Nvidia's acquisition of Mellanox Technologies was a landmark deal in the technology industry, completed on April 27, 2020, for $6.9 billion. The acquisition brought together Nvidia's leadership in graphics processing units (GPUs) with Mellanox's expertise in high-speed networking, particularly InfiniBand and Ethernet technologies. This strategic move was aimed at enhancing Nvidia's capabilities in data centers and high-performance computing, which are critical for artificial intelligence workloads.
Mellanox Technologies Ltd. was an Israeli-American multinational supplier of computer networking products based on InfiniBand and Ethernet technology. The company offered adapters, switches, software, cables, and silicon for markets including high-performance computing, data centers, cloud computing, computer data storage, and financial services. The acquisition was one of the largest mergers and acquisitions in 2019 and was approved by antitrust authorities in the European Union, the United States, and China.
Background of Mellanox Technologies
Mellanox was founded in May 1999 by former Israeli executives of Intel Corporation and Galileo Technology, including Eyal Waldman, Shai Cohen, Roni Ashuri, Michael Kagan, Evelyn Landman, Eitan Zahavi, Shimon Rottenberg, Udi Katz, and Alon Webman. The company was established in the Israeli city of Yokneam Illit, with financial offices in Santa Clara, California. Initially, Mellanox was an integrated circuit (chip) manufacturer, but by 2009 it had evolved into a producer of complete network systems.
In February 2002, Mellanox announced a round of venture capital investment of about $56 million, later extended to about $64 million. Investors included Intel, IBM, Sequoia Capital, and U.S. Venture Partners. The company had its initial public offering in February 2007 on NASDAQ, raising $102 million and valuing the company at over half a billion dollars. Its shares were listed under the symbol MLNX.
Growth and Expansion (2010-2016)
In 2010, Oracle Corporation became a major investor in Mellanox, holding around 10% of its stock. Oracle used InfiniBand technology in its Exadata and Exalogic appliances. Mellanox shares were also listed on the Tel Aviv Stock Exchange until 2013, when the company de-listed itself but remained on NASDAQ.
In February 2011, Mellanox acquired Voltaire Ltd., a provider of data center switches, for about $218 million. In November 2012, Mellanox was named one of the fastest growing companies in North America by Deloitte. In 2013, Mellanox acquired assets of XLoom Communications Ltd., including opto-electric chip-scale packaging, and some of XLoom's technology personnel. That same year, Mellanox acquired privately held Kotura, Inc., a developer of silicon photonics optical interconnect technology, and IPtronics A/S, a designer of optical interconnect components.
In July 2014, Mellanox acquired Integrity Project for its software connectivity, low-level development, real-time applications, and security technology. In February 2016, Mellanox acquired EZchip Semiconductor, a provider of network processors and multi-core processors. In 2016, Mellanox began to employ programmers in the Gaza Strip, in addition to its team of Israeli Arab programmers and programmers in Ramallah and Nablus. That year, Mellanox had revenues of $857 million.
Financial and Governance Challenges (2017-2018)
The activist investor Starboard Value LP purchased a 10.7% stake in Mellanox in November 2017. In January 2018, Starboard criticized the company's research and development spending and argued for short-term profits. The day after, on January 9, 2018, Mellanox announced it would immediately discontinue its 1550 nm silicon photonics development activities, with CEO Eyal Waldman saying the review of the silicon photonics business had started in May 2017. Mellanox also said it would fire 100 people, all in the US. At the time, the company employed 2,900 people, mostly in Israel.
Starboard sent a letter to shareholders asking them to entirely replace the board of directors. At the time, Mellanox had a $3.3 billion market value. Starboard said it would nominate nine candidates for election to the company's board, including Starboard head Jeffrey Smith. In May 2018, stockholders approved the company's governance proposals related to the possibility of contested board elections. By June 2018, three board members agreed to step down and be replaced by two Starboard candidates and one agreed upon by both sides.
