Nvidia Corp has agreed to buy Mellanox Technologies chip maker for $6.9 billion, gaining expertise to help push data center components into the growing market. Nvidia paid the American – Israeli company $125 per share. Mellanox majorly makes chips which are used to accelerate the flow of information across computer servers.
Analysts believe that the deal makes strategic sense as it improves the competitive position of Nvidia in the growing cloud computing market. While it is probably foolish to draw up a list of small capitalization semiconductor firms hoping for more deals, investors should check in other firms that have expressed interest in Mellanox, including Microchip Technology (MCHP), Xilinx (XLNX) and Marvell Technology (MRVL).
NVIDIA saw a 22 percent decline in revenue last quarter due to the recent decline in Bitcoin mining, sales of its latest GPU and trade problems in China. The one bright spot was AI and cloud computing, where autonomous vehicles, robots, and neural networks are being used for their products.
NVIDIA will be able to expand in these areas with the acquisition of Mellanox. The technology of the Israeli company is used together with so-called hyper-scale data centers “in over half of the world’s fastest supercomputers,” NVIDIA points out. It adds that workloads in these areas are exponentially increasing, but due to Moore’s Law, CPU performance continues to slow down. Nvidia’s largest acquisition ever aims to accelerate momentum for one of the most successful initiatives of Chief Executive Officer Jensen Huang. In less than three years, the company’s founder built a multibillion-dollar business by persuading data center owners that its graphics chips are the right solution to process the increasingly large amounts of information needed for artificial intelligence work, such as image recognition.
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Nvidia does not have the resources needed to produce its own silicone solutions for the high-performance connection problem, unlike some of its leading competitive chips (in particular Intel). By purchasing Mellanox, Nvidia can integrate into its products to make them more attractive in both data center and cloud applications, ensuring a fast, secure interconnection. It can also provide a more integrated system by owning the technology, which should reduce the cost of using external interconnect components. This could also provide a major advantage over competing for price/performance solutions.