Stephen Simpson, CFA
Stephen Simpson, CFA
Paulo Santos • 17 Comments
Paulo Santos • 17 Comments
Value Bulldog • 17 Comments
Wed, Feb. 24, 7:33 AM
- Mellanox (NASDAQ:MLNX) closed its acquisition of EZchip Semiconductor (NASDAQ:EZCH), a provider of high-performance solutions for data center and carrier networks, yesterday.
- "We believe the technology of the two companies is highly complementary and expect cost synergies as well as potential for revenue synergies over the next several quarters. We believe the uncertainty among investors about both the combined entity opportunity and the demand backdrop for enterprise and internet spending are creating an opportunity in MLNX stock."
- Firm upgrades MLNX to Buy and price-target to $60 from $46 (implied upside 29%).
- Mellanox's projected 2016 EPS increase of 60-70 cents from acquiring EZchip is in-line with expectations. The focus now shifts to executing on sales and operational synergies. (Bloomberg)
Tue, Feb. 23, 9:31 AM
- Mellanox's (NASDAQ:MLNX) $811M ($25.50/share), all-cash, acquisition of network processor developer EZchip (EZCH) is now official. The deal has a $606M enterprise value after accounting for EZchip's cash.
- EZchip has ceased trading on the Nasdaq and Tel-Aviv Stock Exchanges. The closing comes a month after EZchip shareholders approved the deal. Major EZchip shareholder Raging Capital gave its support in early January, after a go-shop period ended without an offer topping Mellanox's.
- At the time the deal was announced, Mellanox, a top player in the high-speed InfiniBand/Ethernet server connectivity hardware market, argued EZchip's processors would 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."
- With EZchip due to be on the books for five weeks in Q1, Mellanox now expects Q1 revenue of $190M-$195M, up from prior guidance of $180M-$185M. Gross margin guidance remains at 71%-72%, and the deal is promised to be accretive from day one.
Tue, Jan. 19, 2:46 PM
- At an EZchip (EZCH +1%) shareholder meeting, 84% of votes were cast in favor of Mellanox's (MLNX -0.9%) $25.50/share, all-cash, deal to acquire EZchip.
- The deal is expected to close in the second half of February. Top EZchip shareholder Raging Capital gave its support earlier this month, after a go-shop period ended without a superior offer arriving. EZchip now trades $0.21 below Mellanox's buyout price.
- Separately, Mellanox has affirmed its Q4 guidance ahead of its Jan. 27 Q4 report. Shares fell hard last Friday after Intel reported slower-than-expected Q4 server CPU division sales growth (5% Y/Y vs. 12% in Q3).
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. 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
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.
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, 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.
May 28, 2015, 1:34 PM
- In a presentation (.pdf) discussing their planned merger, Avago (AVGO -0.4%) and Broadcom (BRCM -2.6%) state they're aiming for a 40% long-term op. margin, up from the 30% collectively possessed by the companies today. Gross margin is forecast to rise to 60% from a current 57%, and R&D and SG&A spend respectively fall to 16% and 4% of revenue from 20% and 7%.
- Avago and Broadcom, who have $15.1B in revenue between them, are only forecasting a 5% long-term revenue CAGR. However, Avago CEO Hock Tan states the outlook is "probably conservative."
- Avago plans to partly finance the $17B cash portion of the deal via $9B worth of new debt. The post-merger company is expected to have $15.5B in debt and $1.3B in cash; Broadcom shareholders will have a 32% stake. The deal is expected to close in Q1 2016.
- Many potential product synergies exist. Among the possibilities: Wi-Fi/Bluetooth solutions that pair Broadcom's combo chips with Avago RF components; server/storage connectivity product lines featuring a mixture of Broadcom's Ethernet transceivers and switching chips and Avago's adapter cards and optical transceivers - Stifel thinks Mellanox (MLNX -0.3%) could be at risk here - and telecom equipment product lines that combine Broadcom's network processors and switching chips with Avago's optical components.
- Meanwhile, in its FQ2 report (issued in tandem with the merger announcement), Avago has guided for FQ3 revenue of $1.74B (+/- $25M), above a $1.68B consensus. The company reported a 66% Y/Y increase in FQ2 wireless chip revenue (aided by strong Apple/Samsung demand), along with 74% and 64% increases in wired infrastructure and industrial/other revenue (lifted by both organic growth and M&A).
