Mellanox Reacts to Activist Investor Pressures in Letter to Shareholders

By Staff

March 16, 2018

As we’ve previously reported, activist investor Starboard Value has been exerting pressure on Mellanox Technologies to increase its returns. In response, the high-performance networking company on Monday, March 12, published a letter to shareholders outlining its proposal for a May 2018 extraordinary general meeting (EGM) of shareholders and highlighting its long-term growth strategy and focus on operating margin improvement.

Here is the text of that letter in full:

Dear Fellow Shareholders,

On behalf of the Mellanox Board of Directors, we are writing to you today to emphasize that we believe calling an extraordinary general meeting of shareholders (EGM) is essential to protecting shareholder choice, to reiterate that continued successful execution of our long-term growth strategy is delivering value and to provide some clarity to certain perspectives in the marketplace.

The EGM Proposals Reflect Our Board’s Commitment to Best-in-Class Governance

At Mellanox’s EGM in May 2018, shareholders will be asked to vote in favor of two best-in-class governance proposals, designed to enhance shareholder choice in a contested election by allowing shareholders to vote for the director candidates who they believe will best guide Mellanox’s strategy and success over the long term.

First, you will be asked to establish plurality voting in the event of a contested election. With a plurality voting standard, which has been adopted by the vast majority of U.S.-listed companies in the event of contested elections, the Board would consist of the director nominees gaining the greatest number of votes and all of the directors who serve on the Board would be elected directly by shareholders. Under our current majority voting structure, it would be possible for fewer than 11 director candidates to receive the necessary votes to get elected, leaving vacancies to be filled by those majority-elected directors rather than by you, our shareholders. Such an outcome becomes particularly likely in contested elections, where votes may be split among a larger number of nominees.

Second, you will be asked to vote in favor of the use of universal proxy cards, which would require any nominee to the Board to consent to being named as a nominee in any proxy statement or proxy card used in connection with the general meeting at which directors will be elected. The adoption of universal proxy cards will provide for all nominees put forth by either the Board or any shareholder of Mellanox to be listed together on one universal proxy card, enabling shareholders to elect any combination of director nominees they choose. Under our current rules, shareholders may only validly submit one proxy, meaning they cannot easily cast votes for nominees from both proxies as they could when voting in person.

The EGM is an Essential Step to Protect Shareholder Choice and Interests

We strongly believe that the composition of the Mellanox Board of Directors should reflect the true intentions of our shareholders. We have carefully taken into consideration many different factors, including a detailed consideration of all relevant U.S. and Israeli legal requirements. We have scheduled the EGM as soon as practicable in order to ensure that all shareholders’ voices will be heard.

On January 17, 2018, without warning and despite what we believed to be constructive discussions, Starboard Value nominated a full slate of directors to the Mellanox Board with the intention of replacing all of the current directors and taking control of the Company. Thus, the decisions made at the Company’s annual general meeting of shareholders (AGM) will truly affect the future of Mellanox. In light of this, the Mellanox Board, in consultation with our independent financial and legal advisors, immediately conducted a comprehensive assessment on how to proceed in the best interests of its shareholders. This review made it clear that updating Mellanox’s proxy voting mechanics to better align them with best practice in a contested election is an essential first step and one that needs to be addressed before the 2018 AGM.

The Mellanox Board believes that shareholders will place far greater value on the freedom to choose the Board they want, without fear of unintended consequences, than on what amounts to a brief delay in the Company’s historical AGM schedule.

Executing Our Long-Term Growth Strategy to Deliver Shareholder Value

Mellanox employs a careful and thoughtful approach to investing and planning and, as our past investments continue to yield impressive results, we remain well-positioned to further benefit from our long-term growth strategy.

With a total addressable market size of approximately $10.6 billion1 forecasted in 2021, the Ethernet segment represents a highly attractive growth opportunity for the Company. We began investing in R&D efforts related to Ethernet technology in 2013. The Ethernet design wins we are now seeing across our product suite are the rewards of our focus on innovation through R&D and investing in the future. This focused investment strategy has enabled us to outpace our competitors since 2010, with Mellanox now being the leader in innovative end-to-end solutions for connecting servers and storage platforms, holding the #1 or #2 position in many of the key markets in which we operate.

