Don’t Panic, the Sky Won’t Fall, Says Mellanox CEO

Eyal Waldman, CEO of Israeli chipmaker Mellanox Technologies Ltd., is set to emerge from self-quarantine Wednesday. Last week, fear of the spreading Covid-19 virus had prompted Israeli authorities to mandate retroactive two-week home-quarantine for all those returning from China, Macau, Hong Kong, Singapore, Thailand, South Korea, Japan, Italy, France, Germany, Spain, Switzerland, Austria, and Egypt. Waldman had just returned from France.

“Staying in isolation for two weeks is not easy, but if that is what is required to stop the corona from spreading, we must follow instructions, pain and struggles aside,” Waldman told Calcalist in a phone interview Tuesday.

Mellanox currently has 50 employees in quarantine, Waldman said, and he expects the number to rise. “We are learning to work from home,” he explained. “Most of our business is multinational and so far we did not record damages,” he said. “Our manufacturing facilities in China have returned to near-full activity and we are not anticipating supply issues for this year’s first and second quarters.”

Waldman said he hopes to see Western countries adopt some of the severe measures taken in Asian countries to curb the coronavirus. “There is an aggressive viral disease going on, and in some of the countries, like Taiwan, China, and South Korea, it is under control and we are seeing fewer new patients,” he said. “We will have to learn how to control it and live with it. I do not see it ending soon.”

According to Waldman, Mellanox is well-prepared for a crisis. “We have contingency plans for every scenario and disaster. We have survived a tsunami, fires, and earthquakes, and we are prepared for a wide variety of situations. This is why we built up our stocks ahead of the Chinese New Year,” he said. “This crisis will have financial implications for sectors like travel and hospitality. Should it continue for a long time, the damages will be severe,” he said.

However, Waldman said people must not panic. “The world is not coming to an end,” he said. “People adapt, and when we understand the right mechanisms for stopping the pandemic, we will quickly return to normal. Those who have a lot of money and invest it will have less money, and that is not the end of the world.”

With respect to the current crisis, Waldman still thinks that from an economic standpoint, the 2008 global recession was more frightening. He expects the coronavirus to go from a purely medical crisis to an economic one, and foresees many companies being forced to cut costs. “Expenditure will decline in many sectors, and eventually, it will impact real estate prices,” he said. “It can also create opportunities for those who have cash on hand.”

According to Waldman, the global economy will not need more than a quarter to adjust to the new reality. “There will be new life alongside the corona. If we cannot beat it, we will learn to live with it.”

To young companies, Waldman wants to remind that cash is king. “My approach was very conservative in terms of leverage,” he said. “Money is the most important thing, and you must maintain it and cut down costs while also continuing to develop. You need not put down your roadmap and come out of the crisis better off than when you entered it. Things will take longer, so you need to have money put aside, and opportunities will arise,” he said, adding that he would not make any rash decisions at a time like this.

Shortly before the outbreak of the coronavirus crisis, Mellanox was valued at nearly $7 billion, a valuation reflecting the amount Nvidia Corp. has agreed to pay for it last year. Back in March 2019, when the $6.9 billion acquisition deal was announced, that sum reflected a 17% premium on Mellanox’s market capitalization at the time. Now, with pandemic panic sending the global markets tumbling down, Mellanox’s market cap has diminished to approximately $6 billion.

“We foresaw that the acquisition process could drag out, and we factored in the situation between China and the U.S.,” Waldman said. “We still believe we can receive regulatory approval for the deal. It is taking longer than we expected, and we were conscious of the risks, it was all part of the negotiations.”

“Our situation is unique,” Waldman said. “Most acquired companies slow down ahead of the acquisition, but we always knew that we had to keep growing as if there was no deal,” he said. “We have $1 billion in the bank and it gives us opportunities. Just now, we announced a new product.”

According to Waldman, Mellanox is ready for a scenario in which the deal with Nvidia falls through. “As a part of Nvidia or as an independent company, we are ready for both outcomes,” he said.