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The fabless semiconductor company, Mellanox Technologies Ltd (MLNX - Snapshot Report) is scheduled to release its fiscal second quarter 2012 results after the closing bell on July 18, 2012. In the run up to the earnings release, we do not notice any estimates revision from the analysts covering the stock.

Mellanox has outperformed the Zacks Consensus Estimate in the preceding four quarters by an astounding 54.49%. We expect this trend to continue in the current quarter.

Previous Quarter Highlights

Mellanox’ first quarter 2012 earnings of 34 cents per share soared 161.5% from the year-ago quarter and surpassed 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%, significantly higher than 8.8% in the year-ago quarter.

The strong growth in revenues was primarily driven by higher demand for InfiniBand products, particularly FDR (Fourteen Data Rate) and QDR (Quad Data Rate).

Mellanox expects second quarter revenues to increase sequentially aided by higher demand for its 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 revenues.

Estimate Revision Trend

In the last 30 days, none of the eight analysts covering the stock revised their estimates. Thus, the Zacks Consensus Estimate for third quarter 2012 is pinned at 55 cents. For the second quarter, the revenue estimate as per Zacks Consensus is $120.0 million, lower than the guided range of $125.0-$130.0 million.

Analysts covering the stock expect the company to report robust results on the back of its continued demand for its InfiniBand products coupled with its 10/40G Ethernet solutions and web 2.0, cloud, and storage markets.


We have an Outperform recommendation on the stock based on the demand for its products and customer base comprising the likes of Oracle Corp. (ORCL - Analyst Report) and International Business Machines Corp (IBM - Analyst Report). Moreover, the company’s expansions in the cloud and enterprise storage segments are the other positives. However, competition from Broadcom Corp. (BRCM - Analyst Report) and QLogic Corp (QLGC - Analyst Report) are the primary headwinds for the company.   

We currently have a Zacks #1 Rank for Mellanox, which translates into a ‘Strong Buy’ rating in the short tem.

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