EZchip Strikes $130M Deal to Buy Tilera

Ethernet chip specialist EZchip has struck a $130 million deal to acquire fellow network processor vendor Tilera as part of its strategy to expand into the data center and "white box" components market.

EZchip Technologies Ltd. (Nasdaq: EZCH), which just won the Outstanding Components Vendor award at this year's Leading Lights awards, said the deal, which is set to close in the third quarter, will accelerate its expansion into new markets, broaden its product portfolio and customer base, and double the size of its addressable market to $2 billion. (See Leading Lights Awards 2014: The Winners and Leading Lights Finalists 2014: Outstanding Components Vendor.)

The company will pay $50 million in cash when the deal closes, then up to $80 million in performance-related payments post-acquisition. Tilera Corp. has about 115 staff currently, and it's unclear how many of those will join EZchip's 200-strong workforce. Tilera CEO Devesh Garg is making the move, though, and will become EZchip's president in charge of US operations.

EZchip, which reported a 30% year-on-year increase in revenues to $71 million in 2013, expects the acquisition to slightly dent its earnings in 2014 but boost its profits from 2015 onwards. The company's share price increased by 2.8% to $26.52 on news of the acquisition.

(UPDATE: During the Tuesday investor conference call, EZchip's management revealed that Tilera's 2013 revenues were $35 million, but noted that this figure could dip below that level for 2014 before exceeding $35 million in 2015. The Tilera business is expected to deliver non-GAAP gross margins in the range of 60-65%, compared with EZchip's 80%.)

According to EZchip, the acquisition adds 100 customers, significantly expands the company's presence in the US (Boston and Silicon Valley), gives it a ready-made position in the multi-core CPU and adapter card market, and provides it with the portfolio it needs to target the cloud and data center markets it had already identified as part of its growth strategy. In addition, Tilera holds more than 100 patents.

Multi-core CPUs are used in a broad range of IT and networking elements, including routers, cloud computing platforms, and video and voice encoders to enable functions such as security, deep packet inspection (DPI), monitoring, and load balancing. In addition, multi-core CPUs will play an important role in meeting the packet and application processing demands of NFV and SDN deployments. (See Tilera Launches Open Virtual Switch Solution (OVS) to Accelerate NFV and SDN.)

EZchip plans to integrate Tilera's multi-core CPUs with its existing NPS network processor unit to create a high-end component that supports separated data plane and control plane processing.

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