Nvidia and Mellanox deal gets closer
Nvidia made its biggest acquisition offer for Mellanox Technologies in March. The $6.8 billion Mellanox deal came after Nvidia beat other potential buyers including Intel, Microsoft, and Xilinx. US authorities had already approved the deal without any conditions. EU and Mexico antitrust regulators also gave unconditional support to the merger deal.
According to the European Commission, the acquisition of Israel’s networking company Mellanox wouldn’t hurt the competition. As reported by HPCwire, the European Commission said that “the companies mainly supply complementary products.” The European Commission said that Nvidia and Mellanox “will not be able to leverage their respective positions into neighboring markets.”
China approval is pending
Nvidia is waiting for approval from China to close its long-pending Mellanox acquisition. China is an essential market for Nvidia. Tech giants Alibaba and Baidu are Mellanox’s major customers. However, prolonged US-China trade war fears have put the Nvidia and Mellanox deal at risk.
Previously, Nvidia planned to close the Mellanox acquisition by 2019. However, the deal got delayed amid global uncertainties and the trade war. Nvidia said that the deal should be completed in 2020, according to a CRN report.
Since the US and China have eased the trade war, we think that the companies might get clearance from China soon. Earlier this month, China and the US announced phase one of the trade deal. The agreement comes with a reduction in some US tariffs. Also, China will purchase more US agricultural products. According to the agreement, the US withdrew its plan of a tariff hike on Chinese goods worth $156 billion. China also agreed to buy $200 billion worth of additional US goods and services over the next two years.
Starting on January 1, China will also reduce tariffs on over 850 imported products ranging from frozen pork to avocados. China announced the move yesterday to boost its imports, according to a report from CNBC.
Mellanox deal is vital for Nvidia
Mellanox develops and sells communications equipment for rapid data transfer. The company also has a strong presence in Ethernet and other networking technologies. Nvidia could gain from Mellanox’s InfiniBand networking technology to boost its presence in the HPC space. Adding Mellanox would help Nvidia compete with Intel and expand in the data center and AI segments.
Nvidia, which is widely known for its gaming graphics chips, is focusing on the fast-growing data center segment for revenues. The company’s data center revenues fell 8.3% YoY in the third quarter of fiscal 2020. However, the data-center revenues improved from the previous quarter. During the earnings call, Nvidia’s CEO said that the “gaming business and demand from hyperscale customers powered Q3’s results.” Nvidia expects a sequential improvement in the data center business in the January-ending fourth quarter.
The company also wants to boost its AI business. The data center market is gaining traction in areas like AI, cloud services, smartphones, and other connected devices. The CEO thinks that “GPU-accelerated 5G, AI and IoT will revolutionize the world’s largest industries.” We think that the company’s consistent focus on high-growth segments will help it rally ahead.
Nvidia’s revenues fell by more than 5% YoY in the third quarter. However, the revenues improved by 16.7% from the previous quarter. The company’s overall revenues have fallen YoY in the past four quarters. However, the company’s revenues have improved sequentially in the past three quarters.
Nvidia and Mellanox’s stock price movement
Nvidia stock closed 1.66% higher and ended the trading session at $239.37 on December 20. At the closing price, Nvidia’s market capitalization was $146 billion. The stock price is trading 0.4% lower than its 52-week high of $240.39. Meanwhile, the stock was around 92.3% higher than its 52-week low of $124.46. Nvidia stock has gained 79.7% YTD (year-to-date). In comparison, the S&P 500 has gained 28.5%, while the VanEck Vectors Semiconductor ETF (SMH) has risen more than 64.4% during the same period.
Meanwhile, Mellanox stock closed 0.80% lower and ended the trading session at $116.02 on December 20. The company’s market value was $6.4 billion on the same day. The stock is trading 4.2% below its 52-week high of $121.13 and 47.1% above its 52-week low of $78.86. Mellanox stock has risen 25.6% YTD as of December 20.