Nvidia Buys Mellanox For $6.9B in Major Data Center Play

CEO Jensen Huang attends an event during the annual Computex computer exhibition in Taipei Taiwan

Thomson Reuters

US chip supplier Nvidia Corp has agreed to buy Israeli chip designer Mellanox Technologies Ltd for $6.8 billion, beating rival Intel Corp in a deal that would help the firm boost its data centre and artificial intelligence business.

Mellanox, an Israeli provider of networking components for data centers, had reportedly been on the market for several months following a fight with an activist investor, and multiple buyers had lined up before Nvidia sealed the offer Monday.

Data center revenue accounts for almost a third of Nvidia's sales. Financial news website Calcalist had reported earlier on Sunday that Nvidia had outbid Intel for Mellanox.

Nvidia is set to make the biggest acquisition in its history. As Nvidia's press release puts it, acquiring Mellanox will allow Nvidia to optimise datacentre-scale workloads and achieve higher performance at a lower operating cost. As well as gaining significant resources from Mellanox, Nvidia's deal keeps these same resources out of the hands of direct competitors like Intel. It cited estimates that Nvidia would pay at least 10 percent more than the price offered by Intel.

Nvidia has been pushing more into networking and connectivity with its own tailored solutions and Mellanox would bring further expertise along these lines, Bernstein analyst Stacy Rasgon said.

Nvidia said it believes that market for it and Mellanox is worth about $60 billion: $50 billion for Nvidia's computing chips and $11 billion for Mellanox's high-speed networking chips.

Mellanox will be accretive to Nvidia's non-GAAP earnings and cash flow.

"This exciting transaction would unite two HPC industry leaders and strengthen the combined company's ability to create data-centric system architectures for the convergence of the HPC and hyperscale markets around AI and other HPDA tasks", said Steve Conway, COO and Research SVP at Hyperion Research. The transaction has been approved by both companies' boards of directors and is expected to close by the end of CY 2019.

Nvidia, at first glance, wouldn't be the kind of suitor you'd pick for a company like Mellanox.

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