Piper Jaffray Cuts QLogic Rating

Analyst Les Santiago thinks the sale of QLogic's hard disk and tape drive controller businesses will be negative for the stock

Piper Jaffray cut its opinion on QLogic (QLGC ) to underperform from market perform Tuesday, giving a thumbs down to the announcement late Monday that the technology company plans to sell its hard disk and tape drive controller (HDC) businesses.

The semiconductor company Marvell Technology Group (MRVL ) agreed to acquire QLogic's HDC businesses for $225 million, or $180 million in cash and $45 million in Marvell stock. Analyst Les Santiago said that before this announcement, QLogic as a whole was valued at about five times its sales for the fiscal year 2006 (ending March.) The market valued QLogic's HDC businesses at nearly $450 million to $500 million. Santiago estimates that Marvell's $225 million acquisition implies a price-to-sales ratio of 2.5 times, and price to earnings ratio of 10 times for QLogic's HDC businesses. His analysis suggests that selling 25% of revenue at 2.5 times the fiscal year 2006 sales will be negative for Qlogic's stock. When he excludes HDC from QLogic's other businesses, Santiago gets a price target of $30.

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