Nvidia Buys Israel’s Mellanox to Expand Data Center Business

Chipmaker Nvidia has agreed to buy Mellanox Technologies, an Israeli chip designer, for $6.9 billion, winning out over other A-list suitors including Intel and giving a sharp boost to its data center business.

Mellanox makes chips and data center server gear to power cloud computing.Opens a new window  Under the agreement, Nvidia, the Santa Clara, California-based platform company focused on the data center, gaming, visualization and auto markets, will acquire all of Mellanox’s issued and outstanding common shares for $125 each in cash, representing a 14% premium to its close last week at $109.38.

Nvidia’s invention in 1999 of the graphics processing unit sparked the growth of the PC gaming market, redefined computer graphics and revolutionized parallel computing. The company’s GPU deep learning also has ignited the modern wave of artificial intelligence in computers, robots and self-driving cars.

Mellanox has been a pioneer in high-performance interconnect technology, including InfiniBand, which, along with its high-speed Ethernet products, is used in more than half the world’s fastest supercomputers. With products including adapters, switches, software and silicon, its interconnect solutions increase data center efficiency by providing high throughput and low latency.

Together, the two companies will have the capability to optimize data center-scale workloads across the whole computing, networking and storage stack to achieve higher performance, greater utilization and lower operating costs for customers, the companies say in a statementOpens a new window .

“The emergence of AI and data science, as well as billions of simultaneous computer users, is fueling skyrocketing demand on the world’s data centers,” says Jensen Huang, founder and chief executive of Nvidia. “Addressing this demand will require holistic architectures that connect vast numbers of fast computing nodes over intelligent networking fabrics to form a giant data center-scale compute engine.”

He adds: “We’re excited to unite Nvidia’s accelerated computing platform with Mellanox’s world-renowned accelerated networking platform under one roof to create next-generation data center-scale computing solutions. I am particularly thrilled to work closely with the visionary leaders of Mellanox and their amazing people to invent the computers of tomorrow.”

Eyal Waldman, Mellanox’s founder and chief executive, says that the two firms “share the same vision for accelerated computing.”

“Combining our two companies comes as a natural extension of our longstanding partnership,” he adds, ” and is a great fit given our common performance-driven cultures. This combination will foster the creation of powerful technology and fantastic opportunities for our people.”

Analysts estimate that nearly one-third of Nvidia revenue comes from data centers and that the addition of Mellanox will pave the way for faster expansion in this business. The deal comes amid a slowdown in demand for chips used in crypto currency mining.

The companies have collaborated on several mega-projects, including the building of the world’s two fastest supercomputers, Sierra and Summit, which are owned by the U.S. Department of Energy.

Intel earlier offered $6 billionOpens a new window for the Israeli company, with Microsoft and chip designer Xilinx also reportedly in the mixOpens a new window . Along with many other cloud operators, MicrosoftOpens a new window uses Mellanox’s networking technology in its Azure data centers, which help it compete with rivals such as Amazon Web Services and Google Compute Platform.

The Starboard Value hedge fund, which holds about 10% of Mellanox’s shares, had pressured the company’s leadership to sell the firm or otherwise increase its financial performance.

Questions have been raised, however, over whether the deal will be approved by Chinese regulatorsOpens a new window . Both companies derive about a quarter of their sales from China, and factors such as Beijing’s push to develop its own chip industry as well as its ongoing trade tensions with the United States could affect any regulatory decision.

Huang has insisted that the two companies’ products do not overlap and are complementary, but recent deals in the sector have fallen apart. Last year, Broadcom’s bid for Qualcomm was blocked for security reasons in the United States, and Qualcomm’s attempt to buy NXP Semiconductors for $44 billion was blocked by Chinese authorities.

The chip sector will be watching closely to see whether regulators will allow the Nvidia-Mellanox deal to close and unleash a flow of similar mergers.