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Mellanox Technologies, Ltd. reported earnings (including stock based compensation) of 49 cents per share in fourth-quarter 2016, which missed the Zacks Consensus Estimate by 3 cents. Excluding stock-based compensation, earnings were 82 cents per share, which increased 6.5% from the year-ago quarter.
Revenues increased 25.3% year over year to $221.7 million primarily driven by strong customer adoption of 100 Gigabit EDR solutions in machine learning, artificial intelligence, high-performance computing, database, storage and more.
Also, InfiBand’s adoption helped Mellanox to continue its leadership position in the high-performance interconnects space. However, revenues missed the Zacks Consensus Estimate of $225 million.
We note that Mellanox’s shares fell 13.7% in after-hour trading. Also, the company’s shares have underperformed the Zacks Electronics Semiconductors industry in the last one year. While the industry gained 71.4%, Mellanox declined 12%.
Revenue Details
In fourth-quarter 2016, InfiniBand revenues grew 10% sequentially and 17% on a year-over-year basis.
On the other hand, Ethernet revenues grew 54% on a year-over-year basis as the company witnessed robust growth in 25 gigabit, 50 gigabit and 10 gigabit Ethernet solutions. We note that the company’s Ethernet solutions are gradually gaining traction with the original equipment manufacturers (OEMs) of servers worldwide.
However, as customers continue to shift to the 25 gigabit, 50 gigabit and 100 gigabit solutions, demand for Mellanox’s 40 gigabit Ethernet solutions is on a decline. Although 40 gigabit revenues grew on a year-over-year basis, it declined during the second half of 2016.
The company’s management believes that the transition to 25 gigabit, 50 gigabit and 100 gigabit Ethernet will help Mellanox to post multi-year growth across various sectors such as cloud, storage, hyperscale and machine learning.
Network processor revenues grew year over year backed by EZchip, which the company acquired in Feb 2016.
Operating Results
Non-GAAP gross margin was 71.6%, which expanded 24.9% on a year-over-year basis.
Reported R&D expenses increased 160 basis points (bps). Similarly, reported sales and marketing expenses increased 100 bps. On the other hand, reported general and administrative expenses decreased 120 bps.
Non-GAAP operating income was $27.2 million compared with a gain of $23.7 million in the year-ago quarter.
Balance Sheet
Mellanox exited the fourth quarter with cash and cash equivalent balance of $56.8 million, down $206.4 million on a year-over-year basis.
Inventory was $65.2 million, up 4.9% on a year-over-year basis.
Guidance
Mellanox’s management expects first-quarter 2017 revenues to remain in a range of $200 million to $210 million. However, due to seasonal factors, InfiBand revenues are expected to be down on a sequential basis.
Non-GAAP gross margin is expected in a range of 71% to 72%. Moreover, Mellanox’s management expects non-GAAP operating expenses to increase 3% to 5%.
Also, the company expects to incur $15.8 million to $16.3 million as stock-based compensation expense in the first quarter of 2017.
Our Take
Although Mellanox missed the Zacks Consensus Estimates on both earnings and revenues, we believe the transition from 40 gigabit to 25 gigabit, 50 gigabit and 100 gigabit Ethernet solutions augurs well for the company in the long run due to growing demand for such products.
Moreover, InfiniBand’s strong positioning (85% market share) in the HDR solutions space remains a positive for the company.
Also, new design wins for Spectrum products is likely to benefit the company.
Mellanox Technologies, Ltd. Price, Consensus and EPS Surprise
Notably, the consensus estimate for Applied Optoelectronics’ current year has improved to 94 cents from 80 cents over the last 30 days.
Similarly, the consensus estimate for Broadcom’s current quarter has improved to $3.02 from $2.68 over the last 60 days.
Last but not the least, the consensus estimate for ACI Worldwide’s current year has remained stable at 38 cents over the last seven days.
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Mellanox (MLNX) Misses Q4 Earnings Estimates, Guides Low
Mellanox Technologies, Ltd. reported earnings (including stock based compensation) of 49 cents per share in fourth-quarter 2016, which missed the Zacks Consensus Estimate by 3 cents. Excluding stock-based compensation, earnings were 82 cents per share, which increased 6.5% from the year-ago quarter.
