Mellanox Technologies Ltd. Chief Executive Officer Eyal Waldman is betting the purchase of Voltaire Ltd. may help the Israeli maker of data-center adapters and software to boost sales 10-fold within the “coming years.”
“If we can run faster than our competitors, we can take a larger share of the market,” Waldman said in a Jan. 3 interview at his Tel Aviv office. “It’s not an illusion.”
The company, 10.2 percent owned by Oracle Corp. since October, is benefitting from increased spending by companies on services such as cloud computing, which allows to access information over the Web from external data centers. Spending on cloud services will grow almost threefold to $44.2 billion by 2013, as it’s a cheaper method of managing and using information technology, according to researcher IDC.
Mellanox, whose products make data travel more easily at data centers, investment banks and stock exchanges, bought Voltaire in November for about $218 million. As a result, sales could reach $1.5 billion within the coming years, Waldman said without being more specific. He forecasts 2010 sales of as much as $154 million for Mellanox and up to $70 million for Voltaire.
“Reaching $1.5 billion is a promising but challenging goal,” said Jie Wu, an analyst at researcher IDC. “It may take a while to get there.”
Mellanox shares have more than tripled in New York over the past two years. That compares with a 65 percent gain for the Nasdaq Composite Index in that period. The stock rose 3.9 percent to 97 shekels in Tel Aviv today, the highest level since April 26.
“What is reflected in the optimism in Mellanox’s share price is that it’s in the hottest sectors out there,” Joseph Wolf, an analyst at Barclays Plc, said in a phone interview. Data storage, networking, cloud computing and server virtualization are “great areas of spending interest and, for the lack of a better word, buzz.”
Wolf estimates that combined 2011 sales of Mellanox and Voltaire, on the basis of the acquisition closing as expected, could be as much as $248 million.
Researcher Gartner Inc. in November said connectivity architecture is one of the main challenges large enterprises will face. Mellanox competes with Brocade Communications Systems Ltd., the biggest maker of switches for data-storage networks, Cisco Systems Inc. and QLogic Corp. Other rivals include Intel Corp., the world’s largest chipmaker, and Broadcom Corp.
Hewlett-Packard Co., the world’s biggest personal-computer maker, in September agreed to buy data-storage company 3Par Inc. for $2.35 billion, after an 18-day bidding war with Dell Inc. Dell, the world’s third-largest personal-computer maker, then agreed to buy Compellent Technologies Inc. in December for $960 million to gain data-storage technology.
Mellanox is paying 3.24 times revenue for Voltaire, compared with Dell’s 6.25 times for Compellent and Hewlett-Packard’s 10.78 times for 3Par, according to Bloomberg data.
Mellanox, co-founded by Waldman in 1999 as a chipmaker, expanded its product offering two years ago to end-to-end connectivity systems. Voltaire’s acquisition was part of this strategy, Waldman said.
Galileo Technology Ltd., the first company founded by Waldman, was sold to Marvell Technology Group Ltd. for $814.8 million in 2001.
Waldman says he expects to “grow revenue from Oracle in the coming quarters,” as well as work with the second-largest maker of business application software on “future products.”
The CEO also estimates the company’s target market will be $4.4 billion after the Voltaire acquisition, which is expected to close in the first quarter. The purchase will allow the company to double its average selling price per end point to $400.
Oracle CEO Larry Ellison has called Mellanox’s main technology, Infiniband, “by far the fastest and most efficient switch fabric for running enterprise data centers.” Mellanox has been “instrumental in maintaining Infiniband’s competitive lead” over the competing Ethernet technology, Ellison said in October.
Wolf estimates that Mellanox commanded more than 50 percent of the Infiniband market before the Voltaire acquisition. The merger removes one of three major Infiniband players, leaving Mellanox to compete with California-based QLogic, IDC’s Wu said.
“The battle between these two companies will become fierce,” she said.