EZchip Gives Mellanox Brains
By Bob Wheeler
Although Mellanox says its purchase of EZchip will be immediately accretive, the deal appears more forward looking than most recent semiconductor-industry acquisitions. For Mellanox, the acquisition brings both a development team and a wealth of intellectual property that can reshape its future products. It also diversifies its markets and customer base. EZchip gets greater scale and access to new customers, which should enable greater growth.
Mellanox’s offer of $25.50 per share represents only a 16% premium over EZchip’s closing price the day before the deal was announced. But shares of the latter company had fallen as low as $14.30 in recent months and had little chance of returning to recent highs. In August, EZchip revealed that Cisco would move future ASR 9000 designs to ASICs, ending that platform’s use of EZchip NPUs. On the plus side, EZchip expects to sample the NPS-400 this quarter, meaning it has likely reached tapeout.
In the meantime, EZchip acquired Tilera, bringing new products, customers, and markets. Of particular interest for Mellanox, we suspect, are the TILEncore intelligent network adapters (iNICs). These board-level products compete with Cavium’s LiquidIO and Netronome’s FlowNICs.
Mellanox is known primarily for its InfiniBand (IB) products, which include host adapters, switch systems, and all of the underlying controller and switch silicon. It has continued to reduce latency and improve throughput in each successive generation, culminating in its 100Gbps IB EDR products. After a long gestation period, the company’s Ethernet revenue is also growing.
Investors initially reacted negatively to the deal, perhaps sensing it was an admission of the headwinds both companies face. If Mellanox can execute on its vision, however, the acquisition could prove a brilliant strategic move. EZchip’s technology and expertise will open new opportunities for Mellanox, helping it diversify more quickly beyond IB and HPC.
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Another "smart" move (?)
Regards, John |
