Exactly two years after Mellanox Technologies Ltd. (Nasdaq:MLNX) announced it was buying neighboring Israeli semiconductor company EZchip for $811 million - a deal that was only completed in February 2016 - "Globes" spoke to Mellanox founder president and CEO Eyal Waldman.
How does the merger look 18 months after its completion?
"Most of the things that we were expecting before the merger have actually happened although of course not everything. There was the painful departure of people not integrated into the organization but 70% are still with Mellanox. There were those that we didn't want and they left. Most of EZchip's senior management did not stay but that's only natural."
Mellanox will soon launch its first product that combines the technologies of both companies or as Waldman describes it as the product "that was the main reason for the merger:" the product is a system-on-a-chip that enables Mellanox to enter the world of processors and not just provide connectivity solutions. If previously, Mellanox provided only the connectivity and processing of certain information, the merger with EZChip brings it into the field of data center with processors.
EZchip, founded by CEO Eli Fruchter, was acquired by Mellanox several months after being hit by a mini-crisis when its main customer Cisco announced that it would not be using the Israeli company's next generation chip. There has always been a hope that Cisco would change its mind but Waldman does not believe that the US giant will do so and stresses that the acquisition, "has brought us near to Cisco and we are moving in there with new products."
Are there further acquisitions on the horizon?
"At the moment we have no need to buy in order to grow. Sometimes we see opportunities along the way and we have discussions but there is nothing imminent."
There has been a wave of consolidations in your industry. Have there been attempts to acquire Mellanox?
"In our industry everybody talks about everybody else."
Since the merger was first announced, Mellanox's share price has risen 16% but there has been a zero rise since the deal was completed. Mellanox is traded on Nasdaq at a market price of $2.3 billion after delisting from the TASE in 2013 with great fanfare. Changes on the TASE since then have not convinced Waldman to return. He said, "The situation is much better than the period when we were there. When I wanted to dual-list everyone told me that it's not worthwhile. We made a mistake because of Zionism but the business atmosphere and regulation in Israel did not allow us to continue. There has been major change on the TASE and good management but regulation must be more transparent and similar to the US, and more favorable for companies. At the moment we don't intending zigzagging and coming back."
Many analysts cover Mellanox but if last year most of them were positive today they are more cautious and most of them are neutral
Waldman chuckles, "I always recommend going against what the analysts say. But seriously, it is always worth identifying a trend before it begins and everyone identifies it. In 2017, we will have a small rise in revenue and then in 2018 it will be more significant. I think you see in the share that the market is beginning to understand and to expect this."
Mellanox's main competitors include Intel, Broadcom and Cavium but waldman talks about "coopetition" - competition alongside cooperation. Intel is also a customer and Mellanox benefits from cycles of upgrades among Intel customers as intel launches new platforms, which creates "on the side" demand for Mellanox's solutions. Such a positive cycle should occur in 2018. In any event, it doesn't look like direct competition with Intel, which worried investors in the past, keeps Waldman awake at night.
He said, "Intel is a generation or a generation and a half behind us. Our competition is implemented through performance. We are simply better and this is the only way that we can lead."
Waldman added, "Analysts predict that next year we will present revenue of about $1 billion. I believe that we will continue to grow by tens of percentage points and that Mellanox can be significantly bigger."
Published by Globes [online], Israel business news - www.globes-online.com - on September 24, 2017
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