Mellanox shares price hit by disappointing Q1 results

30 April, 2017

Eyal Waldman, president and CEO of Mellanox: "Our revenues were impacted by delays in the general availability of next generation x86 CPUs"

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Mellanox Technologies lost approximately 8.5% of its market value last week. The company published a disappointing report for the first quarter 2017, that sent its share price in NASDAQ down from $51 US to about $47 US during the weekend. Today the company total worth is $2.38 billion. Total revenues for Q1 2017 were $188.7 million – a decreased of 4.1% compared to $196.8 million in the first quarter of 2016.

Non-GAAP operating income was $15.7 million, or 8.3 percent of revenue, compared to $41.3 million, or 21.0 percent of revenue in the first quarter of 2016. GAAP net loss was $12.2 million, compared to $7.2 million in the first quarter of 2016. Even the forecast for the second quarter disappointed the investors: Mellanoxs expects quarterly revenues of $205-$215 million, compared to $196.8 million in Q2 2016.

Mellanox Technologies dramatic week in NASDAQ

“We expect sequential growth in the coming quarters”

One explanation for those results is surprising:  “Our InfiniBand revenues were impacted by delays in the general availability of next generation x86 CPUs,” said  Eyal Waldman, president and CEO of Mellanox Technologies. He also mentioned “seasonal trends in high-performance computing, and technology transitions” in several end users and OEM customers. “We believe InfiniBand has maintained share in HPC, and expect revenues will see sequential growth in the coming quarters driven by current backlog and additional pipeline opportunities.

During the Conference Call held on April 26, (Transcript brought by Seeking Alpha) Waldman said the problem was with a delay of the x86 new processors introduction, and not the competition with Intel’s InfiniBand products. “We’re seeing people on the hold part and waiting for the new process to be in the market to deploy HPC clusters and computers.” Regarding the competition he believes Mellanox is superior over Intel.

Competition with Intel’s Omni-Path interconnect

Waldman: “We don’t think we’re losing market share to Intel with Omni-Path. We’re actually seeing more people being disappointed with Omni-Path interconnect, and some are actually reconsidering their decisions. Intel is continuing to be aggressive in terms of pushing Omni-Path into the market with their pricing strategy and convincing customers to join Omni-Path, but we don’t think they’re successful in turning or taking more market share from us.

Our recent competitive analysis conducted by a leading global OEM comparing Mellanox’s InfiniBand to Intel’s Omni-Path demonstrated customers can achieve 30% to 250% higher application performance using Mellanox’s InfiniBand versus Omni-Path. The performance analysis was conducted at an end-user site across multiple applications covering several key commercial industries.

The analysis also highlighted the benefit customers achieved from the scalability and off-load capabilities offered with InfiniBand, a key differentiator versus Omni-Path, allowing for 50% lower total cost of ownership on multiple applications. We believe the competitive advantages of InfiniBand over Omni-Path will further widen with the introduction of our 200-gigabit HDR solutions in 2017.”

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