Just a few weeks after the Starboard fund alleged that Mellanox was making low profits in comparison with its peer group, Mellanox provided updated targets for 2018 today, including improvement in operating profitability.
Mellanox, founded and managed by Eyal Waldman, develops, produces and sells communications equipment for rapid data transfer. In the presentation published today, the company states that one of its goals for 2018 is a return to low to medium double-digit growth, after a year of almost no growth in 2017 (which compares with growth of 30% in 2016). Non-GAAP operating profit margins, which, according to analysts' estimates will be just 13.7% in 2017, are meant to rise in 2018 to 17-19% ("high teens"), with the final quarter of 2018 seeing operating margins of over 20%. This is despite the fact that Mellanox's gross margins are expected to fall from 71% in the first three quarters of 2017 to 68-69% in 2018, because of the company's product mix. Mellanox says in the presentation that its operating expenses will fall in 2018. The company's target is 50% operating profit growth next year in comparison with the current year.
Since Starboard's announcement that it had acquired a 10.7% stake in Mellanox, the company's share price has risen 16.3%, giving it a market cap of $3 billion.
Among the growth engines that Mellanox mentions for next year are Ethernet switches, sales of which are expected to more than double. InfiniBand sales are expected to be unchanged, or to rise slightly. SoC (the specialization of EZchip, acquired two years ago) is expected to produce single digit growth.
Published by Globes [online], Israel business news - www.globes-online.com - on December 7, 2017
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