Nvidia to buy Israel's Mellanox in $6.9bn deal
Nvidia has agreed to buy Israeli chipmaker Mellanox Technologies for $125 per share in cash, which represents a total enterprise value of around $6.9bn.
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Reports had suggested that both Intel and Xilinx were interested in acquiring Mellanox.
The deal is expected to be immediately accretive to Nvidia's non-GAAP gross margin, earnings per share and cash flow.
The US tech company said it plans to fund the acquisition through cash on its balance sheet. In addition, Nvidia said there is no change to its previously announced capital return programme for the rest of fiscal 2020.
The transaction, which has been approved by both boards of directors, is expected to close by the end of 2019, subject to regulatory approvals.
Nvidia said that together, the companies will power more than 250 of the world's top 500 supercomputers and have as customers every major cloud service provider and computer maker.
It added that with Mellanox, it will optimise data centre-scale workloads across the entire computing, networking and storage stack to achieve higher performance, greater utilisation and lower operating cost for customers.
Jensen Huang, founder and chief executive officer of Nvidia, said: "The emergence of AI and data science, as well as billions of simultaneous computer users, is fueling skyrocketing demand on the world’s data centres.
"Addressing this demand will require holistic architectures that connect vast numbers of fast computing nodes over intelligent networking fabrics to form a giant data centre-scale compute engine.
"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 centre-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."
In a note out on Sunday ahead of confirmation of the deal by Nvidia, RBC Capital Markets analyst Mitch Steves pointed out that Mellanox generates around $1.1bn in revenue and has a notable operating margin profile of approximately 27%.
"Given the size of the potential deal, we would not view it as a 'game changer' but believe this would help lift the semiconductor sector in general.
"Consolidation in the industry slowed down in 2017/2018 and with valuations coming down over the past four to five months, we think this could reinvigorate M&A discussions across the entire sector."