Israeli chipmaker Mellanox Technologies (MLNX) saw its shares jump over 8% during pre-market trading on Monday, after technology giant Nvidia (NVDA) said it would buy Mellanox for $6.9 billion, or $125 per share in cash, in its biggest acquisition till date.

Image by JacekAbramowicz on Pixabay

Nvidia said the deal, once completed, would immediately add to its adjusted gross margin, adjusted EPS and free cash flow. The acquisition is expected to give Nvidia a much-needed fillip in the Data Center business, which is the second biggest market platform for the company after Gaming. The unit also accounts for a third of the company’s total revenue.

Through this deal, NVIDIA aims to optimize datacenter-scale workloads across the entire computing, networking and storage stack to achieve higher performance, greater utilization and lower operating cost.

Rival Intel (INTC) was also reportedly in the race to buy Mellanox, but it was Nvidia that finally pulled off a deal.

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Nvidia shares were modestly up 0.2% during pre-market trading.

In the last reported quarter, Nvidia’s data center revenue rose by 12% on growth in sales of Volta architecture products, including Nvidia Tesla V100 and DGX systems. This came amidst a 24% decline in overall revenue, which was hurt by weakness in gaming GPUs and a decline in shipments of SOC modules for gaming platforms.

Nvidia expects that this deal would reduce its dependence on the gaming segment.

An infographic on Nvidia's fourth quarter earnings results
Nvidia Q4 2019 Earnings Infographic

Nvidia CEO Jensen Huang said, “We’re excited to unite NVIDIA’s accelerated computing platform with Mellanox’s world-renowned accelerated networking platform under one roof to create next-generation datacenter-scale computing solutions.”

The transaction comes at a 14% premium to the last close of Mellanox, which currently has a market valuation of $5.93 billion.

 

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