Mellanox-EZchip Press Conference Transcript. Tel Aviv, Israel. October 1, 2015

Transcription

1 Mellanox-EZchip Press Conference Transcript Tel Aviv, Israel October 1, 2015 Eyal: Let s begin. So first of all, good morning, everyone. We are pleased to have you here at Mellanox Tel Aviv. As you ve heard, the announcement of the acquisition, or more precisely, of the Mellanox-EZchip merger, was publicly announced yesterday. We are very happy about it. Eli Fruchter, an old friend of mine and the CEO of EZchip, will open with a few comments about EZchip and about the merger, then I will speak, and finally, we will have a Q&A session. Please feel free to ask anything. Things we cannot talk about, we will obviously not discuss here, but everything else is completely open for questions. We have journalists, analysts and investors here. You may bring up any topic you like. Everything is open for discussion. Naturally, we cannot talk about the last quarter, and we are in our Quiet Period regarding our third quarter results, but yesterday the two companies, or at least Mellanox, issued a press release announcing our earnings call date. We do not expect anything significant to come up. We may begin now. Eli? Eli: Thank you. This is obviously a great and meaningful moment for EZchip. EZchip is a company I founded 15 years ago, as a subsidiary of LanOptics, a 25 year old company. At the beginning, we joined the field of network processors, when there were about 25 large competitors in this market. Over the years, we have managed to increase our market volume, until two or three years ago, we have turned into the leading player in the network processor market. Each of our competitors left the market, one by one, including Broadcom and Marvell which left just recently. We are now the only player in the network processors market with an amazing technology. The company is incredible, the people are incredible. We are a nature reserve in the high tech industry. The company is highly profitable, it is growing, and has as customers the biggest companies in the international network processor market. We are extremely proud of what we have done. Lately, we have developed new products. Following the acquisition of Tilera, a US-based company we acquired last November, we are introducing a new product line. The new products we are developing, in addition to the Tilera products, can lead the company to an immense growth, especially in data centers. Currently, we are selling our products mainly to carriers and service providers, through our direct channels, telecommunications companies. We believe that future growth is in data centers, which is

2 what led us to Mellanox, a company that sells mainly to data centers. We looked at the market, and saw that there has been a lot of consolidation. The acquisition of companies like Broadcom, which was acquired by Avago, or like Altera, which was acquired by Intel - two things that happened in the past few months prove that the market is being dominated by large corporations. We decided that this would be a good time to become a part of a large company. At that point, we looked around us and realized that the most reasonable merger option was right across the street. Mellanox is in Yokneam, but it s more than the geographical proximity the products the two companies develop are perfectly complementary. Mellanox develops Layer 1 to Layer 3 connectivity, while we develop Layer 3 to Layer 7 processing. Mellanox sells mainly to data centers, while we sell mainly to carriers. Thus, when combining the products and the customers of the two companies, the result is a joint corporation that can sell many more products to many more market segments. For this reason, this merger makes perfect sense. In recent years, Eyal and I have met frequently, each time in a different restaurant in Yokneam, occasionally sharing ideas about our next steps, and it was obvious that at some point, the time would be right for a merger. I have always hoped that EZchip will acquire Mellanox one day, but it ended up the other way around, and it does not actually matter, because I believe that we have an opportunity here to create a great Israeli corporation, and I cannot think of anyone more suitable to lead it than Eyal. During the due diligence phase that took place in the past few months, we have met many of Mellanox s people, and have found Mellanox to be an amazing company with amazing employees, who are very similar to ours. From my experience, and I am in this business for many years now, you can determine a company s worth and predict whether it is going to succeed or not, solely by meeting the people who make it. We have seen it with our customers in the past, and we see it here as well. Two wonderful companies that are comprised of great individuals, who develop excellent products, are now merged into a unified corporation, which in my view, has fantastic odds to become an enormously powerful factor in the international market. This is it. I am sincerely glad and excited. I founded this company. It is my baby, my lifetime achievement. Of course I have mixed feelings. On the one hand, there is a certain degree of sadness, but on the other hand, I am entrusting my baby to Eyal s devoted care, so I am truly at peace with this decision. Eyal: First of all, I would like to thank you for your kind words. Regarding Mellanox, I agree with everything that Eli said. We have discussed a possible merger for several years, dined in El Babur restaurant in Yokneam numerous times, and gained some extra kilograms together there. Nevertheless, the environmental constellation in each of the companies in the past five years had not allowed this merger to happen, up until now.

