By David Gross
Buoyed by Oracle takeover rumors, Mellanox (MLNX) is coming back from the big hit it took earlier this quarter when it announced earnings and issued weak guidance. It closed yesterday at $19.86, up 35% from its July 22 close of $15.49, day in which it fell more than seven dollars from $22.94.
While I still think the company needs a clearer growth strategy, it remains reasonably valued compared to many data center high fliers, with an enterprise value/annualized revenue ratio of 2.75, and a pristine balance sheet with $230 million of cash and no debt.
When Sun strongly endorsed InfiniBand, no one seemed to care, and the conventional wisdom about Ethernet eventually taking over InfiniBand apps was still going strong. But now that the same architecture and same product lines are under Oracle's ownership, the endorsement is being taken much more seriously, even though the substance is no different - InfiniBand's share of top500 supercomputers has continued to grow at the same pace, and now tops 40%.
I've long argued that Mellanox needs to be a little bolder about associating itself with InfiniBand, because it dominates that niche's market for ICs, while it gets lost among a large crowd in the market for Ethernet cards, in spite of the company trying to get ahead of everyone else with 40 Gigabit Ethernet server NICs. Maybe now that there is growing appreciation for InfiniBand's role in high-speed networking, Mellanox won't be so shy about declaring its leadership in this technology.