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Mellanox to acquire silicon photonics specialist Kotura for $82M

17 May 2013

US-Israeli provider of data center interconnects sees the deal as crucial to compete with Cisco and Intel.

Mellanox Technologies, the high-speed interconnect company with bases in California and Yokneam, Israel, is set to acquire the silicon photonics specialist Kotura.

The cash deal, estimated at $82 million, is expected to close in the second half of this year. It will give Mellanox direct control of a technology that it sees as critical for its data center customers to meet the explosion of data traffic.

Once completed, the acquisition should also see Mellanox establish its first research and development center in the US, at Kotura’s Monterey Park, California, location, enabling it to provide optical interconnects operating at speeds of 100 Gb/s and beyond.

Earlier this year, Kotura lined up Mindspeed Technologies, laser maker BinOptics and an unspecified Japanese foundry as manufacturing partners to provide key components for a future ramp of 100 Gb/s transceiver modules.

Mellanox CEO Eyal Waldman told an investor call to discuss the deal: “By owning silicon photonics technology, we will be able to deliver reliable, scalable and cost-effective end-to-end interconnects with lower power consumption.”

“This will help our customers as they struggle to keep up with the exponential increase in data traffic,” he added.

Waldman also said that the motivation for the acquisition had come partly from its own customers, who see the technology as essential for Mellanox to be in full control of the various optical and non-optical interconnect options available.

Intel, Cisco competition
The CEO said that acquiring Kotura mirrored earlier moves by big-hitters in the industry, allowing it to compete with Intel and its internally developed silicon photonics technology, and Cisco Systems following its acquisition of Lightwire last year.

In a statement, Kotura’s CEO Jean-Louis Malinge said: “Together, we can execute faster and deliver better solutions based on Kotura’s silicon photonics platform that delivers the demands of 100Gb/s interconnects and beyond.”

Kotura is still developing its 100 Gb/s optical “engine”, which it hopes to begin sampling to potential data center and high-performance computing customers by the end of this year, having demonstrated an early version at the Optical Fiber Communication trade show recently. Waldman said that the full release of 100 Gb/s modules and a production ramp should follow in 2014 or 2015 – at which point the acquisition should add significantly to Mellanox’s revenue stream.

For 2012, Mellanox posted sales of $500 million – which at nearly double the 2011 figure indicates the growing demand for high-speed interconnects. The Kotura acquisition is subject to normal closing conditions and approval by the start-up's shareholders, and existing revenue streams such as variable optical attenuators and silicon photonics multiplexers should add to Mellanox’s profitability next year.

In its latest financial quarter, Mellanox saw revenues fall 6% year-over-year to $83 million – although Waldman said that he foresaw a return to growth in the near future.

Mellanox’s share price rose slightly following news of the Kotura agreement, leaving the company valued at a market capitalization of just over $2.4 billion.

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