Mellanox, a chip vendor that’s been making noise in white box and data center circles lately, took a serious step into high-end routing by offering $811 million to acquire publicly traded EZchip. (Subtracting EZchip’s cash, the deal comes out to roughly $620 million.)
The deal, a $25.50-per-share offer, sent Israel-based EZchip’s stock up 14 percent to $25.16 on Wednesday. Mellanox shares fell 5 percent, to $37.79.
Mellanox has been getting serious about the data center and open networking lately, doing things like submitting a switch design to the Open Compute Project. EZchip could broaden Mellanox’s ambitions substantially by moving the company up the stack.
Mellanox’s specialty has been Layer 2 connectivity, selling chips, boards, and switches for InfiniBand and Ethernet. By contrast, EZchip’s network processors are designed for Layers 3 through 7. They handle the packet processing inside a router — analyzing incoming traffic and deciding where it ought to go.
The big router vendors — Cisco, Juniper, and more recently Alcatel-Lucent — have stubbornly designed their own packet-processing ASICs, claiming the proprietary designs give them a competitive advantage. But EZchip, which introduced its first network processors in 2000, persevered in the years following the dot-com collapse. Cisco is now its largest customer, representing 39 percent of revenues in 2014; Juniper and ZTE are customers as well.
Mellanox plans to fund the deal with cash plus $300 million in debt financing. The companies expect to close the deal in the first quarter of 2016.