The reasons for the operational and stock market success of Mellanox Technologies Ltd. (Nasdaq:MLNX; TASE:MLNX) include strong management, a good bet on technology, a suitable business model, disappearing competitors, and a lot of luck. Above all, the company is riding the wave of change in computing.
The image of Mellanox founder chairman, president and CEO Eyal Waldman is of an expert surfer who rides with perfect timing and precision the crest of the great wave that comes only once every few years to an exotic beach somewhere in world. He identified the wave and rode it, seeing from the crest how the world of computing has changed better than everyone else. This is why Mellanox can provide good forecasts for the coming quarter, but struggles to see farther ahead, because like riding any wave, it is hard to predict how long it can stay on top.
The wave that Mellanox is riding comes from every corner of the world of technology, from the intensive use of social networks, organizations that are in the practice of using computer resources at remote server farms as part of their computer infrastructures, to the exponential increase in the amount of data and need to analyze it in real time for business and research purposes.
Several years ago, Mellanox, with Waldman at the helm, bet that the bottleneck for all these operations will be in the communications between the processors and memory within high-performance computer systems. In other words, the solution that would provide higher speed communications than the alternatives would find demand. Waldman bet that InifiBand would be the preferred method for high-speed communications, and he deserves the credit for betting correctly that it would go mainstream and that the needs of the computing world would be ready for it.
High-speed enterprise computing connectivity solutions is a market with many vendors. It includes Intel Corporation (Nasdaq: INTC), Broadcom Corporation (Nasdaq; BRCM), Emulex Corporation (NYSE: ELX), Brocade Communications Systems Inc. (Nasdaq: BRCD), and QLogic Corporation (Nasdaq: QLGC). These are all big and well-known companies which are hard to compete against. Within two years, Mellanox has joined this club, even though it entered a saturated market with technology that was considered the underdog. As Waldman put it in the conference call, the market was ready for what Mellanox had to offer, and the ship's captain had only to keep his balance while riding the wave.
In conversation, Waldman phlegmatically sees Mellanox's performance as a given. Although it is hard to know what is happening behind the scenes, Waldman's composure is undoubtedly a pleasant surprise for investors, who until recently viewed him as an embittered employee who quit or was thrown out of Galileo Communications by Avigdor Willenz, but who believed that he could create a great company.
As for performance, Mellanox long ago left Galileo Communications behind. In fact, Mellanox is now approaching the $6.1 billion market cap of Galileo's buyer, Marvell Technology Group (Nasdaq: MRVL). As analysts are phrasing it, Mellanox is a growth story.
Unless there are breakdowns in the future, or if the wave breaks sooner than expected, in two years we will see not only a company that springs a regular quarterly surprise, but a communications equipment giant that is a leader in the computing revolution.