In the three days up to yesterday, Mellanox Technologies Ltd. (Nasdaq:MLNX; TASE:MLNX) fell about 7%, against a background of Intel's entry into direct competition with it, with the acquisition of QLogic. However, within minutes of the start of Mellanox's conference call yesterday, the share price shot up 14% in after hours trading, returning the company to its peak $1.4 billion market cap, and along the way wiping away the loss of confidence that investors had shown in the previous few days.
The cause was, first of all, the company's fourth quarter results. As usual, Mellanox announced better than expected results, with sales of $73 million in the final quarter of 2011, 6% more than in the third quarter, and 78% more than in the corresponding quarter of 2010. For the year as a whole, the company recorded sales of $259 million.
Mellanox, which provides communications equipment processors, cards, communications switches, and cables for cast connectivity between computing resources such as memory and processing, beat the analysts' estimates on gross margin too, which was 67% on a non-GAAP basis.
In the fourth quarter too, two large customers, HP and IBM, accounted for 39% of sales, indicating continued penetration of Mellanox's products into the enterprise data centers market, where the main customer at present is IBM's XIV storage system.
Traditionally, most of Mellanox's activity has been in the area of super-computers, from which it derives 60-70% of its revenue, but in the course of last year the company began to penetrate the larger market of enterprise storage systems, server farms that run enterprise applications, and computing infrastructure for large Internet companies like Facebook and Google, which are unofficial customers.
Mellanox's bottom line was a profit of $4.6 million, or $0.11 per share. On a non-GAAP basis, Mellanox reported a net profit of $13 million, or $0.31 per share, representing growth of nearly 50% over the corresponding quarter, and ahead of Wall Street projections. For the full year, Mellanox posted a net profit of $46 million, 25% more than in 2010.
But the surprise that set the share price going was the guidance for the current quarter. Mellanox sees sales of $81-82 million for the first quarter of 2012 far above Wall Street estimates, which average $72 million.
"There are two deals that will contribute $10 million to us in the quarter," Mellanox CFO Michael Gray said by way of explanation of the unexpectedly high guidance.
The amazement of the analysts was clear in their repeated questions about the nature of these deals. "We don’t expect deals like these later on, but in the following quarters we intend to grow beyond the guidance we have provided for the current quarter," said CEO Eyal Waldman. This means that, in annual terms, Mellanox's sales will be in the range of $320-330 million for 2012, representing growth of 25%, which compares with analysts' estimates of $310-320 million.
With all due respect to the company's performance, the drama that attracted attention was the new front opened up by Intel. The semiconductors giant announced its return to InfiniBand, which Mellanox dominates with 83% of the market, and which accounted for 86% of its sales in the fourth quarter. QLogic's InfiniBand activity, which Intel bought, has been Mellanox's sole competitor in recent years. Hence investors' fears about what comes next.
Mellanox chose to speak somewhat more freely about the new competitor, in contrast to fairly vague statements in the past. "We're happy about this," Waldman said soothingly. "QLogic has not been successful in this field. It's important that there should be more than one provider in the market, and Intel is doing the right thing. QLogic paid more than $200 million in acquisitions to establish itself in the field (it bought SilverStorm, which competed with Voltaire, in 2006, S.S.).and we still have higher capabilities than what Intel bought. So we believe that we will continue to lead, with a high market share. In my opinion, we are a generation ahead of them in technological progress, meaning that we have an advantage of a year to a year-and-a-half."
Published by Globes [online], Israel business news - www.globes-online.com - on January 26, 2012
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