Mellanox Ready for IPO

InfiniBand chipmaker Mellanox has revealed plans to go public, in a move anticipated by Byte and Switch since July. (See Mellanox Files IPO and Will Mellanox Make IPO Move?.)

Late yesterday, Mellanox revealed plans to go public in hopes of raising up to $86.25 million. Mellanox's filing came less than a week after WAFS vendor Riverbed and data protection firm CommVault completed IPOs. (See CommVault Swims in Public Pool and Riverbed Comes Out at $9.75.)

Mellanox had been pondering a move to the public markets for months, after doubling revenues for two straight years and recording its first profitable year in 2005. According to its SEC filing, Mellanox had earnings of $3.1 million on revenue of $42 million in 2005, and earnings of $558,000 on $19.3 million in revenue for the first half of this year. It lost $8.9 million in 2004.

Mellanox provides chips for the leading InfiniBand gear manufacturers Cisco, Voltaire, and SilverStorm. Those three companies combined accounted for 65 percent of Mellanox's 2005 revenue and 36 percent of its revenue for the first half of this year. Mellanox also sells chips to storage vendors Network Appliance, LSI Logic, and Isilon, and to server vendors Dell, Hewlett-Packard, IBM, and Sun.

Despite its success so far, like any startup trying to go public, Mellanox has challenges ahead. First, as InfiniBand matures, Mellanox's revenue growth rate will likely slow. Also, it could lose one if its major customers. Sources say Mellanox rival QLogic is planning to acquire SilverStorm as it moves deeper into InfiniBand. (See QLogic Eyes SilverStorm.) QLogic started down this path by acquiring Mellanox rival PathScale last February.Another hurdle for Mellanox is to reverse its shrinking revenue from Cisco, which acquired InfiniBand switch startup Topspin in April 2005. (See Cisco Takes On Topspin.) Sales to that supplier went from comprising 44 percent of Mellanox's revenue in 2005 to 10 percent for the first half of this year. In its SEC filing, Mellanox attributed the Cisco drop to inventory backlog, "which we believe has been sold in 2005 and 2006."

To grow, Mellanox says it hopes to drive continued adoption of InfiniBand, expand its business with its server OEM customers, and broaden its base of storage and embedded systems OEMs.

Mellanox has raised $89.3 million in funding since 1999. As of June 30, the San Jose, Calif.-based company had 148 full-time and 24 part-time employees in the U.S. and Israel, and approximately $13 million in cash and equivalents.

Credit Suisse Securities and J.P. Morgan Securities are the lead underwriters, with Thomas Weisel and Partners, and Jeffries & Company participating.

Dave Raffo, News Editor, Byte and Switch