Mellanox Gains Evaporate as Tech Earnings Gloom Deepens Rout

  • Disapointing revenue forecast triggered selloff last month
  • Investors wary of repeat of 2012 rout, Intel competition

Eyal Waldman, Mellanox Technologies Ltd.’s chief executive officer, had an excellent start to 2016. The past two months? Not so much.

He won a battle with activist shareholders to acquire EZchip Semiconductor Ltd. in January, and brushed off competitive threats from Intel Corp., the world’s largest chipmaker, on a January earnings call. Mellanox shares rallied 29 percent in the first quarter, its best start to a year since 2012.

Now those gains have evaporated after slower-than-expected sales growth and a slew of disappointing tech industry earnings sent investors fleeing.

Mellanox’s first-quarter earnings beat analysts’ estimates last month, but its revenue forecast for the next three months wasn’t as high as analysts expected, triggering growth concern and a 12 percent rout the next day. The selloff deepened after disappointing earnings at Apple Inc. and Microsoft Corp. eroded investor confidence in technology stocks.

Waldman’s company is being punished more than peers because investors are wary of being whipsawed the way they were in 2012, when sales tied to a server upgrade rocketed on pent-up demand and then quickly petered out, said Srini Nandury, an analyst at Summit Research Partners in Summit, New Jersey.

“I don’t think the story has changed,” Nandury said by phone. “In fact, the company has been executing well. The problem is the Street right now is in a mood of ‘shoot first and ask questions later.’ ”

Mellanox’s shares have plunged 23 percent since the end of March, compared with a 2.5 percent decline in the Nasdaq Composite Index and a 5.5 percent drop in the Philadelphia Stock Exchange Semiconductor Index. Shares of the Yokneam Elit, Israel-based company rose 1.4 percent to $41.87 at 9:40 a.m. in New York. They’re down less than one percent for the year.

Mellanox, whose InfiniBand hardware is ubiquitous in high-performance computing networks, is trying to jump ahead of competitors by selling data-center switches that can move information at the fastest speed in the industry. Some analysts, including James Kisner at Jefferies Group LLC, who has a hold rating on the shares and a $50 price target, are wary of competition from Intel’s rival product for supercomputers, the Omni-Path interconnect.

Mellanox executives declined to comment on the trading in the shares.

Despite turbulent markets, 12 of 15 analysts recommend buying the stock. Their average 12-month price target implies a potential 53 percent increase.

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