Mellanox to cut 100 US jobs as chip line development halted

Decision to discontinue development of 1550nm Silicon Photonics comes a day after activist investor says ‘substantial change’ needed at firm

Shoshanna Solomon is The Times of Israel's Startups and Business reporter

Mellanox headquarters in Yokne'am (Moshe Shai/Flash90)
Mellanox headquarters in Yokne'am (Moshe Shai/Flash90)

Israel’s Mellanox Technologies Ltd. said it will cut its workforce by some 100 people amid a decision to discontinue the development of one line of its chips, effective immediately.

In its statement released Tuesday, Mellanox said it will discontinue its 1550nm Silicon Photonics development activities, saying the business had not yielded the results it had hoped. All of the job cuts will be in the US. The company employs some 2,900 people globally, most of them in Israel, according to company data.

The Israeli maker of servers and storage switching solutions announced its decision a day after activist investor Starboard Value LP, which is the company’s largest shareholder, said “substantial change” is needed at the company to improve its performance. But Mellanox CEO Eyal Waldman said the company had begun a review of the silicon photonics business in May.

“The Mellanox Board of Directors and management team continually review our strategic priorities and investments to ensure they meet our future goals. We began our review of the silicon photonics business in May of 2017, but as the business did not become accretive as we had hoped, we decided to discontinue our 1550nm Silicon Photonics development activities,” said Waldman.

The discontinuation of the 1550nm silicon photonics development activities is not expected to have an impact on fiscal 2018 revenues and is projected to result in expected fiscal 2018 adjusted operating expense savings of $26 million to $28 million, Mellanox said.

The firm said it expects the move to generate a cost of $21 million to $24 million, including some $4 million to $5 million of cash expenses, related mostly to severance costs as well as approximately $17 million to $19 million of other charges.

The company is scheduled to publish its fourth quarter financial results on January 18, when it will also provide more detail on its 2017 results and its 2018 outlook, the statement said.

Starboard said that the targets set by Mellanox for 2018, released in December, for low to mid-teens revenue growth in 2018, represent just “a modest improvement” in the firm’s strategy for the future.

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