Ongoing Execution Will Be Mellanox's Best Argument Against The Bears
Stephen Simpson, CFA
Stephen Simpson, CFA
As Mellanox Scales Up, So Do The Challenges
Stephen Simpson, CFA
Stephen Simpson, CFA
Dec. 16, 2015, 9:21 AM
- "None of the parties that had been contacted submitted a proposal to acquire the Company, and no other party approached either EZchip or Barclays expressing an interest in exploring a purchase of the Company," says EZchip (NASDAQ:EZCH) about a go-shop period - granted by Mellanox (NASDAQ:MLNX) last month as part of a revised deal agreement - that began on Nov. 17 and expired this morning.
- As a result, EZchip will move forward with a Jan. 19 shareholder meeting to vote on Mellanox's planned $25.50/share acquisition of the company. A conference call discussing the go-shop period and providing a business update will be held at 10AM ET tomorrow (webcast).
- EZchip's shares closed yesterday $1.19 below Mellanox's buyout price. They're currently unchanged premarket.
Nov. 17, 2015, 8:25 AM
- Four days after EZchip (NASDAQ:EZCH) announced it's postponing a shareholder vote on Mellanox's (NASDAQ:MLNX) planned $25.50/share ($811M) acquisition of the company and has been offered a 30-day go-shop period and termination fee waiver, the company states it has signed off on the revised agreement.
- Should no superior offer arrive during the go-shop period, EZchip shareholders will vote on the deal at a Jan. 19 meeting (Dec. 18 record date). EZchip sees the deal closing in Q1.
- With shares having closed yesterday at $24.04, EZchip remains 5.7% below Mellanox's offer price.
Nov. 16, 2015, 5:53 PM
- Intel (NASDAQ:INTC) has used the supercomputer industry's SC15 conference to unveil SSF, a high-performance computing (HPC) system architecture meant to make HPC deployments easier for enterprises that have remained on the fence to date.
- Intel notes HPC deployments, a bright spot in a soft enterprise server market, have expanded beyond traditional use cases such as DNA sequencing, nuclear simulations, and weather modeling to cover a variety of corporate analytics workloads. The company argues a system-level approach will help eliminate system bottlenecks, and allow enterprises to use a common infrastructure for numerous HPC and non-HPC workloads.
- Central to SSF is Omni-Path (OPA), a high-speed interconnect fabric for HPC server nodes (first outlined by Intel a year ago) running on Intel CPUs. OPA is promised to enable switches that are both cheaper and more power-efficient than ones relying on InfiniBand interconnects (widely used in HPC deployments). Dell, HP, Lenovo, and many other OEMs plan to offer OPA-based switches and servers, which are expected to ramp in early 2016.
- Mellanox (NASDAQ:MLNX), the top player in the InfiniBand interconnect market, is in the crosshairs. Earlier today, Mellanox announced Switch-IB 2, an InfiniBand switch supporting 100G port speeds and (notably) embedded processing power for offloading communications tasks from server CPUs.
- Along with SSF, Intel has announced Knights Landing, the latest entry for its Xeon Phi co-processor line, will be generally available in Q1 2016; Intel was previously aiming for a late 2015 launch. Knights Landing features 72 CPU cores and 16GB of on-package DRAM, and promises big performance gains over the current-gen Knights Corner. It takes aim at Nvidia's (NASDAQ:NVDA) Tesla GPU line, which remains the biggest player in the HPC co-processor market.
- Aside from potentially growing the HPC market, SSF/Omni-Path could boost Intel's dollar content for various enterprise server deployments, as it continues pursuing a 15% Data Center Group revenue CAGR through 2018. Altera, whose FPGAs can be paired with Xeon CPUs to accelerate HPC workloads (among other things), could also aid in boosting dollar content.
Nov. 12, 2015, 10:53 AM
- Following pressure from activist Raging Capital to get a better deal, EZchip (EZCH +2.6%) has postponed a shareholder vote on Mellanox's (MLNX +0.9%) planned $25.50/share ($811M) acquisition of the company. The vote was set for today's shareholder meeting.
