Mellanox slumps on disappointing forecast

Second quarter profit beat expectations, but investors sold the shares.

Shares of Mellanox Technologies Ltd. (Nasdaq:MLNX; TASE:MLNX) tumbled 16% in after-hours trading on Nasdaq yesterday and at the opening on the TASE today, even though the Inifiband processors developer's financial report for the second quarter of 2010 beat the analysts' revenue and earnings per share forecasts.

Mellanox posted record $40 million revenue for the second quarter, 58% more than the $25.3 million for the corresponding quarter of 2009 and 10.4% more than the $36.2 million for the first quarter. The company edged the analysts' revenue consensus of $39.4 million.

GAAP-based net profit tripled 205% to $5.3 million ($0.15 per share) for the second quarter from $1.7 million for the corresponding quarter. Non-GAAP net profit rose 124.3% to $10.4 million ($0.29 per share) for the second quarter from $4.7 million for the corresponding quarter. The analysts' consensus etimate was $0.24 per share.

Cash and investments rose to $233.9 million at the end of June, thanks in part to cash flow from operations of $13.7 million in the second quarter.

One sign that something was amiss was operating expenses which only rose 10%, compared with the first quarter, compared with the company's forecast of 18%. CEO Eyal Waldman explained that the reason was the company's decision to delay the tape out, or moving to production, of new processors, which will take place in early 2011. The difference came to about $2 million In expenses, which let to higher operating profit.

The company said it expects revenue of $37-37.5 million in the third quarter, while analysts had expected $41 million. Waldman attributed the expected drop in revenue to technical matters related to pricing of components and because the company still sells small quantities to several new customers, which is expected to change in the future.

Mellanox's share closed at $22.94 on Nasdaq yesterday, giving a market cap of $769 million, but fell 15.9% in after hours trading to $19.30. The share price fell 16.1% at the opening on the TASE to NIS 75.90.

Published by Globes [online], Israel business news - www.globes-online.com - on July 22, 2010

© Copyright of Globes Publisher Itonut (1983) Ltd. 2010

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