3 I believe we have been discussing this concretely since around May. The constellation is now right in terms of customers and vendors, as well as in regards to the situation of the two companies in the market. When examining the transaction, the merger, I find it to be a very good deal for the shareholders of both companies. EZchip is a highly profitable company that develops extremely smart products with processing capability, that is significant both in the network world with the network processing unit, and in the multi core, ARM CPUs field, with Tilera s acquisition. These are, in fact, elements that were missing within Mellanox. We have previously attempted to organize an independent project to fill these gaps, but hadn t managed to, due to a lack of resources. I think that the combination of extremely fast pipes, in fact, the fastest pipes on the market today, with the intelligence that we provide through the processors, both EZchip s network processors and general processing, into the company will enable Mellanox not only to transfer data, but also to process it and create offloads of the main CPU (which is the vestiges of Intel) to the embedded processors of EZchip- Mellanox into the network, and perform many smart functions, whether in cyber security, storage offloads, or networking protocols, which we can create by way of processing elements that we will bring from EZchip into Mellanox products. Like Eli said, we think the company is an outstanding company, and the company is built on its people. We are extremely happy to receive the staff that Eli grew. I saw yesterday literally tears, and I m not speaking figuratively, when we were at EZchip, from the love that exists for the entire staff, and from the connection to Eli as a founder and CEO. I think that the people there want to continue to follow Eli s path, and it was very good to see the teams, which are excellent teams and the reason that EZchip is so profitable, even more so than Mellanox at the level of good margins. And if we look at the percentages of profitability also at the bottom line, it is because their products are unique and superb. EZchip actually succeeded in maintaining and growing its market share, which other companies not small companies like Broadcom, Marvel, IBM, and others tried to take for themselves by creating a central processing unit, but EZchip succeeded, assuring the majority of the market for itself. What we want to do now is to take the EZchip products and deliver them to our clients and services. We believe that hyperscale data centers of Google, Facebook, Amazon, Microsoft, Apple, and others, require smarter capabilities in the network and are today seeking ways of achieving this. For example, we are producing cards with an FPGA that are inside every server and storage element, but now in place of the FPGA we can use the EZchip processing element, both in edge commands and in switches, and this can serve as a slider and as an offload of all kinds of functions and such. So today, we are thinking to take EZchip s existing products and to embed them into Mellanox and our clients products as they are today, whether to storage companies, server companies, or hyperscale data centers. And we think that there is also importance in offering our products to EZchip s clients. A standout example: we would be very happy to increase Mellanox s revenues from Cisco, EZchip s largest customer. And even though Cisco has begun making its own IPUs, we are still expecting to see a continuation or even a slight increase in revenues from Cisco in the coming years, and only after that a decline. But I hope that together, EZchip and Mellanox will be able to preserve Cisco as a customer.

4 But we also want to add Cisco as a Mellanox switch customer, as well as other customers such as Huawei, Radware, VPE, and Zim. We need to take the names of the EZchip customers and add them to the list of Mellanox customers. And so we can foresee a situation in which the existing EZchip products are being used by Mellanox customers and vice versa, and thereby we increase 2016 revenues from the synergy of these products that complete each other. In , we hope to come out with products that include intellectual property (IP) from both companies, meaning taking EZchip processing elements and putting them into Mellanox components, and taking offload engines, NICs, and PCI Express and putting them into EZchip products, and in this way to come out with new products such as a system-ona-chip, and additional smart communications components that we will be able to supply to our customers in the fields of networking, storage, data center, and information processing. The negotiations between us were very interesting, the difference as I see it was ultimately $1.50, even though the purchase price was very large; $811 million is a lot of money. We will fund the deal from money that we have in the bank in the amount of approximately $500 million, and Mellanox has taken a loan in the amount of $300 million from a number of banks. That amount of loan money is relatively inexpensive, and that is what our investors expect us to do to reinvest the cash on hand into technology. We think that our company has enough positive cash flow that it will not be an issue to repay the debt. The majority of the existing funds of EZchip, amounting to approximately $200 million will continue to serve as the cash on hand of Mellanox, and with this we wish to move forward. We are looking forward to welcoming the new employees that Eli has brought into the company, and who are excellent workers. Throughout the coming three months, that is, from yesterday s signing until closing, which we are targeting for the beginning of the first quarter (ideally the beginning of January), the two companies will continue to work in parallel as separate companies, each with their target for Q4. We will continue to aim to reach those targets as Mellanox and as EZchip until the deal has been approved. For the deal to be approved, we need 75% approval from EZchip shareholders who will be voting on the merger, as well as approval from a number of regulators primarily in the United States, and few in Israel. We believe that the deal will close, and as of January 2016, we will work as one company on our products, development, sales and marketing. In the coming three months we will plan the transition from two companies to one, in order to ensure a smooth and quick transition. Fortunately for us, both companies have offices nearby each other in Yokneam, Kiryat-Gat, Beersheba and Tel-Aviv, as well as in Boston, Silicon Valley and Beijing. The only place where EZchip has a facility where Mellanox does not have employees is in Nanjing, but otherwise the proximity of all other offices will facilitate the deal. We believe that almost all EZchip employees will be offered employment from Mellanox as we will need the man power. We will add further human resources for development of software, silicon and boards, and to bring new products based on EZchip solutions to the market. We believe there will be positive

