IBM strikes panglossian license deal with Voltaire

Maybe IBM should just stop fooling around and buy Mellanox Technologies already.

Ahead of its own acquisition by InfiniBand and Fibre Channel networking specialist Mellanox, InfiniBand switch rival and Ethernet switch wannabe Voltaire has inked a licensing and development agreement with Big Blue.

Voltaire was cagey about exactly what IBM had licensed and what the development agreement covered, but a Voltaire spokesperson told El Reg that the deal involved licensing of Voltaire software and non-recurring engineering fees, which total approximately $17m between now and 2012. The spokesperson added that Voltaire expected to get most of the dough in 2011.

In its announcement, Voltaire said it is in line - or more precisely, Mellanox will soon be in line - to receive ongoing support fees based on IBM's sales volumes for licensed software following the integration of that software with IBM's products and the commercial rollout of it.

IBM, you will recall, bought Voltaire partner and sometime rival Blade Network Technologies, which is the blade and top-of-rack switch maker that was spun out of now-bankrupt Nortel Networks back in 2006.

IBM is rumored to have paid $400m to get its hands on Blade Network, a move that was necessary as Hewlett-Packard and Oracle have their own networking wares and networking partner Cisco Systems entered the server racket in early 2009 with its "California" Unified Computing System blade and rack servers and their converged server and storage networking. Cisco bought IBM's flagging network business back in 1999, leaving Big Blue depending on others such as Cisco, Brocade Communications, Voltaire, Juniper Networks, Blade Network, and Mellanox.

While the companies did not elaborate, IBM is probably licensing Voltaire's Unified Fabric Manager 3.0 software and embedding it on Blade Network's switches. It is not clear what Mellanox has to say about the deal, or how it might change the Voltaire acquisition, which is expected to close in the first quarter of 2011 pending regulatory and shareholder approval.

Mellanox, seeking to get more control over the InfiniBand switching racket and to expand into the Ethernet space, gobbled up Voltaire at the end of November for $218m. That was $176m net of Voltaire's cash on hand, and about an 86 per cent premium over Voltaire's market capitalization ahead of when the deal was announced.

Mellanox has a fair share of the InfiniBand switching market, and will have even more once the Voltaire deal closes; it is also one of the dominant makers of server adapter cards and chips for supporting both InfiniBand and Ethernet protocols. Adding both companies together using 2009 numbers, the combined Mellanox-Voltaire had $166m in sales, with 42 per cent coming from adapter cards, a little more than a quarter coming from switches, a little less than a quarter coming from chips, and the rest coming from software and services.

As El Reg goes to press, Mellanox has a market cap of $893.9m, up a tad since the Voltaire deal was announced three weeks ago.

If IBM wanted to throw a spanner in the networks, it would have Santa Palmisano reach into that big old bag of cash and whip out something on the order of $1.6bn or so and buy the whole Mellanox-Voltaire collective. IBM could spin out Microelectronics as an arms-length subsidiary and let it control its networking business so it could maintain the third party server customers and relationships Mellanox and Voltaire have - and get its switches and adapters at cost. This would be a PR coup over Cisco, which is burning its bridges with the server makers by entering their space. ®