Mellanox buys again for optical interconnect portfolio

Contact: John Abbott

Less than a month after Mellanox Technologies agreed to spend $82m in cash to acquire silicon photonics component specialist Kotura, the Israeli interconnect firm is buying again. It will pay $47.5m in cash for IPtronics, a Danish optical interconnect component supplier with which it already does business. The deal, already approved by both boards, should close in the second half of the year.

IPtronics is a fabless semiconductor firm with headquarters in Copenhagen and offices in Menlo Park, California. It has 20 employees. The company produces low-power, high-speed analog chips designed for parallel optical interconnects aimed at the enterprise sector, with 10G, 40G and 100G data rates. These include vertical-cavity surface-emitting laser (VCSEL) drivers, modulator drivers and transimpedance amplifiers. IPtronics has shipped roughly four million units so far. Its fab partner is ST Microelectronics.

Mellanox says the acquisitions of Kotura and IPtronics are highly complementary. IPtronics components are already integrated into Mellanox’s server and storage interconnects. But as competition mounts and the speed of technical innovation in optical interconnects increases, Mellanox needs to be able to own all of the IP required to deliver complete end-to-end enhanced data rate InfiniBand and 100GigE offerings, which are expected to reach the market around 2015. Large server and storage customers are looking to use 100Gbps connections for the mid-planes of blade-chassis architectures and for hooking up 1U servers and storage systems.

For that, Mellanox needs to have control over all of the parts, from PCI Express through NIC/HCA, cables and switches, and to the other side of the storage or server system. Specifically, IPtronics provides Mellanox with analog transceiver technology that will enable it to support current VCSEL fiber optics and future silicon photonics: VCSEL starts to run out of steam at 100GB/sec speeds, while silicon photonics provides a roadmap to 400Gb/sec and 1TB/sec pipes. IPtronics components also bridge the gap between optical and electrical interfaces.

In March 2012, Sumitomo Electric Device Innovations bought the VCSEL component and transceiver product lines of EMCORE for $17m in cash – assets EMCORE had previously acquired from Intel in 2008. Other comparable deals include FCI’s pickup of the assets of MergeOptics in February 2010 for an undisclosed amount, Emerson Electric’s acquisition of Stratos International in May 2007 for $118m, and JDS Uniphase’s takeout of E20 Communications in May 2004 for $60m. There’s also an element of uncertainty in this sector, with one particularly aggressive player – Agilent spinoff Avago – fighting patent-infringement lawsuits against all of its competitors, including both Mellanox and IPtronics, as well as Emerson, FCI, Finisar, JDS Uniphase and Methode Electronics.

Mellanox’s financials continue to look strong, despite a few quarters of missed expectations recently. In fiscal 2012, its revenue came in at $501m, up 93% year over year; Q1 2013 revenue was $83m and the guidance for Q2 is $92.5-97.5m. The company has more than $400m in cash and short-term investments. However, Mellanox is currently delisting itself from the Israeli stock exchange following some conflicts with institutional investors in its home market, which has dragged down its share price. It will continue to trade on the Nasdaq.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.