Jul. 1, 2014, 10:03 AM
- EZchip (EZCH +1.6%) is paying $50M up-front, and up to $80M in performance earn-outs, to buy Tilera. The deal is expected to close in Q3.
- Tilera's network processors (NPUs) pack dozens of cores that can be programmed to handle tasks well-suited to parallel processing. The company launched a 72-core NPU (offered through a PCIe card) last year, and has been prepping a chip with over 100 cores.
- Whereas EZchip's NPUs are generally used in edge/access routers within carrier networks, Tilera's are often used in data center networking, security, and video appliances, and also act as co-processors within x86 servers. Tilera's rivals include Intel, Cavium, Broadcom, and Marvell.
- EZchip declares the deal doubles its addressable market to $2B, and adds 100+ customers. The purchase is expected to be slightly dilutive to 2014 EPS, and accretive to 2015 EPS.
- Tilera CEO Devesh Garg will become the head of EZchip's U.S. ops. EZchip predicts pairing its strengths with Tilera's will yield "new multi-core CPUs that uniquely integrate powerful networking capabilities with the highest number of processor cores addressing a wide range of applications and market segments."
Jun. 24, 2014, 10:19 AM
- Integrity Project, an Israeli firm founded in '06, provides embedded software outsourcing services in areas including hardware development, connectivity, and cryptography.
- Mellanox (MLNX -0.3%) says it's acquiring Integrity to "enhance [its] software teams" for platforms such as CloudX, which enables the building of cloud infrastructures using commodity server/storage hardware, open-source software (OpenStack-based), and Mellanox's interconnects.
- Last year, Mellanox bought 100G optical component vendor IPtronics and silicon photonics interconnect provider Kotura, as it tries to meet a looming threat from Intel.
Jun. 17, 2014, 6:58 PM
- The consolidation wave that has hit the semi industry could soon yield tax inversion deals for foreign firms similar to deals seen in the healthcare industry, says FBR's Christopher Rolland.
- Inversion deals allow U.S. companies buying foreign firms to see lower tax rates if less than 80% of the equity in the new company is owned by legacy U.S. shareholders, and the post-merger company has substantial foreign ops.
- Rolland thinks ARM (ARMH), NXP (NXPI), Mellanox (MLNX), and Taiwan's MediaTek could be among the foreign companies targeted by U.S. chipmakers. Worth noting: Mellanox sells more than just chips, and ARM's business model depends on the company maintaining a neutral status within the industry.
- Meanwhile, Nomura's Romit Shah names 15 potential M&A candidates, and divides them into 3 groups: "Sub-scale companies" with high margins and strong IP; "strategic companies" with compelling product lines; and "undervalued companies."
- Shah's "sub-scale companies:" IDTI, ISIL, MTSI, MCRL, SMTC, SLAB.
- "Strategic companies:" ALTR, AMCC, ATML, CAVM, MPWR, BRCM ($22.5B market cap could make it tough to digest).
- "Undervalued companies:" DIOD, IRF, MSCC.
Jul. 1, 2013, 9:53 AM
Mellanox (MLNX +1.7%) strengthens its 100G hand some more by acquiring IPtronics, a Danish maker of components for high-speed optical interconnects, for $47.5M in cash. Mellanox says the deal, which follows its May purchase of silicon photonics interconnect firm Kotura, will help it deliver "end-to-end optical interconnect solutions at [100G] and beyond." Both purchases appear aimed at dealing with the long-term threat posed by Intel (INTC), which (with the help of acquisitions) wants to integrate InfiniBand controllers onto its server CPUs, and bake 100G silicon interconnects into its server platforms.| Jul. 1, 2013, 9:53 AM
May 15, 2013, 5:05 PM
Mellanox (MLNX) is acquiring Kotura, a developer of silicon photonics interconnect tech, for $82M in cash. The deal, which is expected to be accretive to 2014 EPS by $0.01-$0.03, is noteworthy in light of Intel's (INTC) efforts to both develop both InfiniBand solutions and 100G silicon photonics interconnects for its server CPU platforms, with the goal of creating more modular server architectures. This purchase seems aimed at trying to meet that long-term threat.| May 15, 2013, 5:05 PM | 2 Comments