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Mellanox Technologies Ltd. (MLNX - Snapshot Report) recently revised down its guidance for the fourth quarter revenue guidance which ended on December 31, 2012. The fabless semiconductor company is scheduled to release its fiscal fourth quarter 2012 results on January 23, 2012.

As per the revised guidance, Mellanox now expects revenue in the range of $119 million to $121 million, down from previous projection of $145 million to $150 million. However, the guided range is significantly higher than the $73 million reported in the year-ago quarter.

The downward revision was due to weaker-than-expected demand, sluggish macroeconomic conditions and a certain technical issue regarding the FDR (Fourteen Data Rate) 56Gb/s InfiniBand cabling. This is expected to drag down fourth quarter revenue by $20 million.

Currently, the Zacks Consensus revenue estimate is pegged at $127.0 million, which is slightly higher than the guided range. However, the estimate is expected to trend to lower following the revised guidance.

Despite the lowered revenue estimate, Mellanox maintained its non-GAAP gross margin expectation of 68.5% to 69.5%. Mellanox also maintained its operating expense outlook, which is expected to increase 6% to 8% sequentially for the quarter.

For the fiscal 2012, Mellanox expects to report $500 million in annual revenue for fiscal 2012, below the Zacks Consensus Estimate of $508 million.  

However, Mellanox did not provide any earnings guidance. Currently the Zacks Consensus Estimate is pegged at 65 cents per share for the fourth quarter of 2012, which reflects a significant jump from 17 cents earned in the year-ago quarter.

We believe that EPS is expected to grow on the back of higher revenue base and margin expansions. Going forward we believe that Mellanox will continue to outperform its peers based on strong demand for InfiniBand products, particularly from the high performance computing, cloud data centers and web 2.0 markets. Moreover, the company’s expansions in the cloud and enterprise storage segments are the other positives.

However, sluggish macroeconomic environment, and increasing competition from its peers may act as headwinds going forward. Moreover, customer concentration could be another headwind for the stock. In the first nine months of 2012, Hewlett-Packard Co. (HPQ - Analyst Report), IBM Corp. (IBM - Analyst Report) and Polywell Computers accounted for more than 50.0% of Mellanox’s revenues.

Currently, Mellanox has a Zacks #5 Rank (Strong Sell).

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