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Shares of Mellanox Technologies, Ltd. (MLNX - Snapshot Report) gained significant momentum after its InfiniBand product won back-to-back design contracts from IT giants Intel Corp. (INTC) and Hewlett-Packard Co. (HPQ). This fabless semiconductor company is a Zacks #1 Rank (Strong Buy) with shares that have jumped nearly 100% year to date.

Mellanox’s 1Q Crushed Estimates

Mellanox reported a very strong first quarter of 2012 (reported April 18) with earnings that soared to 34 cents per share, compared to 13 cents in the year-ago quarter. The result beat the Zacks Consensus Estimate by 16 cents (88.9%).

The better-than-expected results were primarily driven by strong revenue growth and operating margin expansion. Revenues jumped 61.1% on a year over year basis to $88.7 million. Operating margin expanded to 17.6%, up significantly from 8.8% in the year-ago quarter.

The strong growth in revenue was primarily driven by higher demand for InfiniBand products, particularly FDR (Fourteen Data Rate) and QDR (Quad Data Rate). InfiniBand contributed 86.0% of the total revenues during the quarter. Additional revenues from the Voltaire acquisition also contributed significantly.

Mellanox expects second quarter revenues to increase sequentially from the first quarter. The company expects higher demand for InfiniBand products, particularly due to the general availability of Intel’s Romley and Sandy Bridge platforms, which are expected to add an additional $30 million to second quarter revenue.

Following the strong first quarter results, the Zacks Consensus Estimates for 2012 and 2013 shot up 63 cents (71.6%) to $1.51 and 57 cents (47.0%) to $1.78, respectively.

Mellanox Deserves a Premium Valuation

Currently, Mellanox is trading at a premium to most of its peers based on P/E, P/S and PEG. Its strong growth prospects indicate room for further significant expansion.

Mellanox shares are up 96.7% year to date, compared to a mere 4.1% increase for the S&P 500. The stock price has almost doubled due to strong demand for its InfinBand products. The stock is currently above its 50 and 200 day moving averages of 58.89 and 43.03, respectively.

Mellanox shares have also outperformed its peers such as Intel, Broadcom, Emulex and Qlogic on a year-to-date basis. However, trading volumes are considerably lower.

Incorporated in 1999 and headquartered in Sunnyvale, California, Mellanox is one of the pioneers of the InfiniBand technology. The company has its engineering facility in Yokneam, Israel. Since 2001, the company has been shipping its flagship InfiniBand product.

Mellanox has a strong customer base of more than 269 companies that includes H-P, Intel, Oracle Corp. (ORCL) and IBM (IBM) to name a few. H-P and IBM were the largest revenue contributors in fiscal 2011.

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