In fiscal 2017, the Company made significant strategic investments to complete its data center-focused portfolio. Specifically:

  • Improving InfiniBand competitive strength in AI and HPC markets through InfiniBand 200Gb/s generation, to be introduced shortly;
  • Developing the BlueField family of products from our EZchip acquisition, which provides Mellanox access to a $2 billion addressable system-on-a-chip (SoC) market2; and
  • Increasing the deployment of Spectrum Ethernet Switch platforms.

Strongly Positioned to Continue Realizing the Benefits of Our Prior Investments

Our emphasis on R&D has enabled us to create the most cutting-edge solutions in the industry, resulting in consistent revenue growth, averaging 27% on a pro forma basis since the Company’s initial public offering in 2007. Our fiscal 2017 results demonstrate the successful execution of our multi-year revenue diversification strategy and our leadership position in 25Gb+ Ethernet adapters. Notably, our Ethernet switch business in the 25Gb+ segment grew 41% sequentially in the fourth quarter of 2017, as customers around the world increasingly adopted our Ethernet products.

These trends are holding firm, and customer transition from 10Gb/s to 25Gb+ Ethernet adapters is accelerating across the board – we believe in large part due to Mellanox. We foresaw this industry shift, which is why we made the right investments and worked so diligently to position our business to have the technology and capacity to capture market share and meet demand when the transition began. In fact, we recently raised our guidance estimates for the first quarter of 2018. Based on the mid-point of our guidance, we expect to deliver around 30% year-over-year growth in revenue and 11% operating margin expansion. Importantly, our strong financial performance was a direct result of the investments we made years before in 25Gb+ Ethernet technology.

Executing a Disciplined Campaign to Dramatically Drive Operating Margin Improvements

Mellanox is also focused on expanding market share and improving operating margins. We are committed to achieving these objectives, while maintaining our competitive advantage of superior technology for the long term. We are rationalizing our product portfolio and focusing our investment on businesses with the greatest potential for growth and highest return on investment capital. Due to our ongoing cost-cutting initiatives, we continue to reduce our operating expenses. Recently, we announced that we are ceasing investment in a new generation of network processing family of products, and discontinuing our development in 1550 nanometer silicon photonics.

The Board and management team are fully focused on executing the Company’s strategy of driving sustainable growth, which we are seeing in the accelerated adoption of key products across the customer base, while at the same time delivering on our commitment to more efficiently manage costs. In line with our strategy, we plan to end fiscal 2018 with operating margins in the 20%+ range. And as we scale faster with our Ethernet solutions, we anticipate growing and driving further efficiencies to reach operating margins in the 30s.

Mellanox is, and Will Continue to Be, a Growth Story

Mellanox has been executing on our growth strategy, and we are delivering positive results. The tremendous growth and success we have achieved is a culmination of years of carefully planned investment, as well as a direct result of our Board and management team’s extensive expertise and dedication to research and development. We are seeing significant design wins across our product suite, penetrating key markets and building traction with customers.

The value we have created over the past two quarters is the result of the widespread adoption of 25Gb+ technology in every major market around the world – a trend for which Mellanox has long anticipated and planned. In short, our R&D strategy is working and proven in our financial results. Cost cuts can drive profitability in the short term, but they can also stifle innovation and growth and have limited upside over the long term, particularly if they are undertaken to meet specific operating margin targets and not with a view towards sustainable value creation. Growth takes vision, time, investment, expertise and patience – but the upside is significant and more sustainable than financial engineering. That is the true long-term value we are creating at Mellanox for all shareholders.

New Independent Directors Further Enhance Our Diverse, Highly-Qualified Board Committed to Shareholder Value Creation

Mellanox has a diverse and experienced Board that is actively engaged in overseeing the execution of our strategy to continue to increase revenue, expand market share and improve our operating margins. Our Board is composed of 11 highly qualified and experienced directors, nine of whom are independent and all of whom are seasoned leaders committed to driving shareholder value.