The Acquisition Process
On March 11, 2019, Nvidia announced its intent to acquire Mellanox for $6.9 billion. Other companies willing to acquire Mellanox included Intel, Xilinx, and Microsoft. The deal closed on April 27, 2020, with approval from the EU, U.S., and Chinese antitrust authorities. The acquisition was seen as a strategic move by Nvidia to strengthen its networking capabilities for AI data centers, as high-speed networking is essential for scaling AI workloads across multiple GPUs.
Founder and long-term CEO Eyal Waldman left the company in November 2020. He made an estimated $240 million on the acquisition. The company was integrated into Nvidia's networking division in 2020, and Nvidia stopped using the brand name "Mellanox" for its new networking products.
Products and Technology
Mellanox was a fabless semiconductor company, which then sold products based on those semiconductor integrated circuits. Starting from at least 2011, its chips were produced by Taiwan Semiconductor Manufacturing Corp (TSMC). Mellanox provided Ethernet and InfiniBand network adapters, switches, and cables for servers and storage used in cloud and enterprise data centers based on internally developed integrated circuits.
Mellanox had two major customers, Hewlett-Packard and Dell EMC, which each contributed more than 10% of revenues in 2017, 2018, and 2019. Mellanox specialized in switched fabrics for enterprise data centers and high-performance computing, where high data rates and low latency are required, such as in a computer cluster. One typical application was a large database management system. Mellanox network adapters and switches supported remote direct memory access (RDMA) and RDMA over Converged Ethernet.
Key Product Families
The ConnectX product family of multi-protocol ASICs and adapters supported virtual protocol interconnect (VPI), enabling support for both Ethernet and InfiniBand traffic at speeds up to 200 Gbit/s. The ConnectX-6 and ConnectX-6 Dx adapters had enhanced capabilities such as high speed (up to 200 Gb per second), OVS acceleration, Multi-Host support, and inline crypto acceleration. The ConnectX architecture was described as "novel", with excellent performance that was "very well suited for modern multi-core platforms".
The Quantum family of InfiniBand switches supported up to 40 ports running at HDR 200 Gbit/s. The Quantum switches offered unmatched latency and packet forwarding performance and supported advanced HPC offloads including SHARP (collective operation acceleration) and SHIELD (self-healing) technologies. The Spectrum product family of Ethernet switches and the LinkX product family of cables and transceivers completed the product portfolio.
Impact on Nvidia and AI Data Centers
The acquisition of Mellanox was a critical component of Nvidia's strategy to dominate the AI infrastructure market. By integrating Mellanox's networking technology, Nvidia could offer a complete solution for AI data centers, combining GPUs, networking, and software. This integration allowed for more efficient scaling of AI workloads, reducing bottlenecks in data transfer between servers. The deal also positioned Nvidia to compete more effectively against AMD and other chipmakers in the data center market.
The acquisition was part of a broader trend of consolidation in the semiconductor industry, with companies seeking to offer integrated solutions rather than individual components. Nvidia's subsequent market cap milestones, including reaching $1 trillion and later $2 trillion, were partly attributed to the success of its data center and AI businesses, which were bolstered by the Mellanox acquisition.
Legacy and Aftermath
Following the acquisition, Mellanox's technology became a foundational element of Nvidia's networking division. The InfiniBand technology, in particular, became a key enabler for large-scale AI supercomputing clusters, such as those used for training large language models. The acquisition also marked a significant shift in Nvidia's business model, from a GPU-focused company to a full-stack computing platform provider.
The deal was notable for its scale and the competitive bidding process, which included interest from Intel, Xilinx, and Microsoft. The successful completion of the acquisition demonstrated Nvidia's commitment to expanding its footprint in the data center and AI markets. As of the early 2020s, Mellanox's technology continued to be integrated into Nvidia's product offerings, with the brand name phased out in favor of Nvidia's own branding.