5 synergy to create a larger company with a more diversified product line in new markets and with new customers. I hope that this will be successful and that Eli will stay in the picture. We re counting on a smooth transition to a joint company. Now we ll open the floor for questions. Question: Hello, Congratulations on the deal. I have two questions, one for Eli and one for Eyal. Eli, it seems that the premium paid for EZchip is very low, 16-17%. Don t you think you could have gotten a better price, for example, if you were acquired by Cisco? Perhaps EZchip is worth more than what Mellanox is willing to offer? Eyal: Let Eli answer first, and then ask me so we won t forget. Eli: I already forgot what he said... [Laughing] Answer: Eli: When we started talking, Eyal and I, back then, the EZchip's stock was 15 dollars, and I requested a 70 percent premium. As time passed, and we announced some good financial results and a few designs for the data centers, the stock went up and the premium dropped. Therefore, when you look at the current price, it is true that the premium is percent, but when you look at 30 days, 60 days, 90 days, you will see much larger premiums. Additionally, as a public company, and a very committed one, we cannot accept one offer, we are committed to check, and maximize the value for the shareholders. We did everything we are required as a public company to maximize the price. The profit statement that was issued, details the whole process of this acquisition and shows the graveness of the process. Question to Eyal: Eyal, up until now you were not-leveraged company. Now you are taking a loan, which you will probably not find too difficult to return, but I suppose you would want to make additional acquisitions in the future, certainly not in the next year, but later on. Do you see Mellanox turning from a debt-free company to a company that is leveraged through acquisitions? Answer: Eyal: Mellanox so far acquired six companies and this is the seventh. Until now, we approached the Public Market only when we acquired Voltaire and we raised a $109 million secondary. In this case, we decided it is financially wise to take a loan, we feel very comfortable with this decision. Look at our cash flow, we generate cash of ~$ million a year, and next year we expect to add $200 million to the bank. We felt it was the right thing to do. Our goal is not to be a leveraged company, but a company that can acquire using its resources. We also left enough money, we have quite significant amount of worth in shares even after this acquisition. Even as we begin to make money in Q1, we will not use it all to repay the loan, although we can without any penalty. We want to increase the amount of cash in the bank so we can continue to develop and expand our technological capabilities. Our goal is not to increase the leverage, we like to be a non-leveraged company. But I think it's the right and responsible thing to do financially at this stage. Question: Congratulations on the deal! When an Israeli company acquires another Israeli company, these are always good news for all of us. This question is for Eli: You ve explained the success of EZchip