Notably, our Board recently welcomed two new, independent directors, Steve Sanghi and Umesh Padval, concluding our search that began last year to fill two vacant board seats. As CEO of Microchip since 1991, Steve has established himself as one of the best operators in the semiconductor industry with a proven ability to drive profitable growth and value creation. Since joining the board of Integrated Device Technology in 2008, Umesh has seen significant operating margin expansion and stock price appreciation, resulting in over 5x market cap growth during his tenure. Each is a skilled and deeply knowledgeable leader who brings new perspectives and extensive semiconductor industry knowledge to our team. We are confident that their leadership abilities will be invaluable to Mellanox as we continue to execute on our strategic plan.

The EGM Will Ensure That Your Voice Will Be Heard

Rushing into an AGM with our existing voting policies puts our company, shareholders and progress at risk. Mellanox, like many Israel-domiciled corporations, does not have articles of association that provide for a fair and transparent contested election. The unintended consequences of rushing into an AGM without first solving for the majority vote standard and establishing a universal proxy card could be exploited at the expense of Mellanox and its shareholders.

This year’s EGM was scheduled on approximately the same timeline as our 2017 uncontested AGM. In light of the requirement to hold the EGM first, the AGM has been pushed out. Following the EGM, we intend to immediately begin the process of scheduling the AGM, which we anticipate holding on July 25, 2018, in accordance with the Israeli Companies Law and Mellanox’s articles of association.

The Mellanox Board of Directors will be sending you proxy materials shortly so that you can vote to approve these best-in-class governance proposals: establishing plurality voting and requiring the use of universal proxy cards in the event of contested elections. Preliminary copies of the proxy materials have been filed with the U.S. Securities and Exchange Commission and are publicly available on our website atir.mellanox.com/financials.cfm.

The Mellanox Board is committed to building and protecting your investment by holding the EGM promptly and taking the steps necessary to align our governance policies with your interests and ensure that the composition of our Board fairly reflects shareholders’ intentions.

On behalf of your Board of Directors, thank you for your continued support.

Sincerely,

Irwin Federman

Chairman of the Board

Eyal Waldman

President, CEO and Director

Subscribe to HPCwire's Weekly Update!

Be the most informed person in the room! Stay ahead of the tech trends with industy updates delivered to you every week!

At Long Last, Supercomputing Helps to Map the Poles

August 22, 2019

“For years,” Paul Morin wrote, “those of us that made maps of the Poles apologized. We apologized for the blank spaces on maps, we apologized for mountains being in the wrong place and out-of-date information.” Read more…

By Oliver Peckham

Xilinx Says Its New FPGA is World’s Largest

August 21, 2019

In this age of exploding “technology disaggregation” – in which the Big Bang emanating from the Intel x86 CPU has produced significant advances in CPU chips and a raft of alternative, accelerated architectures... Read more…

By Doug Black

Supercomputers Generate Universes to Illuminate Galactic Formation

August 20, 2019

With advanced imaging and satellite technologies, it’s easier than ever to see a galaxy – but understanding how they form (a process that can take billions of years) is a different story. Now, a team of researchers f Read more…

By Oliver Peckham

AWS Solution Channel

Efficiency and Cost-Optimization for HPC Workloads – AWS Batch and Amazon EC2 Spot Instances

High Performance Computing on AWS leverages the power of cloud computing and the extreme scale it offers to achieve optimal HPC price/performance. With AWS you can right size your services to meet exactly the capacity requirements you need without having to overprovision or compromise capacity. Read more…

HPE Extreme Performance Solutions

Bring the combined power of HPC and AI to your business transformation

FPGA (Field Programmable Gate Array) acceleration cards are not new, as they’ve been commercially available since 1984. Typically, the emphasis around FPGAs has centered on the fact that they’re programmable accelerators, and that they can truly offer workload specific hardware acceleration solutions without requiring custom silicon. Read more…

IBM Accelerated Insights

Keys to Attracting the Newest HPC Talent – Post-Millennials

[Connect with HPC users and learn new skills in the IBM Spectrum LSF User Community.]

