Mellanox Technologies Ltd.'s (Nasdaq:MLNX) share price leaped 7.5% to $70 in late trading on Wall Street, where it has been listed since October 2012, boosting its market cap to $3.6 billion. The company published good financial results and positive guidance for 2018 after the close of trading.
The results were published under the shadow of the campaign against the company's board of directors being waged by the Starboard fund, which owns 10.7% of Mellanox's shares. Starboard last week published a demand for the appointment of nine directors in Mellanox on its behalf to replace the company's current directors, following what Starboard called "years of poor performance."
Mellanox, managed by founder and CEO Eyal Waldman, develops and markets communications equipment for high-speed data transmission using Ethernet and Infiniband technologies. Mellanox reported $238 million in revenue in the fourth quarter, higher than the market expectations of $235 million and 7.2% more than in the corresponding quarter in the preceding year. Mellanox's net loss in the quarter according to GAAP standards was $2.6 million, compared with a $9 million net profit in the corresponding quarter in the preceding year. The company's non-GAAP net profit (excluding capital remuneration to employees, a write-down on intangible assets, and other expenses) reached $42.9 million, up 3.9%, compared with the corresponding quarter in the preceding year. Net profit per share was $0.82, $0.14 more than the analysts predicted.
Mellanox finished 2017 with miniscule 0.7% growth in revenue to $864 million. The company's goal is to return to growth of over 10%. The company's GAAP net loss for the year was $19.4 million, and its non-GAAP net profit was $117 million.
Mellanox's guidance for the first quarter is $222-232 million in revenue, higher than the analysts' forecasts. The company says that its non-GAAP gross profit ratio will be 68.5-69.5%, compared with 68.8% in the fourth quarter of 2017, and that its operating expenses will total $120-122 million.
Mellanox also provided guidance for 2018 as a whole: $970-990 million in revenue, 12.3-14.6% more than in 2017. The company expects its non-GAAP operating profit margin to be 18-19%, compared with 13.7% in 2017 and 21% in 2016. The analysts are predicting that the company's revenue will be $971 million.
"We are delighted to achieve a record revenues for the quarter and the year," Waldman said. "2017 was a year of investments and a transition in products for Mellanox. Fourth quarter revenue from the Ethernet products grew 11%. As a result of increased adoption of Ethernet products containing switches with speeds of 25 Gbps or greater, demand grew 41% from quarter to quarter. Infiniband revenue grew 2% in the fourth quarter as a result of growth in our high performance computing (HPC) and artificial intelligence customers."
Waldman added that Mellanox's annual results "reflect the success of the strategy set by the company of diversifying its multi-year revenue." He predicted that with the momentum in both technologies, the recent launching of the company's SoC product, and the future launching of 200 Gbps products, "Mellanox is well-positioned to start reaping the fruits of its previous investments."
One of the Starboard fund's complaints against the company concerned its operating profit. Waldman noted yesterday, "We are continuing the constant improvement in profit margins and finding additional ways to streamline."
In a conference call, Waldman responded to Starboard's demand to replace the company's directors by saying, "Mellanox remains committed to constructive talks with our shareholders for the good of our common goal - generating value - and we are committed to taking suitable measures in order to ensure that Mellanox is in a better position to provide high returns to its shareholders." The rest of the conference call concerned mainly the company's financial results.
Published by Globes [online], Israel Business News - www.globes-online.com - on January 21, 2018
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