Following unconfirmed reports in the media, United States based chip making giant Nvidia confirmed on Monday that it was set to acquire the Israeli chip designer Mellanox Technologies for $6.8 billion. According to reports, this bid by Nvidia was more than an earlier bid made for the company by Intel Inc. The acquisition would help the US chip maker to increase its presence in the data center industry segment.
The all cash offer of Nvidia amounts to $125 per share which is 14 per cent more than Mellanox’s share price at the end of trade on Friday. In pre market trade, there was a rise of 8.7 per cent in the shares of Mellanox rose 8.7 percent and 1 per cent increase in Nvidia shares.
According to reports, there was a competitive bidding process for the company which also saw bids from rival US companies such as Intel. There were also reports that the Xilinx Inc was also part of the competitive bidding process,
There were no comments from Intel and Xilinx about the whether they had bid for Mellanox.
Chips and o5tehr hardware that are used for data center servers which in turn power cloud computing is manufactured by the Israel and the United States based Mellanox. At the end of trading on Friday, the total market capitalization of the company was about $5.9 billion.
Nvidia has developed its own tailored solutions and is using it to push more into the more into networking and connectivity industry and the acquisition of Mellanox would add on ot the existing expertise in this industry, said Bernstein analyst Stacy Rasgon.
“But going out and buying an asset right now, immediately after the recent spate of guide downs may raise a few eyebrows,” said Rasgon. “It will probably spark questions as to whether NVDA sees anything changing regarding the growth trajectory of their core datacenter business.”
Weak demand from China for its gaming chips and lower-than-expected sales to the data center resulted in Nvidia reducing its fourth-quarter revenue estimate by half a billion dollars in January.
Nearly a third of Nvidia’s sales is accounted for by data center revenue. Since the appointment of Chief Executive Officer Jensen Huang, the company has seen significant growth in the last few years, but there has been a slowdown in its sales in recent quarters because of a slowdown in China and the waning down craze for cryptocurrency.
It is expected that the deal would be closed by the end of the current year. There are hardly any regulatory hurdles facing the deal according to analysts. On the other hand, the path for an acquisition of Mellanox by rival chipmaker Intel would have been a tedious one because it, alongside Mellanox, are dominant players in the InfiniBand technology field which is a networking standard that is typically used in supercomputers.
(Adapted from CNBC.com)