Barclays: Cavium May Launch New Data Center Switch By Acquiring Xpliant

Cavium CAVM may be poised to launch a new switch for data centers, fueling growth for the network semiconductor concern.

Barclay's Blayne Curtis said the company has acquired a 40 percent to 45 percent stake in development-stage Xpliant for $28.8 million, along with an option to acquire the company, which is working on the data center switch in "stealth mode."

Curtis thinks Cavium's option may expire some time this year, while Xpliant will start posting revenue in 2015. Curtis said the information is "based on our research."

The billion-dollar market for the switch product is currently dominated by Brocade Systems BRCD, and Curtis noted that Cavium recently hired Brocade's Eric Hayes who ran Brocades switch business.

Hayes is serving as Cavium's vice president and general manager, "presumably for this product line, once acquired," Blayne said in a research note.

Xpliant has quarterly operating expenses of $3 million to $4 million, but Blayne said Cavium will need to absorb only $2 million of that amount due to efficiencies.

Cavium profits and revenue have been flat for the past couple of quarters, but Curtis maintains an Overweight rating on Cavium and a $65 target.

Cavium briefly spiked to $9.24 earlier Monday, but traded recently at $9.16, down about 0.5 percent.