Cavium completed the acquisition for $11.00 in cash, plus 0.098 shares of Cavium stock per share — or $16.07 per share — following which, Pacific Crest raised its 2017 revenue and EPS estimates to $957 million from $526 million and $2.60 from $1.87, respectively.
"We anticipate Cavium will be able to lower QLogic's manufacturing costs by 50% by bypassing ASIC providers and going direct to foundry. We believe this could drive significantly higher penetration in the Ethernet NIC market into converged NIC and on-board LAN segments, which represent a $1 billion or greater TAM," analyst John Vinh wrote in a note.
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However, Vinh said the motivation for acquisition of QLogic still leaves him wary.
"We believe the acquisition of QLogic was likely reactive in nature and believe the ramp of new-product revenue this year is likely tracking below prior expectations given a slower-than-expected ramp in ThunderX ARM servers," the analyst added.
That being said, Vinh noted that the ramp of Octeon Fusion M driven by service provider purchases is likely tracking better than expected.
Vinh maintains his Sector-Weight rating on Cavium shares and sees fair value in the range of $49–$52.
Shares of Cavium closed Wednesday's regular trading session at $51.96.
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