Mellanox in Advanced Talks to Buy Local Startup CopperGate

Mellanox Technologies is reportedly gearing up to buy Israeli startup CopperGate, for $200 million. Indeed the times seem to be improving.

Itself an Israeli company, Mellanox develops semiconductor-based interconnect products that use the InfiniBand protocol, while CopperGate develops chipsets for home multimedia broadband access. In recent months a few companies have expressed an interest in buying CopperGate for $150 million-$250 million. Last June the BDO International accounting firm appraised CopperGate and surmised there was a 25% chance the company would be up for sale in the next two years, with a price tag of $200 million-$250 million. If CopperGate were to issue stock in the next 18 months, its value would be $270 million.

Mellanox's products are installed in communication companies' data centers, which connect computer servers to storage systems and help transfer data. The InfiniBand protocol is the new standard for accelerating data transfer between computer components in small network environments such as local, wide and systems area networks. InfiniBand is designed to improve performance, expansion capability, reliability, availability and serviceablility of the next generation of computer servers.

Mellanox finished the second quarter of 2009 with $25.3 million in revenues, down 10% from the parallel quarter in 2008. Capital market analysts had forecast revenues of $24.4 million, while the company's expectations at the end of the first quarter were for revenues of $24 million-$24.5 million. Thus Mellanox exceeded both the companies and the analysts' forecasts. Net profits for the second quarter totaled $1.7 million, or $0.05 per share, down from $4.6 million, or $0.14 per share in the parallel.

Technology sector sources estimate that CopperGate's revenues in 2008 were over $60 million. The company was founded in 2000 and has so far raised about $25 million. CopperGate's founders - David Baum and Israel Lifshitz, worked previously at Orckit Communications.

CopperGate's chipsets operate on existing copper infrastructure and have been developed according to the HomePNA 3.0 protocol, which is supported by some of the world's largest telecom companies, including AT&T, Motorola and Broadcom. The protocol was developed by CopperGate and Broadcom, and facilitates the transfer of multimedia services on existing copper wiring - the telephone and cable television lines already in people's homes. One of CopperGate's biggest sales contracts was signed in 2006, with American telecommunications giant AT&T, which decided to adopt the HomePNA 3.0 protocol. Under the agreement, CopperGate supplied chipsets for AT&T's television decoders.

The entrepreneurs and venture capital funds that invested in CopperGate will net millions from the deal with Mellanox.

No comment was available from Mellanox.