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.