management at Emulex stated that it found the offer significantly undervaluing Emulex’s long-term prospects and not being in the best interests of Emulex and its stockholders. 

As both companies have business in the networking market, Broadcom had expected that the addition of Emulex’s networking products will strengthen its product portfolio. 

The basic underlying theme to watch at Broadcom continues to be the progress with the launch of new and more highly integrated products. We maintain our Neutral rating on the stock.

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