InfiniBand Merger in Play?

Consolidation among two InfiniBand startups may be in the cards, as management software vendor Lane15 Software and IB switch provider InfiniSwitch Corp. are discussing a merger, according to sources close to both companies.

The deal is allegedly in motion to satisfy the requirements of IBM Corp.'s (NYSE: IBM) server group, which is said to have requested more "end-to-end solutions" from the gang of startups building point products for the InfiniBand market.

"It will make IBM's life much easier, sourcing the InfiniBand subnet manager software and InfiniBand switches from a single entity instead of multiple parties," says an industry source, who requested anonymity. "And a merger strengthens the cash base of these startups, who have no revenue at this point."

IBM did not return calls for comment on its InfiniBand plans. However, the company did come out in praise of the technology last month, announcing its intentions to ship a complete line of 4x (10-Gbit/s) InfiniBand host channel adapters (HCAs), switches, and fabric management software for its Intel-based server lines by the end of the first quarter of 2003 (see Server Vendors Hold IB Pep Rally).

Neither startup would confirm or deny the merger talks. Lane15 and InfiniSwitch "have a pretty big customer we are both working on product for," says Patricia Friar, director of corporate communications at Lane15. "It makes sense to work together." But she wouldn't say whether that customer is IBM (see Lane15 and InfiniSwitch Team Up and Lane15 Works With IBM).InfiniSwitch aside, perhaps Lane15 is considering combining forces with one of the other InfiniBand switch startups -- Paceline Systems Corp., DivergeNet Inc., or Voltaire Inc. -- or another InfiniBand hardware company such as InfiniCon Systems Inc. or Topspin Communications Inc. "We've been the prom date that everybody wants for some time," Friar says. "We've been in discussions with several companies."

InfiniSwitch is playing down the possibility of a merger with Lane15. "IBM has encouraged us to work together and that has led to conjecture about M&A," says Jean Hoxie-Wasko, VP of marketing at InfiniSwitch. "We announced our partnership with Lane15 when VIEO Inc. stepped away from the InfiniBand software market... We wanted people to know we still have a partnership with a subnet manager company." (See VIEO Closes $15M and VIEO Goes Vanilla.)

Both companies argue they can work on joint development without being joined at the hip, which is true. But it's hard to argue against the fact that this would be much easier to do in the same building, or at least, in the same time zone. Lane15 is based in Austin, Texas, InfiniSwitch in Westborough, Mass.

"M&A activity is up all across the industry," says Dan Tanner, senior analyst at Aberdeen Group Inc. "In the InfiniBand market, consolidating intellectual property and eliminating duplication would be a good thing."

Our aforementioned source adds, "If anyone is holding out against this merger, it's probably the VCs."Lane15, which has fewer than 40 employees today, closed a second round of $12 million in December 2001 (see Lane15 Lines Up $12M). Investors in the company include Austin Ventures, AV Labs, Convergent Investors, Dell Ventures, Hewlett-Packard Co. (NYSE: HPQ) (Compaq), Index Ventures, Intel Capital, Lightspeed Venture Partners, and Quanta Computer. [Disclosure: Lightspeed Venture Partners is an investor in Light Reading Inc., publisher of Byte and Switch.]

InfiniSwitch, which has around the same headcount, bagged its last round of $26 million in August 2001. Investors in this startup include Bessemer Venture Partners, Columbia Capital, Moore Capital Management Inc., NewcoGen, OneLiberty Ventures, and TL Ventures