Mellanox muddles investors' minds

Although Mellanox Technologies Ltd. (Nasdaq:MLNX; TASE:MLNX) already has a history as a public company, almost every quarter, investors discover another secret. One of them emerged last night.

Mellanox has two businesses. The first is quite standard. The second is special, involving very large transactions, which have created pent up demand for the company's products, which it cannot immediately meet.

Since the first quarter of 2012, Mellanox has benefited from the wave of computing upgrades following the launch of Intel Corporation's (Nasdaq: INTC) Romley platform. The pent up demand provided three quarters of large deals of tens of millions of dollars, which supported the company's revenue growth in the second and third quarters. But what happens when the wave dissipates? Will Mellanox still have a reason to grow?

Analysts and investors have been wrestling with these questions for the past six months. Mellanox says that it has a quarterly horizon for demand, and from this perspective, it emerges quite well from its guidance. Excluding the extraordinary demand, created by unusual market circumstances, the company's sequential quarterly growth will be 12%.

Moreover, at least based on what is known now, there has been no change in Mellanox's model. Demand for its products still derives from the huge wave sweeping the enterprise computer world, which includes all the contemporary buzzwords: big data, web 2.0, SSD data storage, etc. All these systems require very high speed communications, short waiting times for access to data, and smart management of enterprise networks - for all of which Mellanox is an almost exclusive provider.

Nonetheless, it is hard to blame investors who decide to dump the share and flee. Mellanox has simply become a story that is too complicated, which the conference call made increasingly clear. Mellanox chairman, president and CEO Eyal Waldman called the investors' response an overreaction, but the investors' questions rose long before yesterday's conference call, when the company's market cap soared to $4.5 billion in record time.

This time, Mellanox, either deliberately or inadvertently, scheduled its analysts conference for Friday, where it will try to stem the overreaction, which is partly driven by uncertainty and anxiety. But maybe the company should also adopt this procedure when the investors' overreaction is in the right direction.

Published by Globes [online], Israel business news - www.globes-online.com - on October 18, 2012