Oracle parlays new interest in chips into small stake in Mellanox

Contact: John Abbott

When Oracle started hinting recently about its growing interest in chip vendors, Mellanox Technologies was at the top of our list of potential acquisition candidates. It turns out that Oracle is indeed interested in Mellanox, but only in a chunk of it. Oracle said earlier this week that it bought 10% of Mellanox’s ordinary shares on the open market.

Oracle didn’t reveal the price it paid for Mellanox or when it was in the market. But on a back-of-the-envelope basis, the stake probably represents about a $70m bet on Mellanox. (The company has about 35 million shares outstanding, and the price has been bumping around $20 each for much of the past month.) Other significant investors in Mellanox include Fidelity Management & Research, with an 11.7% stake, Alger with 7.5%, and the company’s CEO, Eyal Waldman, who owns 5.3% of the company.

As it picked up the chunk of equity, Oracle was quick to add that the purchase is for investment purposes only, and is not the start of a larger play for Mellanox, friendly or otherwise. Its stated motive is to solidify common interest in the future of InfiniBand.

Mellanox is one of only two suppliers making silicon for InfiniBand switches and adapters, the other being QLogic. It formed a close relationship with Sun Microsystems eight years ago, and more recently, its chips have been used within Oracle’s Exadata and Exalogic data-warehousing and storage appliances. In return for Oracle’s dollars, Mellanox will make Oracle Solaris one of its core supported OS platforms. But it will continue to work with Oracle’s rivals, including IBM, Hewlett-Packard and Dell.

As far as datacenter communications fabrics go, InfiniBand has maintained its technical lead over Ethernet and it looks like it will be doing so for a while to come. Even so, Mellanox has also launched a parallel set of 10Gb Ethernet products in the past few years in order to maintain its growth. And it’s also been looking to diversify into the consumer space, if reports that it recently tried (apparently unsuccessfully) to acquire fellow Israeli company CopperGate Communications for $200m are true. Privately held CopperGate develops chips for home entertainment devices and digital home broadband networking.