Revenues increased 25.3% year over year to $221.7 million primarily driven by strong customer adoption of 100 Gigabit EDR solutions in machine learning, artificial intelligence, high-performance computing, database, storage and more.
Also, InfiBand’s adoption helped Mellanox to continue its leadership position in the high-performance interconnects space. However, revenues missed the Zacks Consensus Estimate of $225 million.
We note that Mellanox’s shares fell 13.7% in after-hour trading. Also, the company’s shares have underperformed the Zacks Electronics Semiconductors industry in the last one year. While the industry gained 71.4%, Mellanox declined 12%.
Revenue Details
In fourth-quarter 2016, InfiniBand revenues grew 10% sequentially and 17% on a year-over-year basis.
On the other hand, Ethernet revenues grew 54% on a year-over-year basis as the company witnessed robust growth in 25 gigabit, 50 gigabit and 10 gigabit Ethernet solutions. We note that the company’s Ethernet solutions are gradually gaining traction with the original equipment manufacturers (OEMs) of servers worldwide.
However, as customers continue to shift to the 25 gigabit, 50 gigabit and 100 gigabit solutions, demand for Mellanox’s 40 gigabit Ethernet solutions is on a decline. Although 40 gigabit revenues grew on a year-over-year basis, it declined during the second half of 2016.
The company’s management believes that the transition to 25 gigabit, 50 gigabit and 100 gigabit Ethernet will help Mellanox to post multi-year growth across various sectors such as cloud, storage, hyperscale and machine learning.
Network processor revenues grew year over year backed by EZchip, which the company acquired in Feb 2016.
Operating Results
Non-GAAP gross margin was 71.6%, which expanded 24.9% on a year-over-year basis.
Reported R&D expenses increased 160 basis points (bps). Similarly, reported sales and marketing expenses increased 100 bps. On the other hand, reported general and administrative expenses decreased 120 bps.
Non-GAAP operating income was $27.2 million compared with a gain of $23.7 million in the year-ago quarter.
Balance Sheet
Mellanox exited the fourth quarter with cash and cash equivalent balance of $56.8 million, down $206.4 million on a year-over-year basis.
Inventory was $65.2 million, up 4.9% on a year-over-year basis.
Guidance
Mellanox’s management expects first-quarter 2017 revenues to remain in a range of $200 million to $210 million. However, due to seasonal factors, InfiBand revenues are expected to be down on a sequential basis.
Non-GAAP gross margin is expected in a range of 71% to 72%. Moreover, Mellanox’s management expects non-GAAP operating expenses to increase 3% to 5%.
Also, the company expects to incur $15.8 million to $16.3 million as stock-based compensation expense in the first quarter of 2017.
Our Take
Although Mellanox missed the Zacks Consensus Estimates on both earnings and revenues, we believe the transition from 40 gigabit to 25 gigabit, 50 gigabit and 100 gigabit Ethernet solutions augurs well for the company in the long run due to growing demand for such products.
Moreover, InfiniBand’s strong positioning (85% market share) in the HDR solutions space remains a positive for the company.
Also, new design wins for Spectrum products is likely to benefit the company.
Mellanox Technologies, Ltd. Price, Consensus and EPS Surprise
Mellanox Technologies, Ltd. Price, Consensus and EPS Surprise | Mellanox Technologies, Ltd. Quote
Zacks Rank
Mellanox has Zacks Rank #4 (Sell).
Some better-ranked stocks in the broader technology space include Applied Optoelectronics, (AAOI - Free Report) , Broadcom Limited (AVGO - Free Report) , and ACI Worldwide (ACIW - Free Report) each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Notably, the consensus estimate for Applied Optoelectronics’ current year has improved to 94 cents from 80 cents over the last 30 days.
Similarly, the consensus estimate for Broadcom’s current quarter has improved to $3.02 from $2.68 over the last 60 days.
Last but not the least, the consensus estimate for ACI Worldwide’s current year has remained stable at 38 cents over the last seven days.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>