Mellanox down 8 percent Monday after downgrade in share ratings

Mellanox, an Israeli chip making company saw a booming year 2012 with profitability rising exponentially. However, in the latest ratings from Stifel Nicolaus resulted in a drop of 8 percent in the company’s shares.

Mellanox reported a more than 250 percent growth rate during this year compared to the last fiscal term. And it is still optimistic on next year’s profitability despite the recent cutback in ratings. Stifel Nicolaus downgraded Mellanox share from buy to hold due majorly to the upcoming competition from Intel.

“Although we are increasing our revenue and earnings estimates for 2013, we believe the current share price fully reflects a fair valuation,” Stifel Nicolaus analyst Kevin Cassidy said in a report. “Despite the downgrade, we applaud management’s success in defying many market pundits by driving its networking solutions into mainstream data center applications.”

The company makes high-end network chip for high-speed computers used in the corporate sector by big companies to connect to the data centres. In the current wave of cloud computing adoption, Mellanox-made chips are high in demand.

Its premium product is InfiniBand that previously targeted a niche in the high-end computing products. Since the start of this year, the product has gone mainstream and due to its content performance, it is selling like hot cakes.

However, Cassidy is not so much optimistic on the success of InfiniBand in the mainstream market. The delay in Intel-based Romley servers has played a vital part in the success of InfiniBand. This might prove temporary although customers who have bought the product are content with its performance.

“We believe Mellanox’ recent revenue growth has been primarily driven by its industry-leading InfiniBand network products combined with pent-up demand from delayed Romley (Intel-based) server launches and Web 2.0 data center upgrades,” Cassidy wrote. “While the Web 2.0 upgrades may continue in a lumpy fashion, we see Mellanox’s core business as growing in line with Romley server and storage deployments.”

Mellanox reported $134 Million of revenue in second quarter  due majorly to the InfiniBand. That is 111 percent increase in over a year. The company expects to make $1.13 per share on revenue of $153.1 million in the current quarter.

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Posted by Usman Khalid on Sep 12 2012. Filed under Sci-Tech. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.