Mellanox loses gains

09 May, 2016

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For Mellanox (NASDAQ: MLNX), the excellent start to 2016 is now a thing of the past. The last two months of March and April have seen the company's gains evaporating after it saw slower than anticipated sales growth. Compounding the problem is the tech industry's lack of earnings which sent investors running.

Mellanox and the analysts

The first quarter earnings of the company exceeded the figure published by analysts in April. However Mellanox's revenue forecast for coming three months were not as much as estimated by analysts. This triggered a growth concern and also a 12 percent rout the following day. There was more sell off after both Microsoft Corp. and Apple Inc. posted disappointing earnings. No wonder investor confidence went down.

There is a good reason for Mellanox's dismal figures. It went back to the company's past, more exactly in 2012 when investors were left high and dry after earnings of the company spiked up due to sales going sharply up due to their link to a server upgrade. According to analysts, the story has not changed from that time. Even though the company was executing well, investors are not willing to take that risk.

About the company

Mellanox is one of the biggest manufacturers of networking equipment in the world. The company operates in the United States and Israel, employing about 2,400 workers in these two countries. It has made investments in other part of the globe, like starting a new project in northern Israel. This will be the company fifth building in the area. Construction is slated to be completed before the end of 2018. The company estimates that its sales will rise by 10 percent in 2016.

Mellanox acquired EZChip Semiconductor Ltd in 2015 for a total of $811 million. This acquisition is the largest in the history of the company. A majority of world's biggest data corporations are Mellanox clients. Its gateways, switches and adapters sell particularly well. To give an example, Microsoft employs Mellanox software and equipment to power its Bing maps. Oracle uses Melllanox manufactured equipment exclusively in the former's data centers. Its list of other clients include Dell, IBM and HP.

Coming to the stock market, Mellanox shares dropped 24 percent from March end, compared to a decline of 2.8 percent in Nasdaq Composite Index. It also suffered a 5.8 percent dip in Philadelphia Stock Exchange Semiconductor Index. Shares went down two percent for 2016 when the company finished at $41.29.

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