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Mellanox (MLNX) to Report Q3 Earnings: Is a Beat in Store?

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Mellanox Technologies, Ltd. is set to report third-quarter 2018 results on Oct 24, 2018. The company beat the Zacks Consensus Estimate in the trailing four quarters, delivering an average positive surprise of 16.3%

In the last reported quarter, the company's earnings of $1.25 per share topped the Zacks Consensus Estimate of $1.08 and also came ahead of the year-ago figure of 44 cents.

Revenues surged 26.4% year over year to $268.5 million and outpaced the Zacks Consensus Estimate of $264 million. The year-over-year growth was primarily driven by strong adoption of the company’s 25 gigabit per second (gbps) and above Ethernet switch solutions. Further, robust demand for Mellanox’s InfiniBand solution drove results.

Mellanox expects revenues between $270 million and $280 million for the third-quarter. Non-GAAP operating expenses are projected in the range of $122-$124 million that includes tape-out costs related to new products.

The Zacks Consensus Estimate for the quarter to be reported is pegged at $1.20 per share, indicating year-over-year surge of 69%. Further, the consensus mark for revenues is pegged at $275.7 million, up roughly 22.1% from the year-ago quarter.

Let’s see how things are shaping up for the upcoming announcement.

Factors Likely to Influence Q3 Results

Growing demand for higher network speeds for fast processing of data bodes well for Mellanox’s interconnect solutions. The company recently announced the availability of 200G Ethernet LinkX copper, optical cables and transceiver.
 

 

Notably, in the last-reported quarter, Ethernet revenues jumped 81% from the year-ago quarter driven by solid adoption of 25 gbps and above-based ConnectX network adapters, Spectrum switches and LinkX cables.

Strong demand from Original Equipment Manufacturers (OEMs), hyperscale, enterprise data centers, financial services and AI customers are benefiting Ethernet switch revenues.

Robust adoption of Mellnaox’s Gigabit EDR solutions in machine learning, artificial intelligence (AI), high-performance computing (HPC), database and storage is expected to be a tailwind.

Moreover, the company is winning contracts globally. Mellanox 100 Gigabit Ethernet Spectrum-based switches, ConnectX adapters, cables and modules were selected for Singapore's National Supercomputing Centre (“NSCC”) during the quarter.

The company’s system-on-chip (SOC) was selected by MiTAC Computing Technology (MCT) to efficiently enhance data storage.

Further, InfiniBand’s adoption aided the company in sustaining its leadership position in the high-performance interconnects space. Notably, in the quarter under review, InfiniBand was selected by the U.S. Department of Energy’s (DOE) NREL to accelerate a new supercomputer, Eagle.

To benefit from virtualization, Mellanox announced the availability of Ethernet Video Fabric (EVF), which will act as a pre-requisite for 4K and 8K video formats.

Moreover, Mellanox expanded its collaboration with VMware to support its all flash storage VMware vSAN solution. The solution leverages Mellanox’s Ethernet Storage Fabric technology, providing accelerated access to vSAN storage solution.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or #5) are best avoided.

Mellanox has a Zacks Rank #2 and an Earnings ESP of +1.04%, which increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Other Stocks with a Favorable Combination

Here are some companies, which, as per our model, also have the right combination of elements to post earnings beat this quarter:

Advanced Energy Industries (AEIS - Free Report) has an Earnings ESP of +2.70% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

AMETEK (AME - Free Report) has an Earnings ESP of +0.71% and a Zacks Rank #2.

 

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