- In addition, Mellanox has granted EZchip a 30-day go-shop period to solicit alternative bids, and has waived its rights to a deal termination fee.
- Mellanox is affirming its $25.50/share, all-cash, offer. EZchip has risen to $24.55 on today's news.
Nov. 5, 2015, 3:12 PM
- Mellanox (MLNX -1.7%) is off moderately after EZchip (EZCH -0.2%), which Mellanox is set to acquire for $811M (provided shareholders approve), posted nearly in-line Q3 results and guided for Q4 revenue of $25M, below a $33.1M consensus. The network processor vendor attributes the outlook to "near-term inventory adjustments across several key customers that are serving the carrier networking space," and insists it isn't reflective of the company's long-term outlook,
- However, with major shareholder Raging Capital continuing to oppose Mellanox's planned acquisition of EZchip, EZchip is using the guidance to argue in favor of the Mellanox deal. "The fully financed, all-cash, $25.50 per share offer from Mellanox provides EZchip shareholders with immediate and certain cash value. This is in contrast to the headwinds a standalone EZchip could face as we continue to witness further industry consolidation and the moves of major customers toward in-house production for NPS-400 functionality."
- EZchip has also issued a new PR making a case for a "Yes" vote. Shareholder advisory firm Glass Lewis opposes the deal, while peers ISS and Entropy are in favor of it.
- Thanks to fears the deal could fall through, EZchip is trading at $24.24, 5% below Mellanox's buyout price.
- EZchip's Q3 results, PR
Nov. 5, 2015, 8:22 AM
- EZchip Semiconductor (NASDAQ:EZCH): Q3 EPS of $0.36 in-line.
- Revenue of $30.7M (+59.6% Y/Y) beats by $0.2M.
Oct. 21, 2015, 5:31 PM
- In addition to beating Q3 estimates, Mellanox (NASDAQ:MLNX) is guiding for Q4 revenue of $171M-$176M, favorable at the midpoint to a $171.9M consensus and going over well in light of worries about weak enterprise server demand.
- Boosting Q3 EPS: Gross margin was 72.9%, +20 bps Q/Q and Y/Y, and above guidance of 71.5%-72.5%. Q3 GM guidance is also at 71.5%-72.5%. Operating expenses are expected rise 1%-4% Q/Q. They rose 29% Y/Y in Q3 to $88M.
- CEO Eyal Waldman suggests demand for Mellanox's Ethernet connectivity hardware is strong among major Web/cloud service providers. "We are seeing revenues from our 10, 25, 40, 50 and 100 Gigabit Ethernet solutions and traction with large data center customers for these products. We are happy to see our EDR 100 Gigabit InfiniBand revenues growing at a faster pace than FDR did, to approximately 12 percent of InfiniBand revenues."
- Shares have risen to $44.80 after hours.
- Q3 results, PR
Oct. 21, 2015, 4:07 PM
- Mellanox Technologies (NASDAQ:MLNX): Q3 EPS of $0.75 beats by $0.04.
- Revenue of $171.38M (+41.9% Y/Y) beats by $2.71M.
- Shares -0.3%.
Oct. 20, 2015, 5:35 PM| Oct. 20, 2015, 5:35 PM | 7 Comments
Oct. 14, 2015, 2:25 PM
- In a 13D filing, Raging Capital (6.5% EZchip stake) asserts it's "in the best interest of all stockholders that [EZchip] attempt to negotiate a materially higher sale price with Mellanox (MLNX +0.7%) or other potential acquisition candidates, or refrain from selling the business."
- Mellanox announced an $811M ($25.50/share) all-cash deal to buy EZchip (EZCH +0.1%) on Sep. 30, and quickly sold off in response. The price represented a 16% premium to EZchip's Sep. 29 close.
- EZchip currently trades $0.44 below Mellanox's buyout price. The deal is expected to close in Q1.
Oct. 8, 2015, 8:35 PM
- 11 months after announcing it plans to enter the ARM server CPU market, Qualcomm (NASDAQ:QCOM) says it has begun sampling to "tier-1 data centers" (possibilities include Amazon, Google, and Facebook) a development platform featuring a pre-production version of a 24-core CPU.
