InfiniBand chips developer Mellanox Technologies (MLNX) recently announced that it has completed the acquisition of privately-held IPtronics A/S for $47.5 million in cash. This is Mellanox’s second acquisition in recent times, following the proposed takeover of silicon photonics interconnect technology provider Kotura in mid-May.
Mellanox expects the acquisition to add at least a penny to a maximum of 3 cents to its fiscal year 2014 earnings per share. Apart from being accretive to the bottom line, the IPtronics acquisition will enable Mellanox to open its first research & development (“R&D”) center in Europe at Roskilde, Denmark.
IPtronics designs and develops components for high speed optical interconnection. The company has shipped 4 million units over the last 12 months. IPtronics products are well known for greater density and lower power consumption, which improves communication within a data center at a reduced cost.
Currently, data centers are facing a huge challenge to improve communication speed between servers and storage systems in order to efficiently manage the ongoing data explosion. Mellanox expects to use IPtronics solutions to create a link between optical and electrical interfaces. This will remove significant problems faced by copper-based connections in a high speed interface.
We believe that the acquisition will not only help Mellanox to deliver end-to-end optical interconnect solutions at 100 gigabyte per second and beyond but also position it well against Intel Corp. (INTC). Intel entered the high speed interconnectivity market through the acquisition of QLogic’s (QLGC) InfiniBand assets.
Mellanox believes that the successive acquisitions of IPtronics and Kotura will boost its competitive position in the high-speed, scalable and efficient end-to-end interconnect solutions market for servers and storage systems. Besides Intel, the company also faces significant competition from Cisco (CSCO).
Additionally, the establishment of the R&D center in Denmark will help Mellanox to efficiently serve its European customers. With the completion of the proposed Kotura acquisition, the company is scheduled open its first R&D center in the United States. We believe that these new centers will help Mellanox to expand its customer base and improve top-line growth going forward.
Currently, Mellanox has a Zacks Rank #3 (Hold).
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