6 by emphasizing the fact that major competitors are leaving the market. This might mean that there is a problem in the market. Does this transaction stem from your observation that the nature of the network processors market changes, and this market might, in fact, even disappear? Can you explain that? Answer: Eli: So absolutely the network processor market is smaller than what was predicted many years ago when the leading players were out there. But we were able to take a very large share of it especially with our new line of products called NPS, a game changing network processor that enables ease of programmability. The main difference between the new processor and the previous one is that the new NPS processor is a C-programmable network processor whereas the previous one uses a machine language microcode. These are technical terms but what it means is that our new network processor can be used in many products that could not be previously used. Basically with this new generation of network processors we are greatly expanding the market tuned to the NPS. If the total market size of network processors, as known in the market, is five hundred million dollars, in 2017 the NPS processor will aim at a market which is about five times larger than that, a market value of two billion dollars. As I mentioned before, a significant part of this is the data center market. Here comes the story with Mellanox which enables us to actually greatly increase the sales of the NPS for those customers. So basically through our technology, a technology that we did not believe could be possible in network processors at the time, we succeeded after 15 years of hard work, experience and knowledge, to do something once thought was impossible. Answer: Eyal: I may add, we see today a very interesting demand from the hyperscale data center to add processing capabilities within the network itself, we see this demand among very large customers who request to add the FPGA on the cards. We believe that some of these functions can be done through an EZchip processor which we will first add to Mellanox cards and afterwards to our silicon chips. We see the demand for processing capacity increasing in many data center areas, thus we think this technology can help us address the need of processing the data in data center networks. Question: Thank you very much for inviting us. It is an honor to be here when two Israeli companies are merging. It is the first time that two companies that dominate the market in two different fields are merging in such a small market. You are leading the market in a field that shows no growth. Not because of you, but because since Mellanox acquired Voltaire in 2010, it dominates most of the InfiniBand market. How do you explain the fact that the market is still focused on Ethernet rather than moving to InfiniBand? Answer: Eyal: First of all, I think the market for our InfiniBand has grown. We have seen it in HPC, and in the world of storage, and in databases, and in the world of cloud; they all use IB, and I can see the growth in our sales. Our sales this year are expected to be between $ million. I think that means we re growing quite nicely, and within that IB is also growing quite well. Second, it s true that the market is growing significantly when you see the demand for information transfer. And we think it will continue to grow with the Internet of Things, with things like autonomous cars that process a lot of data in real-time, which requires ongoing growth in data transfer capabilities. We are the world leaders in this market. Intel released Omnipath, and we see them in the market, but we still consider our

7 technology superior in comparison to what Intel offers, and we will therefore continue to lead. The capability that EZchip brings us is processing ability that we will add to our pipes, indicating growth. Now we are applying the same approach to the world of Ethernet. We ve grabbed a significant market share in the world of Ethernet NICs, and we are now starting to gain good traction in the world of switches. We released and started to sell Spectrum in June, and we believe we ll already realize positive revenues from Spectrum products in 2016, as well as from hyperscale data centers, continuing our growth. We have HP, Oracle, and EMC as customers, and we are now placing InfiniBand and Ethernet solutions in database companies, investment banks, commercial banks, and stock exchanges. Answer: Eli: With your permission, I d like to add one more viewpoint to your answer. When you look at Intel, their approach is that everything can be handled by the CPU an approach that conveys the message that there is no need for anyone else in the world other than me. But once the market demanded exceptionally high performance, Intel s standard processors could not achieve it. So they went and bought Altera, an FPGA company, in order to enable acceleration to reach the necessary performance levels. Our processors offer significantly higher performance than a FPGA. Therefore if you compare the performance when placing a FPGA next to a processor on any board versus the performance when placing EZchip next to a processor on the same board, you will realize the tremendous difference. And I think we are already seeing this happen and will continue see it happening even more frequently. Q: Eli, what are your plans? Eli: I was thinking whether to tell you my real plans (laughter) In the meantime, I will be assisting Eyal in the coming months with the integration of the two companies. I really want this to work, it s very important to me. I want the people who have worked for me for so many years to enjoy the new joint company. Once that happens, I m turning 60 in December, I think that s enough for me. One year as a CEO is like a dog year it s seven human years (laughter). Eyal: What about Antalya? I ve heard they have all-inclusive deals. (laughter) Eli: I ll tell you a secret, off the record. I have at home the largest aquarium in the world. I go diving in it every week to clean it. It s 35,000 liters, like a swimming pool. Now, instead of diving once a week, I ll go diving every day. Question: I would appreciate if you could elaborate on how can the Internet of Things and autonomous cars benefit from this merger? Answer: Eyal: What is happening is that you have more devices and more applications that produce information and consume information, such that the information transfer rate, whether from storage or from processors to CPUs, is very, very important. And the quicker you do it, the quicker you will can respond and provide more information, such as load-balancing for traffic jams, so that there are no more traffic jams. Let s say, you know where every car wants to get to; you can do load-balancing so

