"We want to be very big"

CEO Eyal Waldman sets out Mellanox's goals.

Eyal Waldman, CEO of Mellanox, seemed relaxed this morning. I dont want to respond to the rumors, was his opening remark. So far, and despite the reports, no-one knows what will happen. As far as we are concerned, these are just rumors at present, he hastened to add, referring to Tuesdays report in Globes that Mellanox intended to buy Israeli start-up company CopperGate for $200 million.

Waldman didnt like the press reports. He says they caused damage not just to the companies but to Israel in general. It can be surmised that the ricochets were caught by the investors in CopperGate as well, headed by Tamir Fishman, the main shareholder, which released an announcement yesterday about a memorandum of understanding that had been signed for the sale of CopperGate for $200 million but that was no longer valid, a statement that might take some careful legal analysis to explain. Waldman is not fazed by the announcement. There was an announcement by the company, but it says that the agreement is not in force. A far as is known, the deal will finally be closed by the end of the month and will be in cash and shares.

Waldman, if you have not caught on, is not an off-the-record kind of guy, the last refuge of Israeli business people who find themselves with their backs to the wall in the face of the financial press and media. In this sense, he has completely adopted American culture. Perhaps that is what led him to think in American business terms: to buy a company comparable in size to his own, to take a huge risk with his available cash, and to set out to do battle with the chip industry giants.

The meeting with Waldman was arranged two weeks ago, after Mellanox reported its quarterly results. But it fell out that, compared with this weeks headlines about the expected dramatic deal, the discussion about InfiniBand technology, which is designed for high speed data communications in enterprises and is the technological engine behind Mellanox, seems far less attractive. Tuesdays report put Waldman into an uncomfortable position. On the one hand, its clear to everyone that something is going on between Mellanox and CopperGate, and one can understand as much between the lines of what Waldman says. On the other hand, the agreement, as reported, has not been closed. The details are still being clarified, and it could be that they are waiting for some trigger that will close the deal. Above all, Mellanox is a public company. The report of a deal in the offing caused a considerable number of investors to cut and run. Mellanoxs share price fell 17% on a huge volume on Tuesday. Waldman needs, first and foremost, to calm the investors.

In any deal that is done, he seeks to stress, it is important to us to demonstrate size, profitability, and that the deal will contribute to the bottom line. If we make an acquisition, it will be consistent with the conduct of the management that has led Mellanox for a long time now, and which is conservative and responsible. Waldman puts no restriction on the kind of company Mellanox might buy from the point of view of business functionality, something that is relevant in the case of CopperGate, which produces chips for home communications, unlike Mellanox, which aims at the enterprise market.

Nevertheless, Waldman sets out the goal clearly. We want a very big company; a company with sales in the hundreds of millions and maybe even above a billion dollars in another few years. That is also what the investors and the employees expect from me. Thats what they want to see our company become.

Even so, you arent in a mature market. Youre growing at a rate of 20-30% a year. Why not be satisfied with that, rather than taking such risks?

Mellanox today is a successful company, and I sleep well at night. But if I have a company that can grow 30% a year but I could raise that growth rate much higher, I think the investors would be happy. In the end, I am measured by the bottom line, and if I find a way of doing it, then everyone will be happy.

Turning a company with annual sales of $100 million into a much bigger company isnt simple, all the more so in a competitive market with high costs like the chips market. In the 90s, there were two companies that made strategic moves that turned them into giants, Broadcom and Marvell, but that was another time, a much simpler one.

I dont say its simple, Waldman responds, but its still possible to do it today. The business logic of expansion through acquisitions hasnt changed since Marvell and Broadcom did it.

Published by Globes [online], Israel business news - www.globes.co.il - on August 6, 2009

Copyright of Globes Publisher Itonut (1983) Ltd. 2009

Shmulik Shelah, Batya Feldman, and Liat Ron
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