NVIDIA confirmed its purchase of Israel’s $ 6.9 billion chip – maker Mellanox. The offer, rumored over a few days, outstripped Intel’s six billion dollars offered a few months ago. It is reported to help NVIDIA compete better in the server market, which accounts for approximately one-third of its sales.
Mellanox mainly produces high – speed chips that connect servers from Ethernet and InfiniBand networks. These products are used in cloud and storage data centers, as well as for high-performance Supercomputers for AI and other data-intensive computing applications.
“The emergence of AI and data science, as well as billions of simultaneous computer users, is fueling growing demand on data centers around the world,” said Jensen Huang, CEO of NVIDIA.
“To meet this demand, the holistic architectures will require a large number of quick computing nodes are connected to intelligently networked structures to form a giant computer, a data center motor.”
In less than three years, its founder created a multi-billion dollar business by persuading data center owners of the right solution to process ever greater amounts of information, such as image recognition, required for artificial intelligence work.
On the other hand, Mellanox Technology was formed by a former Intel executive in 1999 and was a pioneer in the early adoption of InfiniBand interconnect technology, now used in more than half of the world’s fastest supercomputers and many leading hyper-scale data centers, along with its high – speed Ethernet products.
It will also be the largest acquisition in the history of Nvidia. The company has grown organically, and it’s few acquisitions were relatively small, so this is somewhat out of character. This represents nearly half the $ 11.7 billion Nvidia’s 2018 annual turnover, almost eliminating the company’s $ 7.4 billion in cash. For fiscal 2018 Mellanox’s net profit was EUR 134 million, which adds up to 52 times its purchase profit.
“I’m stunned by what they’ve paid for it.” Jon Peddie, President of Jon Peddie Research, who follows the graphics market, told that “I’m not getting those ratios at all. We know two things. One, Jen – Hsun is not doing stupid things, too, he’s not cashing around money. These reasons tell me he’s found something I don’t understand.”
Peddie speculates that the purpose of this deal is to goose Nvidia’s own interconnect effort, NVLink.
“Designing high – speed communication networks is not cheap. It’s just as bad as designing GPU. With their tech, Mellanox can close the gap. My speculation is that the next – generation GPU will keep Mellanox next-gen communications stuck in it that is better than or equal to CXL, “he said, referring to Intel and partners ‘ new high – speed interconnect.
Jim McGregor of Tirias Research says” Nvidia is trying to strengthen its data center position because that’s where it continues to grow. It helps from a single box solution to a multi-box solution to build its strategy. So it doesn’t just have the things in the box; it has the things to connect the boxes.
Nvidia has acquired a company with this purchase that can significantly help it overcome one of the largest performance bottlenecks in cloud installations for its coprocessors. This is a growth area for Nvidia, and within 3 – 4 years, one that I expect will be its main market. Moreover, Mellanox will help Nvidia to leverage its products with its extensive installed base and ongoing revenue, and to draw on extra revenues, which can enhance the scope and depth of Nvidia to overcome potentially bad terms in some of its current markets.