At the International Supercomputing Conference, Intel (NASDAQ:INTC) announced a next generation system interconnect fabric that it dubs Omni Scale Fabric. This is supposed to be a next generation, high performance interconnect fabric that is not InfiniBand (the current standard for high performance interconnects). Moreover, Intel announced that this fabric would be integrated into both its next generation Xeon Phi processor as well as a future Xeon processor. Does this threaten Mellanox's (NASDAQ:MLNX) very existence?
Mellanox is ahead on InfiniBand ... for now.
While Intel has not revealed any significant technical details about its Omni Scale fabric, it does stand to reason that it's a step up from the 40 gigabit per second speeds that Intel's current InfiniBand adapters support. Mellanox is currently ahead here as its InfiniBand adapters support up to 56 Gb/s speeds.
Now, while Mellanox is likely to launch 100 gigabit per second InfiniBand products this year (which should help it extend its lead over current Intel offerings) to coincide with the launch of Intel's next generation server platform codenamed "Grantley," it's the picture by mid- to late 2016 that gets a little murkier.
What's the timetable look like?
Intel's big advantage over Mellanox is that it can integrate these interconnect fabrics right into the main processor, which Intel claims yields power efficiency and cost benefits. It seems that Xeon Phi will integrate this new Omni Scale fabric in Q2 2015 and beyond (though this is still a fairly niche processor within the HPC market). But given that the chips that power the upcoming Grantley platform will not integrate this fabric, it is likely that it won't be until the 2016 Skylake-based server processors (which will bring a new platform) that the main processors integrate this fabric.
InfiniBand could get tougher, but not all is lost
Mellanox is probably going to go through something very similar to what, say, discrete graphics card vendor NVIDIA is currently going through. Given that InfiniBand is important in applications that require bleeding edge performance, the key for Mellanox will be to maintain a performance edge over what Intel will be able to offer integrated into its processors (very similarly to what NVIDIA does in graphics).
Whether Mellanox will be able to do so is, frankly, an open question -- but so far it has managed to stay one step ahead of Intel in the InfiniBand world. If it can, then Mellanox' business is viable in the long run, but if it can't, then the company will need to make some hard choices (such as selling out to an Intel competitor or broadening its product portfolio further).
Foolish bottom line
Though it's hard to get a read on what this story will look like in the mid- to late 2016 timeframe, Mellanox is probably going to enjoy a solid year or two as Grantley ramps and as its other cloud/Web 2.0 based businesses continue to grow. As a result, I like owning the stock at these levels, but will keep a close eye on the Intel/Mellanox dynamic as the situation plays itself out.