The stock price of Mellanox Technologies Ltd, plunged by almost 20 percent to $78.80 per share today, after the company issued a full-year outlook below the expectations of Wall Street analysts, during its third quarter earnings conference call on Wednesday.
Shebly Seyrafi, analyst at FBN Securities said investors overreacted and were worried about the declining revenue growth and profit margin. According to him, the prospects for Mellanox Technologies, Ltd. (NASDAQ:MLNX) remain positive, and the company will benefit from the existing market trends, such as high-performance computing and Web 2.0.
Seyrafi also cited that Mellanox Technologies, Ltd. (NASDAQ:MLNX) has a multi-year advantage against its rivals, such as Intel (NASDAQ:INTC). He maintained his “outperform” rating for Mellanox stock, but lowered his price target from $140 to $110 per share.
On the other hand, Brent Bracelin, analyst at Pacific Crest, commented that Mellanox’ tepid guidance overshadowed its robust third quarter earnings.
In addition, Bracelin said, “The longer-term opportunity for Mellanox is compelling. The big bandwidth market should expand to $10.5 billion over the next five years. Because Mellanox is the leading big bandwidth suppliers, with an unmatched product portfolio across 10G/20G/40G/56G for InfiniBand and Ethernet, we estimate the company could exceed $1 billion in revenue by 2016.”
Mellanox Technologies, Ltd. (NASDAQ:MLNX)’s third quarter revenue was $156.5 million, 17.2 percent higher than the $133.5 million second quarter revenue. The result is 129.6 percent higher than the $68.2 million revenue during the same period in 2011.
The company posted a net income of $48.4 million, or $1.09 per diluted share. Its gross margin was 69.1 percent. During the previous quarter, its net income was $32.1 million, or $0.74 per diluted share. During the same period last year, net income was $4.8 million, or $0.13 per diluted share.
According to the company, its total cash investments were$405.4 million, as of September 30, 2o12.
Eyal Waldman, chairman and chief executive officer of Mellanox, said the company’s third quarter performance showed the company’s capability in increasing its penetration in the existing market, and expanding the InfiniBand solutions in new markets. According to him, the company’s 10 and 40 Gigabit Ethernet products continue to gain market traction.
Last month, we posted an analysis, stating that Mellanox Technologies, Ltd. (NASDAQ:MLNX), which manufactures high-speed interconnect products for computer networks, is highly over valued. Based on the analysis, Mellanox’s FDR revenue could plateau in Q4 2012 and sharply reverse in 2013.