Marvell to Buy Switch Chip Startup for $1.1 Billion to Lure Cloud Customers

Marvell Technology said that it has agreed to buy a fast-growing networking switch chip startup, as it looks to lure more customers from the booming cloud data center market and compete more directly with Broadcom.

The Santa Clara, Calif.-based company said last week it plans to buy Innovium and integrate its line of high-end switch chips with its other products to court larger customers. Innovium chips sit at the heart of Ethernet switches that send information around inside the enormous data centers run by cloud providers such as Alphabet's Google, Amazon and Microsoft—a category that Broadcom has long dominated with its Tomahawk family of Ethernet switch ASICs. The planned all-stock deal is valued at around $1.1 billion.

Marvell has been expanding its share of the infrastructure market with its current lineup of server processors, but the Innovium deal would allow it to own a larger slice of the hardware powering cloud-scale data centers. Marvell wants to integrate Innovium's technology with its other products to bind itself more tightly to leading cloud providers, which spend billions of dollars every year on networking switches and other server gear.

Innovium has taken market share from Broadcom in cloud data center switches. The startup claims to hold a 20% market share in 50G SerDes switches within three years of shipping its first product and that it supplies silicon to some of the world’s largest data centers. The startup, which has amassed $350 million in funding, said last year that most of the world’s 25 top cloud vendors are deploying its chips or at least testing them in their data centers.

Marvell said the deal would help it to take part in the market for merchant Ethernet switch silicon for data centers, which the company estimates will grow 15% annually for the foreseeable future, totaling $2 billion by 2026.

The deal fits into Marvell’s broader strategy under CEO Matt Murphy, who is trying to transform the company into one of the more formidable players in the infrastructure market—one that can compete with the likes of Broadcom and Intel, among others. Marvell further expanded its footprint in the networking market last year with a $10 billion deal to buy Inphi, which sells silicon photonics hardware to Google, Amazon and Facebook.

Inphi focused on analog and driver ICs, digital signal processors (DSPs) and silicon photonics technologies that can be used in switches to connect servers, storage, and other gear in colossal cloud data centers—and connect the data centers to one another over far longer distances—over fiber optics instead of copper cables. Marvell previously only played in copper interconnects with its high-speed Ethernet PHYs for data center gear.

The Innovium deal would allow Marvell to start offering chips that go in the Ethernet switches themselves. Innovium has gradually become one of the leading vendors in the data center switch market in recent years. Marvell said in its announcement of the deal that the startup had landed a contract to become a “significant supplier” at a Tier-1 cloud customer. Moreover, Innovium is also currently in talks with several other top cloud vendors to supply switch chips for their infrastructure.

Innovium offers three different switch families, including the Teralynx 5 with up to 6.4 Tb/s of bandwidth for enterprise, carrier, and edge switches and Teralynx 7 with up to 12.8 TB/s bandwidth for cloud deployments.

In 2020, it rolled out its most advanced server processor yet, the Teralynx 8, suited for the sprawling networks inside cloud data centers. The chip can process up to 25.6 trillion bits of information every second (Tb/s) and it supports up to 256 Ethernet ports running at 100 Gb/s, 128 ports running at 200 Gb/s, 64 ports at 400 Gb/s, or 32 ports at 800 Gb/s. Based on the 7-nm node from TSMC, the chip competes directly against Broadcom’s Tomahawk ASICs, the current gold standard in cloud data centers with up to 25.6 Tb/s of bandwidth as well.

Unlike other chips in the category, Innovium's carry large on-chip buffers to help reduce latency and prevent packet drops, which occurs when some of the information traveling the network fails to get to its destination. Innovium said that it also stands out from rivals on the power efficiency front. The startup said Teralynx offers the category’s best power efficiency in terms of performance per watt. That amounts to major savings in cost and power when scaled up to the hundreds to thousands of servers and switches in large cloud data centers.

The architecture folds a programmable forwarding pipeline into the switches, giving cloud giants and other customers the flexibility to future-proof their network infrastructure for custom features and new protocols.

According to Marvell, the Teralynx ASICs are on pace to earn $150 million in revenue next year.

Marvell is no stranger to switch semiconductor development. The company sells its Prestera line of Ethernet switch chips for enterprise, telecom, and edge networks that are not on the same scale as cloud data centers. Marvell plans to rename the Teralynx family as Prestera 9X, placing it in the same family as its Prestera 2K to 8K Ethernet switch chips, which it sells to server gear manufacturers like Cisco, Arista, and Juniper Networks.

“The unified company will have increased scale and breadth to be a market leader,” said Innovium's CEO Rajiv Khemani in a blog. “We will deliver significant value for our customers by providing architectural choice and flexibility to meet a diverse set of requirements.” He added, “Together, we can deliver a leading Ethernet switch portfolio targeting at the most important segments, including cloud-scale data centers, enterprise networks, and 5G.”

Marvell is also bolstering its talent pool with the proposed deal, adding Innovium's engineers and one of its founders. The company was co-founded in 2016 by chief technology officer Puneet Agarwal, who previously served in the same role for the networking switch business at Broadcom for more than a decade. He plans to join the combined company after the deal closes later in 2021. Innovium has more than 200 employees in all.

“Innovium has established itself as a strong cloud data center merchant switch silicon provider with a proven platform," Murphy said in a recent statement, "and we look forward to working with their talented team who have a strong track record in the industry for delivering multiple generations of highly successful products.” He added that the "acquisition of Innovium and its complementary offerings further extends Marvell’s leadership in the cloud."

The deal gives it another way to lure customers operating cloud data centers to its wide range of server chips, including its “Alaska” line of Ethernet PHYs, its "Atlas" family of PAM4 DSPs used in silicon photonics and other interconnects for data centers. Marvell has also upgraded its “Octeon” DPUs for carrying out storage, security, networking, and other behind-the-scenes server chores and “Bravera” SSD and HDD storage processor lineup.

Marvell halted the development of Arm-based server CPUs that it expected would challenge Intel and AMD, but it has opened a custom-made chip business that works with cloud customers to design ASICs and CPUs.

Under the terms of the pact, Marvell said that it will pay 19.05 million shares of common stock to Innovium's shareholders, for a total of $1.1 billion. Marvell will also take on $145 million in cash from Innovium's balance sheet, resulting in a net cost to Marvell of $955 million. The deal is expected to close by the end of 2021, subject to customary closing conditions as well as shareholder and regulatory approvals.

This article appeared in Electronic Design.