Nvidia Buying Mellanox for $6.9B

Ray Le Maistre
3/11/2019
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Nvidia has won the battle to acquire Ethernet and InfiniBand switching components giant Mellanox Technologies, beating off the likes of Intel and Xilinx with a bid valued at US$6.9 billion.

Nvidia Corp., best known for its graphics processing units (GPUs) and AI developments, says the acquisition brings together a company focused on accelerating computing with one focused on accelerating networking: From a Light Reading perspective, that sounds like a company that is ready to meet the demands of future cloud computing architectures, including edge computing/distributed cloud environments.

Santa Clara, Calif.-based Nvidia has offered $125 per Mellanox share, not much of a premium on Friday's closing price of $109.38, but more than 50% higher than the $81.67 that Mellanox's stock commanded in late January when speculation emerged of a bidding war. Initially, Intel and Xilinx were seen as the main companies engaged in the tussle to acquire Mellanox, but Microsoft and Broadcom were also believed to be interested. Marvell has previously made approaches to Mellanox, but those overtures were rejected.

Now Nvidia has stepped up with a bid that has been accepted. Mellanox shares are up by nearly 10% in pre-market trading to $119, so are still below the bid price, while Nvidia's stock is up by 1.4% in pre-market trading to $152.

For the full year 2018, Yokneam, Israel-based Mellanox reported revenues of $1.09 billion, a 26% year-on-year increase, and an operating profit of $112 million, compared with an operating loss of $17 million in 2017.

Nvidia says the acquisition, once closed, will boost its gross margins and earnings. The offer is still subject to approval by regulators and Mellanox shareholders and is expected to be completed before the end of 2019. (For more details, see the official announcement.)

The two companies are already close partners and are jointly deployed in the data centers of the world's major cloud players, including Amazon Web Services (AWS), Google Cloud, Microsoft Azure, Alibaba, Oracle, Tencent and Baidu.

As you'd expect, Nvidia is effusive about the Mellanox portfolio, describing it as "world class" in a webcast presentation about the acquisition. Nvidia executives picked out Mellanox's software stack, which is designed to manage processing workloads to optimize data center performance, as particularly important. The GPU giant sees data centers evolving to operate as "giant compute engines" comprising tens of thousands of compute nodes that need to work in unison, a vision that demands very low latency, high-speed networking capabilities, which is what Mellanox has developed.

"We share the same vision for accelerated computing as Nvidia," said Eyal Waldman, founder and CEO of Mellanox, in the official statement about the deal. "Combining our two companies comes as a natural extension of our longstanding partnership and is a great fit given our common performance-driven cultures. This combination will foster the creation of powerful technology and fantastic opportunities for our people."

Nvidia says that once the acquisition is completed, it "intends to continue investing in local excellence and talent in Israel, one of the world's most important technology centers."

News of the deal will be of interest not only to all data center operators and the IT departments of major enterprises but, given the expected role that edge computing will play in future wide area communications networks, to communications service providers as well.

It also raises the question of whether counter-bids might be made and, if not, what the next move will be for the likes of Intel and Xilinx.

Mellanox competes with a broad range of big names across its portfolio (including some of those that were vying with Nvidia to make a successful bid), including Intel, Broadcom and Marvell in the Ethernet and Fibre Channel component markets, and Cisco, Juniper and Arista in the Ethernet switching market.

For background information, see:

— Ray Le Maistre, Editor-in-Chief, Light Reading

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