Interview with Eyal Waldman, Chairman, President and CEO
Mellanox Technologies, founded in 1999 and based in Sunnyvale, California and Yokneam, Israel, is a supplier of end-to-end InfiniBand and Ethernet connectivity solutions for server and storage applications.
The company's products are designed to optimise data centre performance and deliver high bandwidth, scalability, power conservation and cost-effectiveness while converging legacy network technologies into a unified architecture.
Mellanox supplies customers worldwide in markets including high-performance computing, enterprise, data centre, financial services, cloud computing, Internet and Web 2.0.
The company currently has approximately 750 staff, including 100 in the U.S. and 600 in Israel and for the most recent quarter reported sales of $63 million, giving a greater than $250 million annual run-rate, with gross margins in the high 60s.
Mellanox grew 33% in terms of revenue from 2009 to 2010 and expects to grow a further 55% or more in 2011.
Eyal Waldman explained that interconnect is increasingly a limiting factor for performance in data centres and for database, Web 2.0 and financial services applications, where high performance CPU and memory resources are available but I/O constitutes a bottleneck.
Mellanox aims to open the bottleneck by providing the best interconnect solutions in terms of cost, power consumption and performance. Moreover, its solutions enable users to increase the performance of their existing equipment.
Mellanox technology can transform the connectivity between CPUs by for example boosting a 1 Gbit/s pipe into a 10, 20, 40 or 56 Gbit/s connection, so eliminating the bottleneck. In a virtualised environment, this means that a customer can place more virtual machines on each physical machine.
Mr. Waldman noted that there are instances where the use of Mellanox technology has enabled a customer to reduce the time required to run a process from five hours down to around 12 minutes.
Mellanox solutions connect PCI Express (PCIe) interfaces and the company provides a complete solution comprising an endpoint that plugs into a PCIe or LOM (LAN-on-motherboard) slot, an adapter, cables, switch and endpoints for connecting to a PCIe interface at the other side. It was noted that all an ODM/OEM customer has to provide is PCIe interfaces on its equipment.
Mellanox also supplies the Unified Fabric Manager software for managing, provisioning and diagnosing Ethernet and InfiniBand data centre fabrics.
Mellanox carries out all design and development work in-house, from the product architecture down to the mask level as well as analogue/mixed signal, switch and cable design. This feature is seen as a differentiator for the company compared with other suppliers of low-latency, high bandwidth interconnect solutions.
The decision to adopt the approach of developing its technology in-house is regarded as strategic to the company, giving it a competitive advantage in the market through independence and greater control over the direction of the company. As such, there are no plans to change this strategy.
Approximately 70% of staff are engaged in R&D activities, which is considered high by industry standards, and Mellanox devotes around 33% of its revenue to R&D operations. This is expected to decline proportionally as sales increase.
While products are developed in-house, manufacturing is handled by outside companies.
In February 2011, Mellanox acquired Voltaire, a supplier of scale-out data centre fabric technology.
Commenting on the acquisition, Mr. Waldman said that Voltaire's technology specifically enables Mellanox to extend its management capabilities vertically to the application level. Mellanox was active in this space previously, although Voltaire's technology serves to expand its offering and will help the company to penetrate this area of the market more quickly.
According to Mr. Waldman, the merger with Voltaire is proceeding as expected, with revenue growth in line with forecasts and the integration process progressing as planned.
The range of markets that Mellanox addresses has expanded from its original focus on the high-performance computing (HPC) space. Eyal Waldman acknowledged that there is always a risk that this can result in losing sight of the core market, but stated that the company continues to devote considerable resources to the HPC market in terms of R&D as well as partnering with end-users and OEM/ODM customers.
The technology developed for supercomputers tends to subsequently move down market to more mainstream applications, Mr. Waldman said, and Mellanox can leverage this when addressing other markets, notably the data centre.
In the HPC sector, the company's solutions are deployed in five of the Top 10 and 61 of the Top 100 supercomputers worldwide.
The company's next largest market is the financial services industry, where low latency is key for applications such as high-frequency trading, followed by the database sector.
In relation to the database market, Mr. Waldman remarked that Oracle has acquired a 10% stake in Mellanox as it regards the company's technology as strategic to its future solutions.
While this relationship is seen as positive for Mellanox, it was emphasised that HP has been Mellanox's No. 1 customer for the past four years, while IBM and Dell are also important customers.
For database applications, Mellanox solutions are typically said to offer a ten-fold improvement in performance, although the company believes the actual figure can be as much as one hundred-fold.
The company also addresses Web 2.0 applications, for example Microsoft Bing Maps, where it is seeing growing traction for its products in systems designed to serve millions of customers, and the emerging market for cloud solutions.
Another important market for Mellanox is storage systems, supplying partners including IBM for its XIV system, EMC with Isilon, DataDirect Networks, NetApp and HP. It was noted that InfiniBand is becoming the de facto standard for backend interconnect in storage applications, as well as being adopted for front-end interconnect in bandwidth-intensive applications such as data backup.
Mellanox generates between 45% and 50% of its revenue in the U.S., with Asia accounting for around 30% and Europe around 20%. The Asian market comprises mainly China, Japan and Taiwan, with very limited sales also in India and Australia. Although the proportions by region may fluctuate from quarter to quarter, these changes are not substantial and the regional sales split is stable.
Regarding the company's sales organisation, Eyal Waldman said that Mellanox deals primarily with OEM customers - major vendors such as HP and IBM - which then sell its products to end customers within their own solutions.
However, Mellanox does work with end customers in relation to product development and how best to address their requirements and it may recommend a system from a specific partner. The company has specifically worked with end users, financial exchanges and supercomputer operators.
As far as customer support is concerned, it was noted that the level varies, with established partners such as HP and IBM, for example, requiring little or no support, although Mellanox does work with OEMs and ODMs to demonstrate the capabilities of its products.
Challenges to growth
The overriding challenge for Mellanox, according to Mr. Waldman, is successful execution, enabling the company to remain competitive in the market.
Specifically, he said that the emerging shift to 56 Gbit/s technology is the company's current focus, which is being delivered in the new SwitchX and ConnectX-3 devices.
Looking further ahead beyond 56 Gbit/s systems, the next step will be 100 Gbit/s EDR InfiniBand and Ethernet solutions based on 28-nm process technology, and Mellanox is currently planning development of these products.