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Why Intel Might Want to Own Mellanox

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Mellanox could supercharge Intel’s data-centric business

Intel (INTC) quietly placed a bid of up to $6.0 billion to buy Mellanox Technologies (MLNX), according to a Calcalist report cited by Reuters. Mellanox makes chips and hardware components used in data centers that power cloud services. Therefore, Mellanox could be a great fit for Intel’s data-centric business, which has been its growth engine in recent years.

Intel’s data-centric revenue rose 9.0% YoY (year-over-year) to ~$8.9 billion in the fourth quarter and accounted for ~48% of its overall revenue. Intel’s overall revenue rose 9.0% YoY to $18.7 billion in the quarter. Revenue fell 20% YoY at Qualcomm (QCOM) in the comparable period.

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Mellanox becomes hot takeover target

The growing demand for cloud services is fueling data center buildout as cloud providers such as Amazon (AMZN) and Microsoft work to expand their capacity. Amazon ranks as the world’s top cloud provider with a market share of ~35%, according to Synergy Research.

In the race for data center buildout expenditures, Mellanox is turning out to be a hot takeover target. In October last year, CNBC reported that Mellanox had hired financial advisors to explore a potential sale after more than one company showed interest in acquiring it. In November, a CNBC report named Xilinx (XLNX) as one of the companies interested in buying Mellanox. In December, a report from the Times of Israel mentioned Microsoft (MSFT) as another company interested in owning Mellanox.

Mellanox’s sales are increasing, and the company is also profitable. It generated $290 million in revenue and made $42.8 million in profit in the fourth quarter.

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