Chipmaker Nvidia has agreed to buy Mellanox Technologies, an Israeli chip designer, for $6.9 billion, winning out over other A-list suitorsÂ including Intel and giving a sharp boost toÂ its data center business.
MellanoxÂ makes chips and data center server gear to power cloud computing.Opens a new window Â Under theÂ agreement, Nvidia, the Santa Clara, California-based platform company focused on the data center,Â gaming, visualization and auto markets,Â will acquireÂ all of Mellanox’s issued and outstanding common shares for $125 each in cash, representing a 14% premium to itsÂ 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. TheÂ company’sÂ GPU deep learning also has ignitedÂ 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 thanÂ 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 sayÂ in a statementOpens a new window .
â€œThe emergence of AI and data science, as well as billions of simultaneous computer users, is fueling skyrocketing demand on the world’s data centers,â€ says Jensen Huang, founder and chief executive of Nvidia. â€œAddressing 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.â€
He adds: â€œWe’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.â€
Eyal Waldman, Mellanox’s founder and chief executive, says that the two firms â€œshare the same vision for accelerated computing.â€
â€œCombining our two companies comes as a natural extension of our longstanding partnership,â€ he adds, â€ 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.â€
Analysts estimate that nearly one-third of Nvidia revenue comes from data centers and that theÂ addition of Mellanox will paveÂ the way for faster expansion in this business.Â The deal comes amidÂ a slowdown in demand for chips used in crypto currency mining.
The companies have collaborated on several mega-projects,Â including the building ofÂ 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 XilinxÂ 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,Â which holds about 10% of Mellanox’s shares, had pressured the company’s leadershipÂ to sell the firm or otherwise increase its financial performance.
Questions have been raised, however, overÂ whether the deal will be approvedÂ 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 affectÂ 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, andÂ 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 dealÂ to close and unleashÂ a flowÂ of similar mergers.