Mellanox Sinks on Second Forecast Miss: Israel Overnight
Mellanox Technologies Ltd. (MLNX), an Israeli maker of technology used to transfer and store data, plunged to a nine-month low in Tel Aviv after its sales projections missed estimates for a second time this month.
The technology developer sank 14 percent to 155 shekels, or the equivalent of $41.72, the lowest since April 15, at the close in Tel Aviv, in 5.5 times the three-month average daily volume. The company’s U.S.-traded shares plunged 15 percent to $44.11 at 9:56 a.m. in New York. Chief Financial Officer Jacob Shulman yesterday said Mellanox will report first-quarter revenue that trailed analysts’ estimates by as much as 48 percent.
Revenue for the three months ending in March 31 will reach $78 million to $83 million, Shulman said in a call with analysts after Mellanox reported fourth-quarter earnings. The range compares with the $130.7 million average of 13 sales estimates compiled by Bloomberg. The company sparked a 17 percent drop in its U.S. stock the day after lowering fourth-quarter forecasts Jan. 2. Chief Executive Officer Eyal Waldman said he expects growth to resume in the second quarter.
“This is very bad news,” Rudi Shtivi, senior analyst at Leumi Partners Ltd. in Tel Aviv, the investment banking arm of Bank Leumi Le-Israel Ltd. (LUMI), said today by phone. “There is no doubt this is a very strong statement by the company about the business environment it is operating in.”
The stock’s plunge led declines on the benchmark TA-25 Index which fell 0.7 percent. Mellanox’s 30-day historic volatility, a measure of stock swings, rose to 84.32 today, the highest since Nov. 18.
“It’s very bad for a company to miss twice,” Brian Freed, an analyst at Wunderlich Securities Inc. who has a buy rating on Mellanox, said in a phone interview from Memphis, Tennessee, yesterday. “It will, if not permanently then for a very long time, impair the multiple Wall Street is willing to pay for the stock.”
The sequential drop in revenue is mostly due to a build-up in inventory by one of the company’s customers, CEO Waldman said, without naming the client.
“The majority of the inventory will be depleted in the first quarter of 2013 and we expect growth to resume in the second quarter of 2013 and thereafter,” he said on the call yesterday.
Mellanox said at the beginning of this year that sales for the last three months of 2012 would be $119 million to $121 million, below guidance issued in October for revenue of $145 million to $150 million in the quarter.
Shares have slumped 57 percent in New York since hitting a record $119.93 Sept. 6. Mellanox rallied 270 percent in the first eight months of 2012 on surging demand for its technology from suppliers of information storage and data systems.
“They’ve already shot their credibility to a great degree,” Wunderlich’s Freed said. “Not getting back to beating or meeting estimates is just going to further damage that.”