Clal Finance: Mellanox likely involved in huge Microsoft server farm

Analyst Jonathan Kreizman: There is a high probability that Mellanox is involved in the $677 million project.

In a note on InfiniBand developer Mellanox Technologies Ltd. (Nasdaq:MLNX; TASE:MLNX), Clal Finance points out this morning that, according to US press reports, software giant Microsoft plans to construct an unprecedentedly large server farm in West Des Moines, Iowa, at an investment of $677 million. "We estimate that there is a high probability that Mellanox is involved in the project, in what could be one of the 'large contracts' at which it hinted in its latest conference call," writes Clal Finance analyst Jonathan Kreizman.

Kreizman notes that one of Mellanox's largest deals in 2012 was in connection with Microsoft's map service Bing Maps, and that, according to the same press reports, Facebook and Google are also expanding server farms, at investments of $300 million and $400 million respectively.

"The larger a data center becomes, the more the special advantages of InfiniBand technology come to the fore. For several quarters, Mellanox has been saying that it expects 'large contracts' from existing Web 2.0 customers, with an emphasis on Data Centers that will support cloud computing services, which matches the current report about Microsoft. In its last conference call, Mellanox said that it expected 'larger contracts' in the third quarter of 2013, and very large deals only in the fourth quarter.

"Despite Mellanox's disappointing sales guidance of $80 million for the first quarter of 2013, the company said it might succeed in posting growth in sales in 2013. Such an estimate seems on the face of it unlikely, given the sales level of $500 million in 2012. The addition of a contract worth $70-100 million, over and above current market expectations of sales of $422 million, could explain the company's estimates."

Mellanox closed at $45.19 in New York on Friday, giving it a market cap of $1.9 billion.

Published by Globes [online], Israel business news - - on June 25, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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