Published: Tue, March 12, 2019
Markets | By Erika Turner

NVIDIA buys high-performance chip-maker Mellanox for $6.9 billion

NVIDIA buys high-performance chip-maker Mellanox for $6.9 billion

Reports surfaced yesterday on the Israeli technology news site CTec, that Nvidia had entered the Mellanox bidding, which reportedly has included Xilinx, Broadcom, Microsoft, among rumored other companies, along with Intel.

Post close, the transaction - for which Goldman Sachs served as financial advisor to Nvidia - is expected to be immediately accretive to Nvidia's non-GAAP gross margin, non-GAAP earnings per share and free cash flow, according to Nvidia. Mellanox is an interconnect company, with a range of Infiniband and Ethernet network adapters and switches, as well as a line of products descended from Tilera's processors.

Nvidia's advantage is that it would have a greater chance of obtaining US and Chinese regulatory approval as Intel and Mellanox control the market for InfiniBand technology, a networking communications standard commonly used in supercomputers, Calcalist said. But the performance growth of the GPUs that NVIDIA makes has not slowed in the same way, and they have been found to work particularly well in modern, datacenter-based workloads.

The tie-up also builds on efforts at Nvidia and Mellanox to get out of the cutthroat business of selling chips and into the more profitable business of selling complete systems, said Bob Wheeler, a principal analyst at chip research firm The Linley Group.

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The acquisition is a win for the New York-based activist investor Starboard Value LP, which owns a 5.8 percent stake and had reached a deal with Mellanox past year over the composition of its board.

It will reportedly help NVIDIA better compete in the server market, which accounts for about a third of its sales.

Nvidia has outbid Intel Corp in the auction for Mellanox and could announce a deal as early as Monday, the person said. Our vision is that datacenters are the most important computers in the world today... Mellanox will pay a $350 million termination fee to Nvidia if it accepts a rival offer. "Both of our companies are focused on high performance computing, but neither of our companies have a giant position".

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