Will Mellanox Make IPO Move?

With a confused stock market and tech giants reporting uneven results, it's not the most auspicious time to be pondering an IPO. But InfiniBand specialist Mellanox is doing exactly that, according to press reports, with Credit Suisse and JP Morgan as the lead underwriters for a $75 million offering, at a company value of $350 million.

Technology IPOs have been a rarity in the last couple years, and Mellanox's reported plans drew a firm "no comment" from the vendor when contacted by Byte and Switch earlier today. (See In the Public Domain and Report Hedges High-Speed Bets.) Analysts, however, say stranger things have happened.

"It certainly wouldn't surprise me," says Steve Berg of Punk Ziegel. "To my knowledge, the company has been profitable for the last couple of quarters, and they have a high enough revenue run rate to go public."

That run rate runs around $50 million, according to an industry analyst, who asked not to be named. "From a revenue perspective, that's the right range for a company to go IPO," he says.

"We have been expecting them to file soon," adds Bob Wheeler, senior analyst at consulting firm the Linley Group, highlighting the firm's growing presence in the supercomputing space.On the most recent list of world's Top 500 supercomputers, released last month, installations of InfiniBand have doubled since 2005, with the technology now accounting for more than 30 of the world's largest supercomputers. (See Ethernet Enlarges Supercomputing and High-Speed Links Favor Ethernet.) Mellanox silicon accounted for three of the top 10 supercomputers, as well as 16 new entries on the list.

Although InfiniBand is still the third ranking interconnect on the Top 500 list, behind Gigabit Ethernet and Myrinet, the technology is gaining momentum amongst vendors. Cisco, for example, just unveiled Double Data Rate (DDR) InfiniBand switches following the lead set by Mellanox, SilverStorm, and Voltaire. (See Mellanox Doubles InfiniBand and Voltaire Doubles Up.) InfiniBand is also part of IBM's and HP's blade servers.

Mellanox, for its part, already has these big-names on its side. The seven-year-old firm abandoned its end-user business entirely last year in order to focus on being an OEM of InfiniBand gear to customers like Cisco, Dell, Engenio, HP, IBM, Isilon, SilverStorm, and Voltaire. (See InfiniBand of Brothers, Mellanox, Voltaire Power HP, Isilon Embraces InfiniBand, and Voltaire Clusters IBM DB2.)

Thanks to its availability and speed, InfiniBand is increasingly deployed in short-range data center applications, within storage clusters, between NAS devices and servers, and in high-performance computing environments.

But Jag Bolaria, another senior analyst at the Linley Group, warned that Mellanox will need to strike while the iron is hot for a successful IPO. "The window of opportunity for InfiniBand is this year and next year," he exlains. "With 10-Gbit/s Ethernet coming, that will cast a dark shadow over InfiniBand." The analyst, however, expects that 10-Gbit/s Ethernet will not make its presence felt until the 2008 timeframe. (See 10-Gig IP SANs Hit Bleeding Edge, NetXen Singles Out 10-Gig, and Force 10 Fires Up Low Latency Switch.)Bolaria also warned that Mellanox will have to contend with tough market conditions if it presses on with an IPO, citing semiconductor manufacturer Wintegra's recent decision to withdraw its own offering. "There's a lot of uncertainty at the moment," he explains. "Investors want to catch the wave when it's going up, rather than when it's going down."

Certainly, technology IPOs have been few and far between over the last couple of years, with WAN optimization startup Riverbed and backup software specialist CommVault bucking the trend when they filed for their own offerings earlier this year. (See Riverbed Makes It Official, Sources: Riverbed Reaches for IPO, and CommVault's Taking the Plunge.)

James Rogers, Senior Editor, Byte and Switch