אנחנו בפייסבוק
Mellanox Technologies (MLNX) announces
quarterly earnings on October 17th. The company has a stellar earnings and
revenue story. Mellanox shares trade at a 49.3% operating earnings growth rate.
The stock will continue to increase if sales and earnings beat tomorrow's 3rd
quarter expectations. I expect the company will beat earnings.This view is based
upon the company's leading product line, technology partners, and top tier
customer clientele.
Since its founding, Mellanox has evolved into a complete end to end supplier
of ultra high speed, high performance, end to end interconnect solutions and
services for storage and server environments. Fundamentally, Mellanox' products
help databases and enterprise servers connect with each other at blazing fast
speed.
Business Model
Mellanox products include silicon chips, switches, adapters and software, and
are used in enterprise data centers, high performance computing applications,
Internet applications, cloud computing and storage applications, with practical
applications across a host of business, commercial, educational, research,
government and defense computing platforms.
In a nutshell, Mellanox products, software and solutions are used in
situations where an application has to interact with a database to serve up
results to a user, and where speed matters significantly such as for mission critical applications, cloud
computing, and Wall Street trading applications. For example, the New York Stock
Exchange uses Mellanox solutions for high speed market data delivery. Mellanox
solutions are also used at the high speed particle collider at CERN in
Switzerland where data speed matters at the fractional micro second range.
Corporate Growth
Mellanox was initially funded through venture capital, with an initial $7.6
million investment in 1999. Subsequently, the company raised an additional $81.7
million in two more rounds of funding that included strategic investors such as
Dell (DELL), International Business
Machines (IBM), Quanta Computer, Vitesse Semiconductor (VTSS.PK) and Sun Microsystems.
MLNX Total Return Price data by YCharts
In January 2001, Mellanox shipped its first commercial product under the
InfiniBridge brand and grew revenues sizably thereafter. Mellanox also expanded
its products under the InfiniBand and ConnectX brands and, over the years, added
adapters, switches and cables to its portfolio, with supporting software and
open source code. Mellanox also picked up multiple awards for industry leading
research and development, its products portfolio and its stellar business
execution, quality and growth.
In February 2007, Mellanox announced its initial public offering where it
raised $102 million giving it a valuation of $510 million dollars. In its IPO,
Mellanox sold six million shares at $17 each.
In September 2009, Mellanox won the Gold Award for Cloud Computing
Technologies at the Best of VMworld 2009 Awards. In January 2010, Mellanox
founder, Eyal Waldman, was named CEO of the Year.
In November 2010, Mellanox reached an agreement to acquire one of its
competitors, Voltaire Ltd., for $218 million. The acquisition was aimed at acquiring Voltaire's
strong presence in 10 Gigabit Ethernet (10 GigE) products, its pipeline of 40
and 100 GigE products, its presence in HPC and financial applications, and to
offer greater vertical integration between Mellanox and Voltaire products in the
InfiniBand space. The acquisition was also used to strengthen Mellanox's against
competitors such as QLogic (QLGC) that has since languished while Mellanox has far and
away gained market share and Wall Street attention.
In May 2012, Mellanox sets a new industry record for high-speed Internet
switching performance. More recently, in July 2012, Mellanox announced a
partnership with Quanta QCT, a leader in network equipment, storage and server
solutions to data centers, to deliver low latency, high bandwidth solutions for
cloud computing. This alliance also gives Mellanox access to Quanta QCT's large
enterprise, government and service provider customers.
Corporate Balance Sheet
The company has zero debt on its balance sheet. The revenue, cash flow, and
earnings have increased with new product launches.
In parallel, Mellanox has consistently increased cash flow from operations,
with cash and cash equivalents of $327.8 million as of June 30, 2012 (see graph
below).
Quarterly revenue has grown consistently year after year. While quarterly
revenues dipped around late 2008 and early 2009, and showed some seasonal dips
in the 3rd and 4th quarters, quarterly revenues have consistently increased from
$37.8 million in 3rd quarter 2010 to $133.5 million in 2nd quarter 2012, with
projections of $150 million or more for 3rd quarter 2012, as seen in the graph below.
Shares
Mellanox investors have seen shares appreciate well above market since its
IPO. As of October 16th, 2012, shares traded at about $101. The company
experienced a 88% growth rate in the first half of 2012. The trailing twelve
month earnings are $1.31 per share. Mellanox has a market capitalization of $4.3
billion.
Mellanox shares have a beta of 1.25 and its sharp rise, naturally, includes
higher intrinsic volatility. At current levels, shares havedownside risk if
earnings and revenues are below analyst expectations.