For engineers and scientists growing up in the 80s, the current state of HPC makes perfect sense. Read more…

Singularity Moves Up the Container Value Chain

August 20, 2019

The enterprise version of the Singularity HPC container platform released this week by Sylabs is designed to allow users to create, secure and share the high-end containers in self-hosted production deployments. The e Read more…

By George Leopold

At Long Last, Supercomputing Helps to Map the Poles

August 22, 2019

“For years,” Paul Morin wrote, “those of us that made maps of the Poles apologized. We apologized for the blank spaces on maps, we apologized for mountains being in the wrong place and out-of-date information.” Read more…

By Oliver Peckham

IBM Deepens Plunge into Open Source; OpenPOWER to Join Linux Foundation

August 20, 2019

IBM today announced it was contributing the instruction set (ISA) for its Power microprocessor and the designs for the Open Coherent Accelerator Processor Inter Read more…

By John Russell

Ayar Labs to Demo Photonics Chiplet in FPGA Package at Hot Chips

August 19, 2019

Silicon startup Ayar Labs continues to gain momentum with its DARPA-backed optical chiplet technology that puts advanced electronics and optics on the same chip Read more…

By Tiffany Trader

Scientists to Tap Exascale Computing to Unlock the Mystery of our Accelerating Universe

August 14, 2019

The universe and everything in it roared to life with the Big Bang approximately 13.8 billion years ago. It has continued expanding ever since. While we have a Read more…

By Rob Johnson

AI is the Next Exascale – Rick Stevens on What that Means and Why It’s Important

August 13, 2019

Twelve years ago the Department of Energy (DOE) was just beginning to explore what an exascale computing program might look like and what it might accomplish. Today, DOE is repeating that process for AI, once again starting with science community town halls to gather input and stimulate conversation. The town hall program... Read more…

By Tiffany Trader and John Russell

Cray Wins NNSA-Livermore ‘El Capitan’ Exascale Contract

August 13, 2019

Cray has won the bid to build the first exascale supercomputer for the National Nuclear Security Administration (NNSA) and Lawrence Livermore National Laborator Read more…

By Tiffany Trader

AMD Launches Epyc Rome, First 7nm CPU

August 8, 2019

From a gala event at the Palace of Fine Arts in San Francisco yesterday (Aug. 7), AMD launched its second-generation Epyc Rome x86 chips, based on its 7nm proce Read more…

By Tiffany Trader

Lenovo Drives Single-Socket Servers with AMD Epyc Rome CPUs

August 7, 2019

No summer doldrums here. As part of the AMD Epyc Rome launch event in San Francisco today, Lenovo announced two new single-socket servers, the ThinkSystem SR635 Read more…

By Doug Black

High Performance (Potato) Chips

May 5, 2006

In this article, we focus on how Procter & Gamble is using high performance computing to create some common, everyday supermarket products. Tom Lange, a 27-year veteran of the company, tells us how P&G models products, processes and production systems for the betterment of consumer package goods. Read more…

By Michael Feldman

Supercomputer-Powered AI Tackles a Key Fusion Energy Challenge

August 7, 2019

Fusion energy is the Holy Grail of the energy world: low-radioactivity, low-waste, zero-carbon, high-output nuclear power that can run on hydrogen or lithium. T Read more…

By Oliver Peckham

Cray, AMD to Extend DOE’s Exascale Frontier

May 7, 2019

Cray and AMD are coming back to Oak Ridge National Laboratory to partner on the world’s largest and most expensive supercomputer. The Department of Energy’s Read more…

By Tiffany Trader

Graphene Surprises Again, This Time for Quantum Computing

May 8, 2019

Graphene is fascinating stuff with promise for use in a seeming endless number of applications. This month researchers from the University of Vienna and Institu Read more…

By John Russell

AMD Verifies Its Largest 7nm Chip Design in Ten Hours

June 5, 2019

AMD announced last week that its engineers had successfully executed the first physical verification of its largest 7nm chip design – in just ten hours. The AMD Radeon Instinct Vega20 – which boasts 13.2 billion transistors – was tested using a TSMC-certified Calibre nmDRC software platform from Mentor. Read more…

By Oliver Peckham

TSMC and Samsung Moving to 5nm; Whither Moore’s Law?

