(Updates to add Emulex response)

 
   DOW JONES NEWSWIRES

Broadcom Corp. (BRCM) launched an unsolicited bid to acquire Emulex Corp. (ELX) Tuesday for about $764 million, and reported an unexpected first-quarter loss as weakness in all its market segments led to a 17% decline in revenue.

Broadcom's cash offer for Emulex of $9.25 per share represents a 40% premium to Emulex's closing price Monday and could spark a takeover battle for the networking technology maker. According to Broadcom, Emulex rejected earlier advances, and in January installed protections against hostile takeover offers.

Emulex confirmed its Board of Directors received the proposal, in a posting on the company's Web site, but did not comment further.

Nonetheless, Emulex shares surged 44% to $9.54 as Wall Street anticipates a higher offer for Emulex either from Broadcom or another company. Broadcom shares, meanwhile, fell 10% to $19.61 on the disappointing first-quarter results and the prospects of raising its offer price.

A deal for Emulex would allow Broadcom to sell another technology used in storage networking. Broadcom sells ethernet networking equipment for the connections in company data centers; meanwhile, Emulex - and rival Qlogic Corp. (QLGC) - focus on technology known as fibre channel.

Ethernet is expected to replace fibre-channel technology in storage networks; however, fibre-channel remains the storage network standard. Analysts say the ability to sell both ethernet and fibre-channel could give Broadcom a strategic advantage when the two technologies converge.

Still, purchasing Emulex isn't a "make or break deal" for Broadcom, said Jefferies & Co. analyst Adam Benjamin. "If they find that they are in for a fight, they will walk away."

Benjamin also said it's unclear whether other ethernet and fibre-channel makers will feel they need closer ties. The long design cycles for storage networking technology means the strategic implications of an acquisition could take time to play out.

Emulex hasn't indicated any interest to Broadcom that it wants to be acquired. Broadcom had approached Emulex in December about a possible tie-up, but Emulex wasn't interested in talking, Broadcom Chief Executive Scott McGregor said in a conference call.

"They basically said, "No, the company isn't for sale,'" McGregor said.

Then, in January, Emulex installed a "poison pill" - or shareholders rights plan - used in defense against hostile takeover offers. Such pills are meant to discourage offers from rival bidders and give a company leverage to negotiate a sweetened offer.

"It looks as though Emulex is taking the position that this is not a good thing for them," said analyst Cody Acree of Stifel Nicolaus.

Broadcom said an acquisition of Emulex would boost earnings next year, with the deal aiding revenue for both companies through an improved ability to innovate new solutions for customers and a broadening of distribution channels.

The Wall Street Journal had reported an offer was likely to be announced Tuesday.

Broadcom - which specializes in low-cost, high-speed "system-on-a-chip" semiconductors and software that combines voice, video data and multimedia applications - reported a first-quarter net loss of $91.9 million, or 19 cents a share, compared with year-earlier net income $74.3 million, or 14 cents a share.

Net revenue fell to $853.4 million from $1.03 billion, in line with the company's January forecast.

Despite the revenue decline, he added, customer bookings strengthened as the quarter progressed, "which is reflected in our anticipated sequential revenue growth" this quarter. Broadcom expects $900 million to $975 million for the second quarter; analysts' mean estimate, according to Thomson Reuters, was $861.9 million.

Some analysts predicted Broadcom would beat estimates because its designers tend to be on the leading edge of new trends, such as Bluetooth, a low-power short-range wireless system that permits data exchange via mobile and fixed devices.

The company will begin shipping a new chip for set-top boxes later this year, and in February, Nokia Corp. (NOK) chose it to supply chipsets for baseband, radio frequency and mixed signal in its phones.

-By Stephen Wisnefski and Kathy Shwiff, Dow Jones Newswires; 201-938-2310; stephen.wisnefski@dowjones.com

(Jerry A. DiColo contributed to this report.)