NVIDIA Provides Mellanox Transaction Closing Date – Shares +3% in Pre-Market

Apr 17, 2020
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Yesterday, American gaming and data center products manufacturer Nvidia Corporation (NASDAQ:NVDA) secured the approval of its Mellanox (NASDAQ:MLNX) acquisition from China's Anti-Monopoly Bureau of the State Administration for Market Regulation. The news was not a surprise since NVIDIA's management had hinted at the possibility of closing the deal within the first half of this year at a fireside chat in late March.

Now, following the Chinese approval yesterday, and approval from the European Commission in December, the company has provided a closing date for its Mellanox acquisition in a filing with the Securities and Exchange Commission. In the filing, NVIDIA states that it believes that the Mellanox deal will successfully close in roughly ten days from now, on April 27th, 2020.

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The closing of the Mellanox deal will provide NVIDIA with additional leverage when competing in the crucial market for Datacenter silicon products. As technology advances, silicon designers are finding it easier to design products serving the needs of customers requiring compute and graphics power for datacenter and enterprise-grade products.

NVIDIA made inroads in the data center market through its Tesla line of GPUs that were modeled after the company's Quadro professional-grade workstations. The company has also developed server products with Mellanox, and the success of these systems led to talks of the two companies joining forces.

NVIDIA had announced the deal back in March 2019, with the total worth of the Mellanox acquisition amounting to $6.9 billion. The graphics processing unit manufacturer will pay $125/share for each Mellanox share, and provided that things flow smoothly, the deal should conclude on the aforementioned date.

The rationale behind the deal is to provide NVIDIA with tools that allow it to consistently increase rack-to-rack communications, as the company looks to reduce low-latency in its hyperscale systems. Mellanox's solutions let NVIDIA offload networking tasks from central processing units to accelerators, and the company will also provide NVIDIA with artificial intelligence software designed to improve this offloading and data switching.

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Mellanox's InfiniBand interconnect is used in supercomputers throughout the world. In its latest fireside chat, NVIDIA's management highlighted that they were seeing increased demand for high performance, hyperscale and data center products following the coronavirus outbreak in China. As per the details, not only have researchers and academics started to utilize these platforms heavily for developing and researching coronavirus vaccines, but an increase in internet usage has also provided the company with higher demand.

NVIDIA also expects the total addressable market for data center and high-performance computing products to sit at $50 billion by the end of 2023. In its fourth quarter of the fiscal year 2020, the company earned $968 million in revenue from its data center, with this figure growing 33% sequentially and 43% year-over-year. Yet, NVIDIA's largest reporting segment, its gaming division pulled in $1.49 billion in revenue as it missed analyst estimates lying between $1.6 billion and $1.75 billion.

For the first quarter of the fiscal year 2021, NVIDIA Corporation hopes to earn $3 billion in revenue, after factoring in a $100 million hit from the Coronavirus. Following reports of the Chinese Mellanox approval surfacing yesterday, the company's shares closed at $294.7 yesterday (NASDAQ:NVDA), up 4.94% during the day's trading. In pre-market trading the stock is up by another 2.99% and trading at $303.50 on 7:09 am, Eastern Time New York U.S.A.

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