Nvidia Acquire Mellanox in $6.9 billion bid

Article By : Dylan McGrath

Nvidia has agreed to acquire networking IC vendor Mellanox Technologies for $6.9 billion to bolster its data center computing business, the company said Monday.

A report by the Reuters news service Sunday that cites an anonymous source said that Nvidia outbid rival Intel for Mellanox. Intel did not immediately respond to request for comment on the report.

The deal should instantly bolster Nvidia's data center business, providing a big boost to the company's efforts to further diversify sales beyond the PC gaming business, which has historically been the dominant source of Nvidia's revenue.

"I think this is an excellent fit," said Bob Wheeler, a principal analyst and consultant at the Linley Group.

Wheeler told EE Times that a merger between Nvidia and Mellanox would be "highly synergistic" in for both traditional high-performance computing and high-growth artificial intelligence segments of the data center market.

"Both companies have been very active in both segments of the market," Wheeler said.

Mellanox got its start by pionering the Infiniband computer-networking communications standard used in HPC. Over time, as the rest of the computing world gravitated toward Ethernet technology, Mellanox has transitioned to support both.

Mellanox broke into the systems market through its acquisition of Voltaire Ltd. in 2011 and began selling high-end switch boxes with similar target customers as Nvidia's DGX GPU servers. Over time, it has become clear that AI will require multiple boxes, paving the way for a combined Nvidia-Mellanox to build bridges of NVLink/IB between the network switches and GPU servers.

Nvidia said future datacenters will be architected as giant compute engines with tens of thousands of compute nodes, designed holistically with their interconnects for optimal performance. With Mellanox in the fold, Nvidia said it would optimize datacenter-scale workloads across the entire computing, networking and storage stack to offer better performance, utilization and operating costs.

“The emergence of AI and data science, as well as billions of simultaneous computer users, is fueling skyrocketing demand on the world’s datacenters,” said Jensen Huang, Nvidia's founder and CEO, in a press statement. “Addressing this demand will require holistic architectures that connect vast numbers of fast computing nodes over intelligent networking fabrics to form a giant datacenter-scale compute engine."

Nvidia's Biggest Acquisition

Intel, meanwhile, have been active in the networking space since acquiring several Ethernet and storage companies a decade ago. Wheeler told EE Times that being acquired by Intel would have also been a good situation for Mellanox, but that the acquisition by Nvidia would probably leave Mellanox better off.

"I think the difference is the level of focus," Wheeler said. "It would have been a good fit for Intel as well, but part of a much larger more diverse business in Intel's Data Center Group. With Nvidia, it will be part of a much more focused solution."

The deal — worth $125 for each share of Mellanox — would be the largest acquisition in Nvidia's history and represent a premium of about 17% over Mellanox's share price value of $103.98 at market close Friday. Mellanox shares surged on the news, trading at $119.10 in early afternoon trading Monday.

Nvidia has made significant progress over the past year to increase its revenue diversity. In its mostly recently concluded quarter, Nvidia derived 43% of its $2.2 billion in sales from gaming, compared to 31% for data center. One year earlier, gaming made up 54% of the company's $3.2 billion in sales for the quarter, compared to just 19% for gaming.

Melanox, meanwhile, has been pushed to seek a deal by its investors. Late last year, Mellanox reportedly hired a financial advisor to help it explore options for selling the company. In late 2017, amid the semiconductor industry's unprecedented merger and acquisition boom, Mellanox took heat from institutional investors including Starboard Value LP — one of Mallanox's largest investors — for snubbing an acquisition overture by Marvell Technology.

Nvidia and Mellanox have previously collaborated on projects for years, including their recent contributions to building what are currently the world's two fastest computers, Sierra and Summit, operated by the U.S. Department of Energy. The companies are common suppliers to more than half of the world's Top 500 supercomputers, according to Nvidia.

Many of the world’s top cloud service providers also use both Nvidia GPUs and Mellanox interconnects, Nvidia said.

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