Management
Eyal Waldman has served as Chairman, President and CEO of the company since
its founding. He holds a B.S. and M.S. in electrical engineering from Technion,
Israel's leading institute of technology.
Chief Financial Officer (CFO) Change: Until recently,
Michael Gray served as the company's Chief Financial Officer, a position he held from December 2004 until his retirement on
September 10, 2012. Jacob Shulman is the new CFO in a planned transition that
will take effect November 5, 2012. Mr. Gray will continue to serve on the Board
through February 4, 2013 to help with the transition. Mr. Shulman has over 19
years of professional finance experience and has been with Mellanox
since 2007, previously serving as VP of Finance and Corporate Controller.
While company shares dropped 9.8% on this announcement, this was a planned
transition with Mr. Gray heading into retirement. The drop was likely just a
market reaction to the company's strong share price run up. This transition,
especially with an internal appointment, is likely to have no adverse material
influence on the company's operational prospects but could influence Wall Street
perceptions if investor relations are not handled well. Overall, the risks of
this CFO change will likely be minimal, if any.
Ronnie Ashuri is the company's Vice President of Engineering, and one of its
co founders. Mr. Ashuri too holds an electrical engineering degree from
Technion.
Shay Cohen serves as the company's Chief Operating Officer, has extensive
experience with operations and engineering, and is also one of the company's co
founders. Mr. Cohen too holds an electrical engineering degree from
Technion.
Collectively, top management has a very solid technical background, has been
in this industry for several decades, and successfully driven research, product
development, sales, marketing, business development and finance for the company.
Management is well accepted by Wall Street, has successfully navigated an IPO
and follow on offerings, grown revenues and profits consistently, guided
corporate growth organically and through alliances, and delivered outstanding
shareholder and customer value.
Future Growth Prospects
From the time of its founding, the company has strongly focused on high
performance interconnect products for the servers and data storage market, and successfully delivered virtual protocol
interconnect (VPI) products that
meet customer needs for cutting edge high speed data transmission.
The company's products and solutions have always been a step ahead of its
benchmark - the bandwidth of Intel Corporation's CPU cores - and delivered data
transmission speeds from the 10 gigabits per second (Gb/s) range to over 50 Gb/s
over the past 10 years.
With its technological innovation and research, the company has grown data
message rates from roughly 30 million per second to close to 100 million per
second over just the past year.
Today, the company's InfiniBand and Ethernet interconnect solutions provide
the lowest latency (less than 1 micro second) and the highest bandwidth (56
Gb/s), and deliver the best return on investment for computing and storage
platforms.
Mellanox focuses on the following key growth markets: high performance
computing (HPC), web 2.0, enterprise
servers and databases, cloud computing and financial services. In each of these
focus sectors, Mellanox Products have consistently delivered exceptional
performance and return on investment (ROI).
Industry Leader
Today, Mellanox' product suite is the most widely used interconnect solution
in the world's top 500 systems and newer petascale systems. Mellanox products are designed to deliver
unmatched ROI for Web 2.0 and large scale data systems, and have delivered 2x
increases in analytics, 13x increases in transactions per second and data
retrieval times, and 4x improvements in price performance by delivering four
times more bandwidth at the same price.
Mellanox' go to market strategy consists of strong relationships with top
tier partners - hardware OEMs in the servers, storage and embedded systems
space; software partners such as Microsoft (MSFT), VMware (VMW), IBM and Oracle (ORCL); and channel partners such as TechData. Oracle does
own over 3.4
million shares of Mellanox.
Fundamentally, the company's strategy is to pursue revenue opportunities in
servers, storage and embedded systems, which collectively have a total
addressable market of $5.3 billion in 2012 alone.
In a nutshell, the company's strategy is to drive strong revenue and earnings
growth with end to end solutions, industry leading product offerings and well
established distribution channels.
Products
Mellanox' product suite includes Ethernet and InfiniBand adapters, switches
and cables in the 10, 40 and 56 Gb/s bandwidth range, and application
acceleration software.
Adapter Silicon: Mellanox offers 10, 20, 30, 40 and 56 Gb/s adapters
under the InfiniBand brand, and extremely energy-efficient adapters under the
ConnectX.3 brand.
Adapter Cards: Mellanox adapter cards provide the lowest latency,
highest bandwidth connectivity and flexible interconnect capabilities.
InfiniBand Switch Silicon: These silicon switches offer network
operators numerous features to accurately configure systems to meet the demands
of their customers.
InfiniBand Switch Systems: With Mellanox' InfiniScale IV and SwitchX
InfiniBand products, networks can seamlessly implement combinations of 20, 40
and 56 Gb/s bandwidths without any issues.
