Last Thursday, the Tel Aviv Stock Exchange went wild. The cause of the drama was Mellanox Technologies Ltd. (Nasdaq:MLNX; TASE:MLNX), the provider of enterprise communications solution from Yokne'am. The previous evening, Mellanox, which is listed in Tel Aviv and New York, published record results, astonishing the market. Its share price shot up 43% on Wall Street, 48% in Tel Aviv, and its market cap jumped to NIS 15 billion. Overnight, Mellanox became the sixth largest company by market cap on the Tel Aviv Stock Exchange, worth more than some of Israel's foremost banks and industrial concerns, and it was being crowned the company of the decade in high tech.
One might have thought that Eyal Waldman, the company's founder, chairman and CEO, who was at its California office at the time, would be able to let go of some of the sense of fear that has accompanied him like a shadow ever since he founded Mellanox in 1999, and free up time in his diary for a few whoops of joy.
Not him, it turns out. "I'm afraid all the time. You can't rest on your laurels," Waldman explained in an interview with "G" magazine from California. "There are expectations all the time. You are under constant pressure to continue to execute."
For years, you were the entrepreneur with the strange technology swimming against the tide and trying to prove that your way was right. Are you now vindicated?
"I'm always having to justify myself. Even now. Many people have said to me in the past few days, 'You've done it'. But we still haven't done anything; we are halfway there, perhaps even at the start. You don’t feel that you have done something. As far as I am concerned, we are still a small company."
Have you received many reactions since the financials were released?
"Yes, a lot of phone calls and SMSs."
Was there any call that you found especially moving?
"Yes, from my ex-wife."
Did you allow yourself to get excited and celebrate a little?
"On the inside, not externally, and with my closest friends."
To what do you attribute the success of Mellanox?
"First and foremost to the people who work at the company. (about 1,000 around the world, of which 850 are in Israel, working from Yokne'am, Ramat Hahayal, Ra'anana, and Tel Aviv. R.N.). There's an amazing team of high quality people at Mellanox. If you work at Mellanox, it means you're good. The commitment and teamwork of the employees all over the world led to these results. I think success follows from a great deal of persistence. What's happening in Greece, Spain, Italy and Ireland Is not a natural disaster of act of God but lack of persistence. You can't succeed without hard work, and in Israel, people work."
"Huge growth potential"
In the two weeks leading up to the release of the quarterly results, it looked as though Mellanox's share was on a crash course, dropping more than 20% within a few days. Questions were raised on the market over the company's ability to meet its ambitious guidance for the second quarter of 2012, which was much higher than the analysts' estimates. But Mellanox released results that left the analysts open mouthed. The company reported record revenue of $133.5 million, 111% more than in the corresponding quarter in 2011, and a net profit of $32 million, seven times the profit in the corresponding quarter. Within a few hours of the results being published, the company's share price completed a 300% leap in the past year.
Do you think that the share price matches reality, or is it a bubble?
"There's no bubble here. What we expected, happened. We have said in the past that we expect to grow to annual sales of the order of $1 billion, and already this year we will reach an annual rate of sales of half a billion."
Which is four times your sales in 2010. Will you manage to keep up the rate of growth in the coming quarters?
"Our growth potential is huge. We have plenty more markets, and the share price has room to rise. We are seeing our technology in many markets, and we hope to continue growing."
How do you explain the fact that no-one on the market foresaw that your results would be so good?
"Right at the beginning of the second quarter, we said that we would have a superb quarter. People didn't really believe that it would continue. When you aren't on the inside, it's sometimes hard to believe and to see it. And it's true that there are some analysts who continue to miss out on the stock."
Are you afraid that some investors will now sell off the stock?
"No. I don't focus on the share price, and don't worry about it day to day. We concentrate on what we want to do with the company, and that's what counts."
What are your immediate goals for the company?
"We want to continue to grow, and our sales target for the third quarter is $150-155 million. Another target is to reach technology that will provide connectivity at 100 Gbps by 2014. We're working on a lot of new products. For example, we are working with Microsoft on the 2012 version of the operating system for servers that will include our technology."
What are the main risks for the company?
"That the execution won’t be good enough."
What about the competitors? How strong is Mellanox's advantage over them?
