From The Next Platform, March 11:
The related but distinct HPC and AI markets gave Nvidia a taste for building systems, and it looks like the company wants to control more of the hardware and systems software stack than it currently does given that it is willing to shell out $6.9 billion – just about all of the cash it has on hand – to acquire high-end networking equipment provider and long-time partner Mellanox Technologies.
Every public company is in play – that is the nature of being publicly traded – but since the fall of 2017, when it came to light through activist investor Starboard Value that Mellanox refused the advances of Marvell (which spent $6 billion to acquire Cavium instead), Starboard has been agitating for Mellanox to find a suitor so the activist investor can cash out and get rich. These are not necessarily sound reasons to have one company acquire another, but that is the nature of this part of capitalism.
We are hopeful that the combination of Nvidia and Mellanox will result in something in the datacenter that is greater than the sum of its parts. And in fact, you will recall that we actually advocated for getting the whole OpenPower band together – IBM, Nvidia, Mellanox, and Xilinx – to create a vertically integrated hardware component maker that could counterbalance what was the growing hegemony of Intel in the datacenter at that time. (Issues with its 10 nanometer chip manufacturing has humbled Intel a bit in the past year and a half, though.) This OpenPower collective might have been a lot less expensive to put together back in early 2017 compared to what Nvidia is paying just to buy Mellanox today.
While we think that Nvidia can figure out how to leverage Mellanox to become a bigger player in the datacenter, there are no shortages of examples of compute and networking mashups that did not make as much sense in actuality as they did on paper when they were first done. We can think of several different ways this might play out, and we will talk about a few of them in a moment. One thing is for sure: Neither Nvidia nor Mellanox will say much specific about their plans until the deal is closed sometime before the end of the calendar year.
When AMD bought microserver startup SeaMicro back in February 2012 for $334 million, it was looking to add networking to its compute engines, but it also ended up competing with the server customers that bought its Opteron processors. The jury is still out on Intel’s acquisition of Fulcrum Microsystems for an undisclosed sum back in July 2011 – well, actually, Fulcrum Ethernet ASICs have not been seen the deal went down – and it is similarly unclear how Intel will ultimately leverage the “Gemini” and “Aries” interconnect businesses that it bought from Cray for $140 million back in April 2012. Intel’s acquisition of InfiniBand vendor QLogic back in January 2012 for $125 million has fared better, giving the world’s dominant maker of server processors something to sell against the InfiniBand fabrics from Mellanox and supposedly some of the secret sauce in the Aries interconnect was supposed to be grafted onto future Omni-Path interconnects from Intel. (Intel insists that Omni-Path is InfiniBand compatible with but distinct from InfiniBand.)
It made sense to a certain degree to combine Marvell and Mellanox, but that was really about eliminating some networking competition as well as augmenting compute capabilities between the two companies, who are both licensees of the Arm architecture from Arm Holdings, the chip unit of the SoftBank conglomerate in Japan. It never made much sense for Microsoft to be a vendor of Mellanox gear, which is sold to its rivals in the hyperscale and public cloud arena as well as to its millions of Windows Server customers. The case for Mellanox and Xilinx to team up was, we think, only interesting in a broader vertical integration of a datacenter hardware stack – that stack still needed CPU and GPU compute. And Intel acquiring Mellanox for $5.5 billion to $6 billion, as was rumored as 2019 got underway, only made sense if Intel was openly admitting that its Ethernet business (with no presence in switching but with lots of server adapters) needed to be revitalized from scratch and the Omni-Path onload model of networking was not as good as the InfiniBand offload model (something that Intel vehemently denies). Intel buying Mellanox might have been as much about keeping technology out of play among its competitors in the HPC and AI markets as having different technology to sell itself. All we know is that supercomputer maker Cray decided to go its own way with the “Slingshot” HPC-style Ethernet interconnect it is cooking up, breaking free from dependence on either Mellanox or Intel. Don’t get the wrong idea: Cray will happily resell Intel or Mellanox interconnects if that is what customers want.
We don’t know how close Intel was to actually doing a deal with Mellanox – predictably, the two companies did not comment on any possible deal – but Nvidia clearly wanted Mellanox more than Intel did, based on the extra $900 million to $1.4 billion it paid over the rumored bags of cash that Intel had set aside for the supposed acquisition of Mellanox.
What we can say is that Mellanox has come a long way in 2018 to grow revenues and to squeeze some profits out of that growth, which we discussed back in January. We will also miss the very detailed financial presentations that Mellanox gave to describe its business, which enabled use to see the trends in InfiniBand and Ethernet networking in the large datacenters that we care about here at The Next Platform. But with Mellanox being a $1 billion company and Nvidia being an order of magnitude larger, we do not expect for this fine-grained detail on what Mellanox is selling to be presented once Nvidia takes over Mellanox after shareholders and regulators give it the nod....MUCH MORE
