Nvidia wins the Mellanox courtship for $6.9 billion to boost datacenter offering

InfiniBand and ethernet technology company Mellanox has been attracting attention from a range of different suitors over the last few months, but Nvidia has won the prize.

Nvidia and Mellanox have officially announced the pair have reached a definitive agreement under which will see the GPU giant sign a cheque for approximately $6.9 billion, or $125 per share. After Microsoft, Intel and Xilinx were reported courting Mellanox, Nvidia comes home with the goods.

“The emergence of AI and data science, as well as billions of simultaneous computer users, is fuelling skyrocketing demand on the world’s datacenters,” said Jensen Huang, CEO 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 datacenter-scale compute engine.

“We share the same vision for accelerated computing as Nvidia,” said Eyal Waldman, CEO of Mellanox. “Combining our two companies comes as a natural extension of our longstanding partnership 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.”

The acquisition announcement arrives at a useful time for Nvidia, a company which is seeking to expand outside its traditional markets. The GPU giant has been heavily reliant on the gaming and cryptocurrency segments in by-gone years, though dampening demands hit the financials last year. That said, the growing datacenter business has offset some of the negative trends.

Looking at the most recent financials, datacenter sales at Nvidia accounted for 31% of the total during the last period, up from 19% in the previous year. Adding Mellanox into the mix will further diversify the business, cementing the pursuit of alternative revenues. The pair claim Nvidia computing platform and Mellanox’s interconnects power over 250 of the world’s TOP500 supercomputers.

Another interesting facet to this story is the influence of activist investor Starboard Value.

Having taken a 10.7% stake in Mellanox in November 2017, the team moved to have the entire board replaced in an attempt to refocus the activities of the business. Starboard Value believed the business was focusing too much time on R&D, missing out on commercial opportunities.

Although this could be seen as a nightmare scenario for technologists, quarterlies did improve and share price has increased by 118% since the Starboard Value entry. Say what you will about the disruptive influence of activist investors, but this is an outcome few investors will complain about.