Last week's interesting developments included the 13% jump in the share price of Mellanox Technologies Ltd. (Nasdaq:MLNX) and the 9% rise in the share price of SanDisk Corporation (Nasdaq:SNDK) to an all-time high.
There was also the 25% jump in the share price of Telit Communications plc (AIM:TCM) just after the big sale by Fortissimo Capital. In addition, there was the IPO by A10 Networks Inc. (NYSE: ATEN), a direct US competitor of Radware Ltd. (Nasdaq:RDWR), which rose by over 6%.
Last week's rise by Mellanox is a riddle: there was no special announcement; and despite the pessimism of most analysts covering it, the share price rose from a low of $38 to a weekly-high of over $44 during Friday's trading session. Although Oracle (Nasdaq: ORCL) last week reported continued strong momentum in sales of its Exa platform, which is based on Mellanox's InfiniBand, it is not yet material to Mellanox's quarterly results.
I believe that Mellanox is rising because of the rapid progress in the development of new high-speed systems on the basis of two acquisitions made in the past year. These are systems that should reach market much sooner than the systems being developed by Intel (Nasdaq: INTC). There is no doubt that fears of Intel's entry into the market as a direct competitor of Mellanox within a couple of years has weighed heavily on Mellanox's share price in the past year.
SanDisk disconnects from NAND prices
SanDisk's share price closed at $80.72 on Thursday, just above its previous record reached at the close on March 8, 2000, the day before the dot.com bubble burst. Don’t worry, today's SanDisk, with a market cap of $18 billion, is no bubble, because its 12-month profit multiple is just 13, and is much less if the company's cash is excluded. The company is stronger than ever, financially, technologically, and in marketing.
SanDisk reached its new record despite weak NAND prices, which misled the analysts of top banks, such as Goldman Sachs, Morgan Stanley, JPMorgan, and Bank of America, which rushed to lower their recommendations for it in the past few months.
The disconnect between SanDisk's share price and NAND prices happened for the first time only this year, after it became clear from the company's strong results that it is actually a supplier of state-of-the-art flash-based solutions, with a gross profit that is higher than that of any other flash manufacturer, and plummeting processor prices in the free market have almost no effect on it.
Specifically, it is possible to attribute last week's rise in SanDisk to the announcement of the company's inclusion in the Nasdaq Technology Dividend Index from March 24. This index includes up to 100 technology and telecommunications companies that pay a regular or common dividend. It may also be a response to the lawsuit SanDisk filed against its Korean rival, SK Hynix Inc. (KSX: 660)
SanDisk claims to have the proof that one of its engineers who switched to Hynix in 2008 took technological secrets with him, which Hynix used. Morgan Stanley says that this is an important case, which appears to be strongly supported with documents.
SanDisk's executives will not quickly forget the crisis of 2008. In that crisis, the company, then run by CEO Dr. Eli Harari, saw its share price fall to $3, and it became easy prey. Another giant Korean competitor, Samsung Electronics Co. Ltd. (KSX: 5930; LSE: SMSN), tried and failed to take over SanDisk. After the failure, it tried - on the basis of previous agreements with M-Systems - to avoid signing a royalties agreement worth billions of dollars, and again failed.
A10 gets billion-dollar valuation
A10 Systems began trading on Friday and obtained a market cap of $1 billion. This market cap is 25% higher than the market cap of its rival, Radware, which had one-third more sales than A10 in 2013. Moreover, Radware is profitable, and a third of its market cap is in cash, whereas A10 is still losing money and only 12% of its market cap is in cash.
In the coming weeks, we will see how the market will reach a logical equilibrium between the two rivals. It turns out that legal struggles over intellectual property between rivals are routine. A year ago, Radware sued A10 for infringing three patents for router loads. The first hearing for disclosing documents will be held next month.
We will conclude with the unusual jump in Telit's share price in response to its very strong results for the fourth quarter of 2013, but also in response to the announcement that founder and CEO Oozi Cats had bought from a partner 7.8 million shares for £15 million, boosting his stake in the company to 20%. This is the same price at which Fortissimo sold its stake, raising the question, why did it not see that Cats sees, and rushed to sell?
The writer serves as a consultant and investor in securities, and advises the Pia Select Nasdaq fund. This column should not be seen as advice or a recommendation to buy or sell securities, including securities mentioned in the column. Anyone who acts in reliance on the column is exclusively responsible for any damage or loss they may incur.
Published by Globes [online], Israel business news - www.globes-online.com - on March 24, 2014
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