Friday, October 22, 2010

Mellanox Revenue Up 16%, Continues to Advance 40 Gigabit in Data Centers

By David Gross

Mellanox (MLNX) reported quarterly revenue of $37.8 million Wednesday night, up 16% year-over-year, but down 5% sequentially, and slightly ahead of guidance of $37-$37.5 million.

The stock lost about a third of its value the day after its second quarter call in July, when it announced revenue would drop sequentially.   Since then, the stock has rebounded 30%, making up most of the July losses.

The company has had a very strong balance sheet since going public in 2007, and it finished the quarter with $248 million of cash, up $38 million since the end of 2009, and with no debt.

Mellanox has been experiencing a bit of an awkward shift to mixing InfiniBand and Ethernet products, after having long been the leader in InfiniBand silicon.    Having gotten a significant share of its revenue from 40 Gigabit QDR InfiniBand for the last two years, it has now crossed over to 40 Gigabit Ethernet,  most notably with its ConnectX-2 EN 40G, which  was the first 40 Gigabit Ethernet Server NIC.   The company has also worked with the InfiniBand Trade Association to develop RoCE, or RDMA over Converged Ethernet, which is basically InfiniBand over Ethernet.  

Traditionally a silicon vendor, Mellanox has also been transitioning to NICs and silicon products for Landed-On-Motherboard chips.   But these shifts have gone back and forth the last couple quarters, and silicon shipments replacing higher revenue adapters is one reason why revenue was down sequentially.   While the company has not always been clear on the extent to which it plans to focus on silicon vs. cards, I increasingly think its strong position in both supercomputing clusters and the rapidly developing market for 40 Gigabit networks should help restart its growth in 2011.

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