Mellanox Buffered by Orders as Economy Flags: Israel Overnight
Mellanox Technologies Ltd. (MLNX), the 12- year-old Israeli adapter maker part-owned by Oracle Corp. (ORCL), is sticking with forecasts for 80 percent sales growth this quarter as orders persist even as the global recovery falters.
“We’re still going to be able to grow as in these situations people tend to look for products that do more with less,” Chief Executive Officer Eyal Waldman, a former software developer for Intel Corp. (INTC) in Haifa, Israel, said in a telephone interview. “We still see the orders going in so we don’t feel the macro waves coming.”
Shares of the Yokneam, Israel-based company rose 3.6 percent yesterday to $29.01 on the Nasdaq Stock Market, extending their gain in the past 12 months to 84 percent, the second-biggest advance in the Bloomberg Israel-US 25 Index. The Tel Aviv-traded stock fell 1.5 percent to 101.10 shekels, or the equivalent of $28.34, at 5 p.m. in Tel Aviv. Mellanox shares fell 2 percent to $28.43 by 10 a.m. in New York.
Waldman, 51, is predicting revenue growth will accelerate after second-quarter sales increased 58 percent to $63.3 million. Mellanox, which is benefiting from increased demand for cloud computing, continues to receive orders for equipment that helps companies including International Business Machines Corp. (IBM) and Hewlett-Packard Co. move data more easily, he said.
The global market for cloud computing is forecast to increase to $241 billion in 2020 from $40.7 billion in 2011, according to Forrester Research Inc.
Mellanox is among 57 Israeli companies traded on the Nasdaq, the most of any country outside the U.S. after China. Israeli technology companies raised $569 million in capital during the second quarter of 2011, the most in two years and up from $343 million in the same period last year, according to the Israel Venture Capital-KPMG Quarterly Survey released July 13.
The Bloomberg Israel-US 25 Index of the largest Israeli companies traded in New York climbed 3 percent to 85.63 yesterday, the highest since Aug. 17. The index was down 1.1 percent today, extending its decline to 19 percent this year.
Israel’s TA-25 Index, the benchmark for the nation’s stock market, which was upgraded to developed market status by MSCI Inc. in May 2010, dropped 0.1 percent to 1,121.17. The measure has lost 15 percent this year, or 16 percent in dollar terms, data compiled by Bloomberg show.
Mellanox, whose products are used at data centers, investment banks and stock exchanges, reported July 20 an adjusted second-quarter profit of 27 cents a share, topping the 21-cents median estimate of five analysts surveyed by Bloomberg. Third-quarter sales may rise to $68 million from $37.8 million in the year-earlier period, the company said.
“Every time you click on your iPhone, your engine is searching for your e-mail or a photo and you want the data to be fast,” Waldman said in the interview yesterday. “That’s when we come into the picture.”
Mellanox dropped 23 percent, exceeding the Nasdaq Composite Index (CCMP)’s 18 percent retreat, from July 22 through Aug. 19 as Europe’s debt crisis and worsening economic reports in the U.S. raised concern that the global economic recovery is faltering. The measure’s decline marked its biggest four-week loss since March 2009. Mellanox trades at 26 times 2011 earnings, compared with an average 15.4 for stocks in the Nasdaq Composite Index.
Options traders are lowering their bets that Mellanox will extend its rally. The ratio of outstanding calls to buy the New York-traded shares versus puts to sell rose to a nine-month high of 3.4-to-1 on July 19 then extended the increase to 3.5 on Aug. 18, according to data compiled by Bloomberg. The ratio was 2.9 as of the end of last week.
Calls give the right to buy a security for a certain amount, the strike price, by a set date. Puts convey the right to sell. Investors use options to guard against fluctuations in the price of securities they own, speculate on share-price moves or bet that volatility, or stock swings, will rise or fall.
“Stocks of key customers have all declined as well as industry commentary has been weak regarding U.S. government, Europe, and financials,” Joseph Wolf, an analyst at Barclays Capital in Tel Aviv who has an overweight recommendation on the company, wrote in an e-mailed report yesterday. Growth “could be at risk if economic softness persists,” he said.
Waldman, who worked from 1989 to 1993 at Intel in Haifa where he holds a patent on the synchronization mechanism of future 64-bit architecture, established Mellanox in 1999. He sold a chip designer he founded, Galileo Technology Ltd., to Hamilton, Bermuda-based Marvell Technology Group Ltd. (MRVL) for $815 million in stock in 2001.
Mellanox, which bought Voltaire Ltd. in February for about $218 million to improve the speed of its adapters and has $174 million in cash on its balance sheet, doesn’t need another acquisition to boost sales, Waldman said.
“There are good opportunities out there, but we can grow organically,” he said.
Oracle of Redwood City, California, the largest maker of database software, owns a 9.7 percent stake in Mellanox, according to data compiled by Bloomberg. The Israeli company derived 15 percent of its revenue from Palo Alto, California- based Hewlett-Packard, the world’s largest computer maker, and 13 percent from Armonk, New York-based IBM, the biggest computer-services provider, according to a JPMorgan Chase & Co. report dated July 21.
The shekel rose 0.1 percent to 3.5720 against the dollar in Tel Aviv today after Bank of Israel Governor Stanley Fischer yesterday held the benchmark interest rate unchanged for a third month at 3.25 percent. The currency has lost 4.2 percent versus the dollar over the past month, the third-worst performer among 10 emerging markets in Europe, Middle East and Africa tracked by Bloomberg.
Teva Pharmaceutical Industries Ltd. (TEVA), the world’s largest maker of generic pharmaceuticals, advanced 3 percent to $40.59 in New York yesterday. The Tel Aviv shares advanced 0.9 percent to 143.80 shekels, or the equivalent of $40.28. Mylan Inc.’s motion to dismiss a patent lawsuit by Teva over the multiple- sclerosis drug Copaxone was dismissed by a federal judge.
B.O.S. Better On-line Solutions Ltd. dropped to the lowest level since March 1, retreating 16 percent to $1.61. The Rishon Lezion, Israel-based developer of supply chain software, reported a second-quarter loss per share of 12 cents.
Cellcom Israel Ltd. (CEL), the country’s largest mobile-phone operator, advanced 3.1 percent to $22.23. The Tel Aviv shares added 0.2 percent to 79.15 shekels, or the equivalent of $22.17.
NetVision Ltd., a provider of communications services, and Cellcom will complete their merger on Aug. 31, according to PRNewswire statement yesterday.
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