8 that instead of avoiding traffic jams, you can prevent traffic jams entirely. You can find parking spaces or increase your sales volume because you know what people like from what they put on Facebook, what their size is based on pictures on Facebook. I can tell you, OK, you re outside this store right now; we have just the suit for you, made to your measurements, I'll give it to you for a hundred dollars if you come in. All these things need to happen in real-time, drawing conclusions from many data points that can t happen in real-time today because the quantity of data is passing through the pipes too slowly. We enable these applications to start coming true: now your phone could become your doctor in five years, because it can tell, whether from how you are sleeping or from how you go to the bathroom, indications about your health. Tens of millions of cases have occurred before you with exactly the same symptoms, and through them we can make the world's health much better. I can give a lot of applications as examples. It is difficult to do these things today because the amount of information processed per second is not sufficient to enable all the applications now, but in five years we will be able to do it a lot better. We make this possible, and in so doing it increases the market for our services. I'll give you an example, twenty-eight cellular phones at the level of parallel applications for an additional server in the data center. As you acquire more cellphones, you need more servers and more storage. Also, the more you upload to Facebook and Instagram, the more it benefits us, as there will be more demand for our solutions. But these applications are certainly good for us. We see that every day new companies are trying to find applications that make use of available data, but less than ten percent of today s data is currently being used, because it is impossible to transfer more than that. We will enable larger percentages to be used more quickly and more efficiently in the future, and thus make more money. Question: Cisco, which was a major EZchip customer, has decided several months ago to not continue with NPS, EZchip s next generation product. Cisco is the market leader, and it also sets the industry s standards. Eventually, Cisco s decision was to not put its money on EZchip. My question is doesn t this point to some sort of a problem that Mellanox and EZchip might encounter later as a merged corporation? Answer: Eli: It is true that Cisco decided not to use EZchip for one of its specific products, but will continue for its other products. It is also true that this one product is a significant part of the EZchip s sales to Cisco. As we said before, Cisco s in-house chip will take until roughly 2018 to be ready, and it will begin to affect our sales apparently sometime around Until then, we don t anticipate any problem in our sales of this product to Cisco. What is happening in parallel is a very strong trend of carriers, which comprise Cisco s main market for this product, companies such as AT&T, Verizon, and others. They want to produce such products on their own, and do not wish to buy from Cisco, Juniper, or others. There is a strong White-Box trend in the world today, which in essence means that instead of paying Cisco, they take EZchip s chip and a generic producer who places the chip it could be a Taiwanese producer who adds no value, which is called White-Box or it could be a producer who takes responsibility, which is called branded White-Box. We see more and more of this phenomenon. It seems that those who, up until now, bought routing from Cisco are starting to buy only routers. We are in touch with these companies (Verizon, AT&T), and they tell us explicitly the things I just said.

9 Therefore we are thinking that in the coming years, this phenomenon will grow stronger. I am sure that we will soon have a conversation with Mellanox about what can be done. For example, it s possible to take Mellanox switches and to add the possibility of routing to them. There are infinite possibilities here and until the revenues from Cisco begin to decline, I have no doubt that even were we to be EZchip alone, we would have enough design wins to profit in this. With Mellanox, we can profit even more thanks to Mellanox s strength in the world of data centers. Therefore, I think this has happened as part of a certain trend, and that ultimately it is all for the best. Just because Cisco made a decision today does not mean that it won t change in two years. It is commonplace that until a decision is put into action, the decision is subject to change. While I ve been here, there have been 5 general managers at Cisco, and each time I speak to someone else, I convince them to work with us. So we ll see, we don t think the final word has been said on this topic. Question: [inaudible] Answer: Eli: To reduce purchase costs because to produce a clean hardware box today (white) means paying someone a gross margin of 10%, but to buy a router from Cisco is 70%. Secondly, it s maintenance fees. Cisco sells a router that needs to work with the internet and serve the whole world, all the protocols, anything you upload to the page. But when specific consumers buy, they buy to fill their own needs and they want to be able to perform software upgrades quickly. They do not want what they want when they want and not be dependent upon a release of a new version that only comes out three times a year. So both purchase price and maintenance costs contribute to making this process occur. Answer: Eyal: I would just like to add regarding the previous question that what is important to understand regarding this acquisition is that the income from Cisco will not decline now. We are talking about 2018 and onward and we will continue to see a good stream from Cisco. We are planning to continue to foster the relationship and even expand upon it. As Eli said, these are the plans we are building our models for this merger on. Question: If I understand correctly, one of the rationales behind this acquisition is EZchip s NPS, a product designed for datacenters. Since it is a new product, I think some people are less familiar with it in terms of performance and target markets. Could you please tell a bit more about its benefits compared to the competitors existing solutions, and explain which needs exactly is it supposed to serve? Eli: The NPS is 6 th generation, after 5 generations of processors that we had before. We started with NP1, 2, 3, 4, and 5, each released 3 years apart from the previous version: 2002, 2005, 2008, 2011, and NP5 came out in December 2014, and from the start was well received by customers. NP5 concluded a certain period, and the NPS is the continuation, sort of NP6, but we ve done 2 significant things differently: First, we ve moved to programming in C, which enables programmers around the world to program it, as opposed to prior versions that were programmed in machine language, for which there are very few programmers in the world who knew how to work with it. When a customer wants to add a feature (feature velocity), it is important that they be able to do so easily. A processor that knows