Ethernet Switch Silicon: SwitchX combines Ethernet and Fibre Channel
traffic on one wire at speeds of between 1 Gb/s to 10 Gb/s per lane, and are
ideal for robust, mission-critical computing applications.
Ethernet Switch Systems: Mellanox Ethernet range of switches allows
practical applications that span from 10 Gb to 40 Gb Ethernet.
Gateway Silicon: Mellanox BridgeX range is the only Virtual Protocol
Interconnect (VPI) on the market
and functionally allows OEMs to design consolidated input/output (I/O)
solutions.
Gateway Systems: Mellanox gateway systems allow data centers to use
I/O consolidation on both fast 40 Gb networks as well as slower speed networks
in the 2, 4 and 8 Gb range.
The company recently won gold for Big Data at the 2012 Stevie International
Business Awards with its entry of PHAT-DATA 40G. This high performance add-on to
the 40 Gb Ethernet adapter delivers a 40% performance increase. Essentially it
allows data centers to achieve higher levels of efficiency and scalability while
drastically cutting capital and operational costs.
Management Software: Mellanox management software allows for easy
managing of servers, applications and fabrics. Users can monitor performance of
each from a single console and guarantee that time-critical information is sent
and received.
Acceleration Software: A key product, Mellanox' acceleration
software significantly increases performance, reduces latency and enhances
application performance without having to expand application size on hard
drives.
Software Drivers and Tools: Geared towards HPC and data centers,
this software accurately tracks and monitors data transfers.
Cables: Mellanox' manufactures highly durable, low cost and easy to
install cables that provide optimum signal integrity when interconnecting high
bandwidth products.
M-1 Global Support Services: Mellanox offers three tiers (bronze,
silver and gold) of customer support for its global base of customers.
Competition
Mellanox dominates the high-performance interconnects' market. As the sole
company with a 40 Gb product line and a complete end to end solution, the company has no real formidable competition. The graph below
shows how Mellanox' market capitalization is well above other top semiconductor
companies, as a reflection of its marketing success and future prospects.
At least in theory, a company's market capitalization reflects future growth
prospects more than past performance.
With more advanced products, Mellanox attracts top tier customers in long
term contracts that support revenue stability and earnings growth.
Quarterly Results - 2nd
Quarter 2012
Mellanox had an extremely successful second quarter (ended June 30, 2012) with record
revenue and earnings, and its first quarter with revenue above $100 million.
Growth was driven by its strong product suite and high market demand for fast
interconnect solutions for cloud computing, large data centers, financial
services, HPC, storage, Web 2.0 and database markets.
Comparisons with 2nd quarter 2011 are not overly meaningful because of the
strong gains over intervening period. In the 2nd quarter 2012, earnings grew to a record $32.1 million and $0.74
per share on a GAAP basis ($0.99 on an adjusted non GAAP basis).
The company reported total assets of $632.48 million, no meaningful debt,
liabilities from standard operating activities (primarily Accounts Payable and
Accrued Liabilities) of $114 million and $518.4 million in shareholders' equity.
In the quarter, cash from operations was $59.2 million. At quarter end, cash and
investments totaled $327.8 million.
Operationally, the company tracked higher than its target long term model benchmarks for gross margin, about in line on R&D,
lower on SG&A and significantly higher on operating and net income (see
table below).
Over the first half of the year, cash from operations was $82.7 million, yet another
record high. The company invested $156.2 million in short term securities and
raised $14.3 million from common stock issued to employees.
Key customers included Hewlett Packard (HP), IBM, Intel
Corporation (INTC) and Oracle. Airbus,
Comcast (CMCSA), JP Morgan
(JPM), Viacom
(VIA) and Chevron (CVX) were smaller customers but strategic accounts for long
term revenue growth.
Summary
With advanced products and a solid customer base, Mellanox dominates its high
performance interconnect niche. Interconnect technology is critical for business
performance because it increases application productivity and ROI. Mellanox'
addressable interconnect market is large and growing, with a market opportunity
of $5.3 billion in 2012 alone.
Moreover, Mellanox focuses on high growth sectors such as high performance
computing, web 2.0, rapidly growing storage and databases sectors and cloud
computing that is increasingly replacing in house servers.
Mellanox also has top tier partner and channel relationships that help it
capitalize on major market opportunities.
Financially, Mellanox has strong cash flow, a solid, debt free balance sheet
and a business model that is working very well. Mellanox has proven that it can
develop and deliver industry leading products and stay ahead of its
competitors.
Mellanox' long term prospects as a business appear to be solid. I believe
tomorrow's earnings call will outperform market expectations of $150 revenue and
analyst earnings, as indicated in the above table, expectations
הודעות חשובות
הודעת מערכת