Rumors have revived in the capital market that an IT giant, either IBM Corporation (NYSE: IBM) or Oracle Corporation (Nasdaq: ORCL), is offering to acquire Mellanox Technologies Ltd. (Nasdaq:MLNX; TASE:MLNX) at $150 a share, or $6 billion, a 61% premium on yesterday's closing price. However, given the company's expected strong growth, it is no wonder that the market has responded with skepticism to the rumors.
At an analysts conference in Tel Aviv today, Mellanox chairman, president and CEO Eyal Waldman had this to say: "We think that Mellanox should stay independent so long as it can continue to grow faster than it could as a unit of a buyer. Look what happened to VMware, which was sold to EMC for $600 million in 2004. What was a great deal at the time, is now worth almost $40 billion. A sale blocks future potential value."
EMC Corporation (NYSE: EMC) floated VMware Inc. (NYSE: VMW) in 2007, and still owns 80% of the company.
It is hard to argue with Waldman, especially after the 50% jump in Mellanox's share price last week, after it predicted $155 million in third quarter sales, an amount far above analysts' forecasts. "We think that the current share price is low," he added.
Over the past week, Mellanox, a provider of high-speed Infiniband connectivity solutions for enterprise computer networks, has been trying to explain to a skeptical capital market why its guidance is real; in other words, why it will be able to maintain this rate in the future. "What is happening is what we always said," says Waldman: Mellanox's contemporary growth engines are Web 2.0 companies, and social networks, such as Facebook Inc. (Nasdaq: FB) and Google Inc. (Nasdaq: GOOG), where each project can reach tens of millions of dollars. He also sees strong growth possibilities in the storage systems market.
"What mainly disturbs my sleep about the future is our performance," says Waldman, commenting on future opportunities after the current total addressable market (TAM) of $6 billion. "We can fall on anything we do at the company. Our technology is strong, and, most of all, it is what we know, but I also believe that we are leaders in sales and marketing," he says.
As for Mellanox's cash reserves, Waldman says, "The purpose of our $320 million in cash reserves is for acquisitions, even though we don’t need this to grow. We don’t invest much effort in looking for acquisitions. You have no idea how many offers we receive from bankers who constantly surround us."
Mellanox's share price rose 3.2% to NIS 388 by mid-afternoon on the TASE, after rising 3.2% on Nasdaq yesterday to $93.45, giving a market cap of $3.8 billion.
Published by Globes [online], Israel business news - www.globes-online.com - on July 26, 2012
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