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InfiniBand chips developer Mellanox Technologies (MLNX - Snapshot Report) recently announced that it has completed the acquisition of privately-held IPtronics A/S for $47.5 million in cash. This is Mellanox’s second acquisition in recent times, following the proposed takeover of silicon photonics interconnect technology provider Kotura in mid-May.

Mellanox expects the acquisition to add at least a penny to a maximum of 3 cents to its fiscal year 2014 earnings per share. Apart from being accretive to the bottom line, the IPtronics acquisition will enable Mellanox to open its first research & development (“R&D”) center in Europe at Roskilde, Denmark.

IPtronics designs and develops components for high speed optical interconnection. The company has shipped 4 million units over the last 12 months. IPtronics products are well known for greater density and lower power consumption, which improves communication within a data center at a reduced cost.

Currently, data centers are facing a huge challenge to improve communication speed between servers and storage systems in order to efficiently manage the ongoing data explosion. Mellanox expects to use IPtronics solutions to create a link between optical and electrical interfaces. This will remove significant problems faced by copper-based connections in a high speed interface.

We believe that the acquisition will not only help Mellanox to deliver end-to-end optical interconnect solutions at 100 gigabyte per second and beyond but also  position it well against Intel Corp. (INTC - Analyst Report). Intel entered the high speed interconnectivity market through the acquisition of QLogic’s (QLGC - Analyst Report) InfiniBand assets.

Mellanox believes that the successive acquisitions of IPtronics and Kotura will boost its competitive position in the high-speed, scalable and efficient end-to-end interconnect solutions market for servers and storage systems. Besides Intel, the company also faces significant competition from Cisco (CSCO - Analyst Report).

Additionally, the establishment of the R&D center in Denmark will help Mellanox to efficiently serve its European customers. With the completion of the proposed Kotura acquisition, the company is scheduled open its first R&D center in the United States. We believe that these new centers will help Mellanox to expand its customer base and improve top-line growth going forward.

Currently, Mellanox has a Zacks Rank #3 (Hold).

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