"We are a generation ahead of our competitors, but we are also wary of them. We have big competitors. We look ahead, without looking sideways or backwards, and that's what we try to do as best we can."
Have you received offers to sell Mellanox to one of the technology giants?
"We don't talk about things like that."
Does the stake held by Oracle, which bought 10% of Mellanox, prevent a large palyer from buying Mellanox?
"Oracle is very happy about the profit it has made, and they are a large customer of ours. We have an agreement with them that they won't raise their holding beyond the 10% they have."
In other words, the possibility exists that Mellanox could be sold to another company?
"It the company wants, that's possible."
As far as your vision is concerned, would you want the company to remain Israeli for the foreseeable future?
"You have to do what is right for the shareholders. The measure is whether the company can continue growing faster alone, and whether we can provide a return to the shareholders. One of the directors has already said that if the company has such a large and good future before it, why block it and limit its value through an acquisition?"
What about acquisitions by Mellanox. You bought Israeli competitor Voltaire in 2010.
"I receive proposals, but we have no reason to look right or left, we don’t need to make an acquisition in order to grow. We will make an acquisition if we think that it will accelerate our growth."
"There were no easy stages"
Waldman, 52, built Mellanox from scratch, and takes credit for its success. He spent most of the past decade working hard amid worrying uncertainty. He took a big risk, financed the company when it set out, and was even at risk of being fired. That was in 2002, when the board was very unhappy with Waldman's pioneering direction, InfiniBand technology, which at the time looked as though its future was behind it, but in the course of time became mainstream. On the market too there were many who wrote off Waldman's direction, but he thought otherwise. At one of the board meetings, he said, "Either I bring the company down, or we succeed".
Was there any stage at which you said to yourself, perhaps everyone is right and I'm wrong, and I'm endangering the livelihoods of hundreds of families?
"I say that and think that all the time."
Do you recall any stage as especially difficult?
"There are many like that. The beginning was hard, with a great deal of uncertainty. But it's also hard when the company is growing. Let's say that we have had no easy stages."
What sort of manager are you?
"I'm a manager who is hard to work with. I'm very direct and I don't play games. I demand a lot, and expect people to be good at every level. But most people stay with the company, and our care and concern for the workers and their families are above and beyond the norm, and remain so when workers get into difficulties and need help."
Waldman has boasted in the past of turning many workers into millionaires. He himself is one of the wealthiest people in Israel, on paper. He currently holds 4% of Mellanox, and it is estimated that he is worth some NIS 600 million. Mellanox's three other founders Shai Cohen, Michael Kagan, and Roni Ashuri who serve in senior posts in the company, have become multi-millionaires. The rest of the employees aren't deprived either. In the period 2007-2011, Mellanox employees exercised options incorporating an aggregate benefit of some NIS 330 million, and the total benefit to the workers, including options that have not been exercised, amounts to no less than NIS 1.2 billion.
"All the employees have made a great deal of money," Waldman declares. "The distribution of the wealth at Mellanox is amazing, in my view. It's not just the senior managers who earn well; it goes from the youngest secretary or student to me. Those who don't talk about it but simply do their work in their cubicle also earn well. All the employees also receive an annual bonus and the same compensation elements as me, although it's true that the numbers are different."
You have stated in the past that you identify with the social protest movement, and last summer you even visited the protest encampment with other senior figures from the high-tech industry. Are you still concerned about the state of the country?
"There are many things in the State of Israel that need to be put right, and many aspects of the distribution of wealth should be done differently. The cost of living in Israel should be much lower, and there's a great deal that needs to be done. Substantial change is also needed in relation to the strong unions in the economy. It makes no sense that they should think they have the right to run the company. They don’t allow the management to function, and I'm happy to see that at Israel Railways things are changing. Beyond that, I want to point out that 8% of the workers at Mellanox are Arabs, and that we are starting to employ haredim."
Will we see you set up another company in the future?
"No, no, no. Mellanox is the last company. It might look easy from the sidelines, but it's so hard."
You could have retired long ago and led a far more relaxed life. What keeps you in the job?
"The fact that this is what I want to do."
Published by Globes [online], Israel business news - www.globes-online.com - on July 26, 2012
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