by Jim Lundy
The deal was announced last year and finally approved this year. Nvidia is buying Israel-based Mellanox—a maker of data center gear that is optimized for AI-based applications, among other things. While it took a while to get the deal approved by regulators, Nvidia is not standing still. This week it announced it is also buying Cumulus Networks to bolster its network software capabilities. This puts Nvidia on a collision course with others that used to use its graphics processors in their systems.
Why Is Nvidia in the Data Center Market?—Chip Sales Are Off
Nvidia had already been building large systems that used its GPUs to crunch data—very large volumes of it. With Mellanox and Cumulus, Nvidia will be looked at differently now. The high-speed computing power needed for servers and for data centers is what Nvidia is targeting. Large cloud computing center players like Amazon need what are known as hyperscale data centers, which require immense computing power. In general, more data centers are being built, and the market shows no signs of slowing down.
While GPUs have historically been the critical revenue source for Nvidia, chips sales during the coronavirus contagion have fallen. In March, a number of global semiconductor indexes fell, suggesting that pressure on supply chains coupled with the economic downturn has harmed the chip market. Nvidia felt the crunch on its manufacturing line, losing about $100 million in production from its Asian factories. Nvidia is also seeing more competition for its share of the GPU market, which helps explain this move to diversify.
Why Did Nvidia Pay a 7x Multiple for Mellanox?
Mellanox allows Nvidia to offer complete solutions, and it offers the high-speed throughput that AI applications require alongside a set of data center monitoring tools. Mellanox now makes Nvidia a multi-product family. The deal ultimately amounts to about 7x revenues for Mellanox, revealing the value Nvidia has placed on expanding its data center offerings. Mellanox has been growing, with its March acquisition of Titan-IC bringing a network hardware accelerator platform into its set of product offerings.
Nvidia’s play to expand its data center portfolio positions it well to succeed during the coronavirus.
Nvidia’s data center offerings account for a large segment of its revenue. While its GPU sales have taken a hit, Nvidia’s data center portfolio—connected to its cloud computing and AI offerings—has continued to expand.
Why Cumulus Networks?
If Nvidia is going to go into the data center business, it certainly needs more assets for networking, and Cumulus gives it that. Mountain View-based Cumulus provides a suite of tools to optimize and streamline data center management. As a former partner of Mellanox, Cumulus is a natural choice for this new round of acquisitions. These two additions will expand Nvidia’s capability to support a scalable cloud data center.
Bottom Line
Nvidia has grown, and now it needs to do more to leverage its GPU investments. It is trying to acquire the best data center companies it can, expanding its product portfolio in the process. Moving into the data center makes sense. Enterprise computing is changing as real-time applications need speed and exponentially higher processing power. This move positions Nvidia well for the future, but it also puts it on a collision path with Dell, HP, Cisco, and others. As coronavirus transmission continues to put pressure on the global supply chain, other providers may look to diversify their product offerings in the way Nvidia has.