Nvidia to buy Mellanox for $6.8 bn beating Intel and Xilinx

Chipmaker Nvidia is nearing a deal to acquire rival Mellanox Technologies for $6.8 billion in cash — beating Intel and Xilinx, Reuters reported on Sunday.
Nvidia at trade show
Mellanox reported revenue of $1,088.7 million (+26 percent) in 2018 compared to $863.9 million in 2017. Mellanox posted operating expense of $588.1 million in 2018 as against $580.5 million in 2017.

Mellanox recorded operating income of $112.1 million in 2018 vs operating loss of $17.1 million in 2017. Mellanox is aiming to achieve quarterly revenue of $295 million to $305 million in the first quarter.

The deal would be Nvidia’s biggest-ever acquisition and boost its business of making chips for data centers, allowing it to reduce its reliance on the video game industry.

Nvidia has outbid Intel in the auction for Mellanox and could announce a deal as early as Monday.

U.S chipmaker Intel has bid $5.5-$6 billion in cash and stock to buy Israel’s Mellanox Technologies, Israeli media reported in January.

CNBC earlier reported that Xilinx has hired Barclays to advise on a bid to buy Mellanox Technologies.

Mellanox’s chips power networks connecting servers. The company, which is based in Israel and the United States, had a market capitalization at the end of trading on Friday of about $5.9 billion.

Data center revenue accounts for nearly a third of Nvidia’s sales. Nvidia, based in Santa Clara, California has grown at a rapid pace in the past few years, under CEO Jensen Huang, but a slowdown in China and a fading cyrptocurrency craze have started to weigh on its sales in recent quarters.

In January, Nvidia, which has market capitalization of $91 billion, cut its fourth-quarter revenue estimate by half a billion dollars because of weak demand for its gaming chips in China and lower-than-expected data center sales.

Nvidia’s acquisition of Mellanox would represent a win for activist hedge fund Starboard Value LP, which is a shareholder of the company with 5.8 percent stake and reached a deal with it last year over the composition of its board.

Nvidia’s net income rose to $1.1 billion, or $1.76 per share, in the second-quarter ended July 29, from $583 million, or 92 cents per share, a year earlier. Total revenue of Nvidia rose 40 percent to $3.12 billion.

Nvidia in January forecasts that its full-year revenue will be flat or down slightly from 2018. CEO Jensen Huang said he expects China, gaming and self-driving vehicles will drive demand for its chips, CNBC reported.

Rival chipmaker Advanced Micro Devices (AMD) had forecast full-year revenue ahead of analysts’ expectations. AMD is also betting on its newest graphics and data center chips to bolster growth for the year.

Rajani Baburajan

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