Oracle buys 10 pct of Israeli tech firm Mellanox

TEL AVIV, ISRAEL: Oracle Corp bought 10.2 percent of Mellanox as it seeks to strengthen its presence in the hardware side of data centres, where the Israeli firm is a player.

Oracle already uses Mellanox's InfiniBand switch technology to build products like the Exadata database appliance and Exalogic, which helps companies manage cloud computing.

But Oracle, which bought the shares in the open market, has no plans to make an unsolicited offer to take over Mellanox, the companies said on Thursday.

They did not disclose how much Oracle, the world's No. 3 maker of software, paid for the shares but Mellanox has a market value of $718 million.

Shares in Mellanox, which makes products ranging from silicon to software to connect computers with servers and storage, rose 11 percent to 85.1 shekels in afternoon trade in Tel Aviv. It closed at $21.25 on Nasdaq on Wednesday.

"Oracle has been very vocal lately regarding its focus on the hardware side of the enterprise data centre," said Barclays Capital analyst Joseph Wolf, adding the company had recently been pushing its Exadata and Exalogic platforms hard.

The investment demonstrates Oracle is a serious technology partner especially in Infiniband, "which is where Mellanox wants to go. They have been successful in supercomputing and want to do the same in more mainstream computing," Wolf said.

Mellanox Chief Executive Eyal Waldman, who owns 5.3 percent of his company, said Mellanox was not looking to be sold.

"We think our shareholders will be much better off if we stay independent because our growth potential is significant and much larger companies have smaller growth," he told Reuters.

Fidelity Management is the largest shareholder in Mellanox with 11.7 percent.

Mellanox has forecast revenue in 2010 of over $153 million, up from $116 million in 2009.

Opening the bottleneck

Waldman said the efficiency of data centres is very low, which he compared to "driving a one-mile-per-gallon car.

"We take the bottleneck and open it," he said. "This ever increasing demand to do more, faster and better is what drives our growth."

Mellanox has been approached by other companies seeking to be bought and is looking at a number of acquisitions, Waldman added. It has $242 million in cash and no debt.

"A strong and friendly relationship with Mellanox is critical to Oracle," the companies said in a statement, adding the stake is for investment purposes only.

"Oracle has no plan or intention to make an unsolicited and unfriendly offer to take over Mellanox," the statement said.

BarCap's Wolf said he believed Mellanox fully intends to remain independent as its strategy has been to sell to many original equipment manufacturers.

"One would question the long-term future of selling to other OEMs if you are acquired by an OEM," Wolf, who rates Mellanox "equal weight" with a $20 price target.

Mellanox, whose competitors include QLogic for InfiniBand technology and Intel and Broadcom for Ethernet, will continue to work with all technology vendors such as Dell, HP and IBM, it said.