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Mellanox snaps up long-time rival EZchip

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Two companies founded in the same place at the same time finally come together

Israeli networking equipment vendor Mellanox has agreed to pay $811 million to acquire EZchip – a fabless semiconductor company that specializes in chip design for Ethernet devices.

Both are headquartered in the city of Yokneam, a major technology hub in Northern Israel nicknamed ‘the start-up village’, and both were founded in 1999.

The deal will let Mellanox take advantage of the booming data center market, and set it up with a number of large telecoms customers.

“With Mellanox’s leading layer 1 - 3 connectivity solutions for data centers and EZchip’s leading layer 3 – 7 processing solutions for carrier networks, the two companies complement each other in technology, products, markets served and customers,” explained Eli Fruchter, CEO of EZchip.

EZchip NP-4 network processor

EZchip NP-4 network processor

Source: EZchip

Drawn together

Mellanox is primarily known for products based on InfiniBand, a high speed, low latency networking technology widely used in High Performance Computing (HPC). According to Top500, out of the 500 most powerful computer systems on the planet, 51.8 percent currently rely on InfiniBand.

The company designs its own silicon, but outsources production to Asia.

Whereas Mellanox has traditionally focused on the ‘premium’ section of the market, EZchip carved out its market share in traditional IT, cloud computing and equipment for network carriers. Its product portfolio includes network processors, intelligent network adapters, high-performance appliances and related software.

We should note that in May, EZchip price sank to a five-year low following reports that its largest customer Cisco could be phasing out its chips by 2018.

Under the terms of the deal, Mellanox will pay $25.50 for each EZchip share - $811 million in total, and a premium of 16 percent to EZchip’s closing price on 29 September.

Mellanox intends to retain both companies’ existing product lines, and will ensure continuity for customers and partners.

Eyal Waldman, president and CEO of Mellanox, said the synergies between two companies could create “attractive opportunities”.

“Mellanox’s interconnect provides the fastest and most-scalable solution for moving data within the data center, allowing the continuous development, use and expansion of these applications. EZchip’s processing solutions allow users to process and analyze, at wire speed, data both within and outside the data center.”

Mellanox expects deal to add to adjusted earnings per share as soon as it is completed, which is anticipated to be during the first quarter of 2016.

 

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