- Details are limited for now, though Qualcomm does state it's using custom ARM cores, as it does for many Snapdragon mobile processors. It also promises an upcoming server CPU "will be competitive in performance and price with current and future Intel (NASDAQ:INTC) chips," and that it will arrive "sooner rather than later" (no specific ETA is provided).
- AppliedMicro (NASDAQ:AMCC) and Cavium (NASDAQ:CAVM) are early leaders in the budding market for ARM server CPUs. Others in the space include AMD, Texas Instruments, and Marvell. Various Web/cloud service providers have shown interest in deploying the chips. But for now, they generally continue buying Intel Xeon CPUs by the thousands.
- Also: Qualcomm is partnering with FPGA vendor Xilinx (NASDAQ:XLNX) to create systems that pair Qualcomm server CPUs with Xilinx FPGAs to provide workload acceleration. Intel is doing something similar with Xilinx archrival Altera, which it's in the process of acquiring.
- A partnership has also been formed with InfiniBand/Ethernet connectivity hardware and chip developer Mellanox (NASDAQ:MLNX). Mellanox's 10-100G InfiniBand and Ethernet gear will be optimized for Qualcomm's CPUs.
Oct. 1, 2015, 9:16 AM
- Mellanox (NASDAQ:MLNX) now expects Q3 revenue of $169M-$171M, improved from a prior $165M-$170M and above a $167.8M consensus.
- Gross margin is expected to be "at the mid-point or better" relative to prior guidance; operating expenses are expected to be "toward the high end" of prior guidance. Full Q3 results arrive on Oct. 21.
- Shares have risen to $38.91 premarket. They fell 5% yesterday after the EZchip deal was announced. Summit Research had voiced concerns about the fact guidance wasn't reiterated during the conference call held to discuss the deal.
Sep. 30, 2015, 12:43 PM
Sep. 30, 2015, 10:25 AM
- Mellanox (MLNX -7.3%) has sold off after announcing it's buying network processor (NPU) vendor and Israeli tech peer EZchip (EZCH +14.3%) for $811M in cash. Meanwhile, telecom/data center chipmakers Cavium (CAVM +3.5%), AppliedMicro (AMCC +4.1%), and PMC-Sierra (PMCS +7.9%) are rallying amid a 2% Nasdaq gain - each company's product line includes (but is by no means limited to) NPUs.
- Whereas Mellanox is focused on high-speed data center connectivity hardware (e.g. adapter cards, switches, switching and adapter ICs), EZchip still gets the majority of its revenue from NPUs going into edge routers and other telecom hardware. However, the company has been trying to expand its data center footprint, via its new NPS processor line (supports deeper packet analysis) and its Tilera unit (acquired in 2014, set to launch a processor supporting 100 ARM cores).
- Mellanox asserts EZchip's "products and expertise in security, deep packet inspection, video, and storage processing" will help it "deliver complete end-to-end, intelligent 10, 25, 40, 50, and 100Gb/s interconnect and processing solutions for advanced data center and [telecom] edge platforms." The purchase price is equal to 5.9x EZchip's 2016 sales consensus; Mellanox trades for just 2.3x 2016E sales.
- Update: Summit Research's Srini Nandury thinks Mellanox's selloff stems from the company's failure to reiterate Q3 guidance during today's conference call, in spite of repeatedly being asked by analysts to do so.
Sep. 30, 2015, 9:13 AM
Sep. 30, 2015, 7:51 AM
- The price works out to $25.50 per share in cash for EZchip (NASDAQ:EZCH) versus last night's close of $21.99.
- "We expect our combined technologies, and product portfolios to deliver leading end-to-end intelligent interconnect and processing solutions to data centers and wide area networks," says Mellanox (NASDAQ:MLNX) CEO Eyal Waldman.
- The deal is expected to close in Q1.
- A conference call is set for 8:30 ET.
Mellanox Technologies Ltd. engages in the provision of semiconductor-based interconnect products that facilitate data transmission between servers, storage systems, communications infrastructure equipment, and other embedded systems. Its products include adapters, gateways, switches, integrated... More
Industry: Semiconductor - Broad Line
Country: United States
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