All the Israeli companies that I hold in my portfolio here reported last week: Radware Ltd. (Nasdaq: RDWR), Mellanox Technologies Ltd. (Nasdaq:MLNX) , AudioCodes Ltd. (Nasdaq: AUDC; TASE: AUDC), Ceva9, Attunity Inc. (Bulletin Board: ATTUF), and DSP Group Inc. (Nasdaq: DSPG). All of them (some more, some less), provided evidence that they are in good take-off positions for the rest of the year. But only Ceva and AudioCodes managed to end the week and the month on rises, against the correction trend on the markets.
Radware had a stronger than expected fourth quarter, with sales of $53 million, about which it issued a special notice as soon as the year was over. From the conference call one could understand that the strong momentum continued in January as well, mainly with telecommunications service providers, and so the first quarter will also presumably be better than expected. Radware continues to grow, by as much as 30% in the US market, with its advanced solutions for application acceleration and security, chiefly in data storage centers that serve cloud computing.
Analysts have been writing a great deal about Radware's collaborations with Check Point Software Technologies Ltd. (Nasdaq: CHKP), VMWare (VMW), Juniper (JNPR) and other companies, but in my view fail to give due weight to a new collaboration that has been developing on a low flame in the past year with Cisco (CSCO) in security solutions. Last summer, and again this week, Radware presented its SDN solution, the first of its kind according to founder and CEO Roy Zisapel, at a Cisco event.
The importance of the collaboration with Cisco does not lie in the potential market for SDN, which is only in its infancy, but in the possibility that, sooner or later, Radware will again be an acquisition target for one of the big companies, with the list this time including Cisco. It's an open secret that, three and a half years ago, IBM made an offer of $23.50 per share (after accounting for the share split) for Radware, which was rejected.
Today, when, among other things, Radware has SDN and security technologies that fit Cisco's puzzle exactly; when Cisco has very extensive activity in Israel; when Radware has over $6 per share cash; and when Cisco, out of tax considerations, is prepared to pay more for companies outside the US it is not fanciful to think that it will offer much more than IBM did.
As for Mellanox, considering that it missed with both results and guidance, it did not tank as a stock known for nervous responses, in both directions, might have been expected to do after it released its results. Perhaps the short players, 13% of the company, are starting to realize that the worst is already behind it, and are beginning to close short positions, or perhaps there are investors who, like me, believe that the growth will surely come later in the year.
From the company's conference call it was possible to understand that the "curse of 2012" hangs over it. Many companies would be happy to have such a curse. Once more, founder and CEO Eyal Waldman explained that, as far as the company is concerned, $100 million of the record $500 million sales in 2012 should have been recorded in equal stages in 2011 and 2013, and that that would have given impressive multi-year linear growth.
Barclays, which recommends selling the stock, is not impressed, and thinks that "growth acceleration is nothing but an illusion." Waldman gave a heavy hint as to what happened in 2012 in his response to a question from analyst Bill Choi of Janney.
Waldman explained that customers he called "Web 2.0" installed Mellanox systems to the tune of $50 million in 2013, but that they bought them in the peak year of 2012. These customers are known to be the likes of Facebook and Google, and given the rapid growth of these companies, it does not make sense that they would not be buying systems again, at a higher rate, two years later, that is, this year.
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 February 4, 2014
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