Mellanox Technologies Ltd. (Nasdaq:MLNX; TASE:MLNX) fell another 6.2% on the TASE today, dragging down the Tel Aviv 25 Index (where it has a weight of 9%), after falling 2.4% on Nasdaq on Friday. The share has fallen 38% in the past two months, raising the question whether the Israeli high-tech success of the decade will soon reach a turning point.
Harel Finances analyst Rami Rosen says, "Investors are still unsure about the company's future. These fears are due to concern about competition from Intel Corporation (Nasdaq: INTC), which is weighing on trading in Mellanox's share and increasing its volatility."
Rosen says that InfiniBand developer Mellanox has suffered from negative sentiment since late November because of rumors about competition from Intel's connectivity processor. "For now, the mountain has given forth a mouse," he says. "In practice, Intel has not published any information on the matter."
Rosen attributed the fall in Mellanox's share price to the fact that while investors' fears have not materialized, they have not dissipated either. "Intel has not published timetables or its precise plans," he says, "but made general statements of intent about its growth strategy in connectivity."
In its financial report for the third quarter, published on October 17, Mellanox provided disappointing guidance for the fourth quarter, and its share price dropped 18% the next day on Wall Street. Analysts covering the share were unperturbed, and most continued to give it an "overweight" recommendation on the assumption that the company was on the path of rapid growth.
Rosen says, "This seems to be a case of overshooting. Intel is seeking new growth areas, such as connectivity processors where Mellanox operates. But with all due respect to Intel, Mellanox is the market leader in its field. The company continues to develop its product line, and it has a strategic plan for dealing with competition. In my opinion, investors' fears are overblown." He adds that Mellanox believes that Intel will launch its connectivity processor in early 2015, while Mellanox's product will hit the market a year earlier, in the first half of 2014.
Although investors' fears of competition from Intel are weighing on Mellanox's share, they are not the only factor. The disappointing presentation by CFO Jacob Shulman at a conference in Arizona two weeks ago, did not help. Market sources say that investors expressed concern about the company's conservative attitude about its future financial conduct.
Another event that may affect Mellanox's share will take place on Tuesday, when Oracle Corporation (Nasdaq: ORCL) publishes its quarterly financial report. It is a Mellanox customer and has the power to clarify matters. "If Oracle publishes good results, it will have a positive effect on Mellanox," says Rosen. "But if Oracle is downbeat about data centers (connectivity between server farms), it could have a negative effect, especially for the EXA family of products, the core solution for the sector."
Published by Globes [online], Israel business news - www.globes-online.com - on December 16, 2012
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