June 12, 2019

With reports that Taiwan Semiconductor Manufacturing Co. (TMSC) and Samsung are moving quickly to 5nm manufacturing, it’s a good time to again ponder whither goes the venerable Moore’s law. Shrinking feature size has of course been the primary hallmark of achieving Moore’s law... Read more…

By John Russell

Cray Wins NNSA-Livermore ‘El Capitan’ Exascale Contract

August 13, 2019

Cray has won the bid to build the first exascale supercomputer for the National Nuclear Security Administration (NNSA) and Lawrence Livermore National Laborator Read more…

By Tiffany Trader

Deep Learning Competitors Stalk Nvidia

May 14, 2019

There is no shortage of processing architectures emerging to accelerate deep learning workloads, with two more options emerging this week to challenge GPU leader Nvidia. First, Intel researchers claimed a new deep learning record for image classification on the ResNet-50 convolutional neural network. Separately, Israeli AI chip startup Hailo.ai... Read more…

By George Leopold

Leading Solution Providers

ISC 2019 Virtual Booth Video Tour

CRAY
CRAY
DDN
DDN
DELL EMC
DELL EMC
GOOGLE
GOOGLE
ONE STOP SYSTEMS
ONE STOP SYSTEMS
PANASAS
PANASAS
VERNE GLOBAL
VERNE GLOBAL

Nvidia Embraces Arm, Declares Intent to Accelerate All CPU Architectures

June 17, 2019

As the Top500 list was being announced at ISC in Frankfurt today with an upgraded petascale Arm supercomputer in the top third of the list, Nvidia announced its Read more…

By Tiffany Trader

Top500 Purely Petaflops; US Maintains Performance Lead

June 17, 2019

With the kick-off of the International Supercomputing Conference (ISC) in Frankfurt this morning, the 53rd Top500 list made its debut, and this one's for petafl Read more…

By Tiffany Trader

AMD Launches Epyc Rome, First 7nm CPU

August 8, 2019

From a gala event at the Palace of Fine Arts in San Francisco yesterday (Aug. 7), AMD launched its second-generation Epyc Rome x86 chips, based on its 7nm proce Read more…

By Tiffany Trader

A Behind-the-Scenes Look at the Hardware That Powered the Black Hole Image

June 24, 2019

Two months ago, the first-ever image of a black hole took the internet by storm. A team of scientists took years to produce and verify the striking image – an Read more…

By Oliver Peckham

Cray – and the Cray Brand – to Be Positioned at Tip of HPE’s HPC Spear

May 22, 2019

More so than with most acquisitions of this kind, HPE’s purchase of Cray for $1.3 billion, announced last week, seems to have elements of that overused, often Read more…

By Doug Black and Tiffany Trader

Chinese Company Sugon Placed on US ‘Entity List’ After Strong Showing at International Supercomputing Conference

June 26, 2019

After more than a decade of advancing its supercomputing prowess, operating the world’s most powerful supercomputer from June 2013 to June 2018, China is keep Read more…

By Tiffany Trader

Qualcomm Invests in RISC-V Startup SiFive

June 7, 2019

Investors are zeroing in on the open standard RISC-V instruction set architecture and the processor intellectual property being developed by a batch of high-flying chip startups. Last fall, Esperanto Technologies announced a $58 million funding round. Read more…

By George Leopold

Intel 7nm GPU on Roadmap for 2021, OneAPI Coming This Year

May 8, 2019

At Intel's investor meeting today in Santa Clara, Calif., the company filled in details of its roadmap and product launch plans and sought to allay concerns about delays of its 10nm chips. In laying out its 10nm and 7nm timelines, Intel revealed that its first 7nm product would be... Read more…

By Tiffany Trader

  • arrow
  • Click Here for More Headlines
  • arrow
Do NOT follow this link or you will be banned from the site!
Share This