10 how to work in C in a Linux environment, which is a standard operating system, it is easy. As long as it is easy, it can be included in more products. As I said before, the NPS opened a whole new generation of network processing products, which greatly enlarged the variety of customers that we address. There is nothing that comes close to it. We do not have competition today. There is no one today who knows how to produce a network processor. The competition was always in-house we always competed with companies like Cisco and Juniper, against chips they produced in-house. When speaking about new trends like Bright-Box/White-Box, these clients do not have in-house solutions. AT&T, Verizon, Google, and Facebook do not have in-house that can produce chips in large quantities. Therefore, for all these new potential customers of NPS, there is no silicon vendor on another shelf that can provide a replacement. Therefore, NPS is a great product with no competition from standard products, and with the advantage of programming in C, and reaching the higher layers. As I mentioned before, we reached layer 3, which is transport, and are now aiming to reach layers 4-7, which means entering the areas of security and load-balancing, such that, any networking application that someone wants to use, can do so on NPS at unprecedented speeds. Eyal: We have purchased EZchip, and although NPS offers a lot, we cannot forget Tilera that brings ARM technology into the company. Even though EZchip is currently working on 100-core ARM CPUs, we will take the technology to add ARM cores to our products which was a very attractive reason for Mellanox to add these capabilities. Question: I also wanted to ask about Tilera and about NPS to SDL. First of all, the multi-core market has some very respectable players in it. Cavium, for instance, does incredible things in this market, and to my knowledge, Tilera is not a leading player when it comes to technology. It still has a gap to fill, and for this reason, the acquisition price is relatively low. The question is do you feel that Mellanox and EZchip s core together could close this gap with Cavium and turn into a leading player in the multi-core market? Eyal: Yes. We have a large number of customers who have requested processing capabilities in our products. Tilera complements what is lacking from Mellanox products which we will incorporate into our products. We believe we can bring Tilera s products to our customers, Hyperscale, and data centers in a very appealing way. I believe that we can complement each other. EZchip's ability was somehow limited due to the company s size and level of resources, whereas Mellanox has more resources. We can incorporate EZchip s and Tilera s capabilities with Mellanox resources and take advantage of this story. Question: Your relationship with Cisco is run by Marvell, using a royalty agreement. Someone is responsible for the production in Marvell. Is it going to change as a result of the acquisition? And in general, mergers and acquisitions often increase the risk that the attention of the acquiring company's business management will be dispersed throughout the organization. This can lead to a sense of uncertainty in the company. How do you intend to handle this? Eyal: Regarding Cisco, it is still very early to say. We are currently working as two separate companies, and EZchip will continue to conduct its business as usual. We will also discuss this with Marvell and Cisco so we can get a definite answer. Mellanox Technologies is a company of 2,200 employees, and this

11 acquisition is our seventh one. Sitting with us here is Nimrod Gindi who already performed six mergers in the past, as well as Ronen, Udi, Erez and others, who are very experienced in such procedures. As you can see, this session here started at 10, and at 12 o clock I will already be on my way somewhere else. We have a meticulously arranged schedule for acquisitions. We are constantly improving. We are not good enough, but when it comes to cross margin, we have a very good process. Last night we spoke with all the EZchip centers, except for the one in China. Mellanox's people were making sure all the required messages are conveyed. I think that the management of Mellanox is well-prepared and knows what to do to execute this merger smoothly. I will now leave to EZchip s center in Kiryat Gat. Eli: You haven t actually paid for Kiryat Gat yet (Laughing) Question: You have mentioned the trend of acquisitions and mergers in the semiconductors market. Even after acquiring EZchip, Mellanox will not turn into a giant corporation. Do you still believe you can remain independent, in light of the end-market consolidation trend? Eyal: Mellanox will remain independent, as long as its board of directors believes it is better this way in terms of growth and Internal investment, compared to the possibility of being a part of a larger corporate. We believe we can grow quickly in the coming years, top and bottom, both organically and as a result of the EZchip acquisition. As long as the board believes that we can grow independently, we will remain independent. If there are no more questions, we may end the session now. Thank you and happy new year.