Mellanox Technologies, Ltd. (MLNX)

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Mellanox Technologies, Ltd. (MLNX)

UBS Global Technology Conference Call

November 14, 2012 10:30 am ET


Jacob Shulman – Chief Financial Officer


Steven M. Milunovich – UBS Securities LLC


Steven M. Milunovich – UBS Securities LLC

Good morning. We now get started. I’m Steve Milunovich UBS IT Hardware analyst, I’m joined by my colleague, Jon Roy, who is our Storage Specialist and we’re excited to have the management of Mellanox with us. Jacob Shulman will be doing the presentation, he served as Mellanox’s CFO since November, so very recently. Previously he was the VP of Finance from March 2012 to October 2012, and also Mellanox’s Corporate Controller from June of ’07 to March of ’12. Prior to joining Mellanox, he served as Corporate Controller of Atrica, a carrier Ethernet company which was acquired by Nokia Siemens. Also with us today is Michael Gray, the former CFO.

So Jacob is going to give us a 10 or 15 minutes presentation on the Company, and then we’ll have a little discussion and please think of questions as well. Jacob?

Jacob Shulman

Good morning guys. In ten days, since I officially became the CFO, subsequently join it. Before we start, please examine our Safe Harbor Statement, I think it’s pretty straight forward and I’m sure you are all familiar with it.

So what is Mellanox? Mellanox is a fabulous semiconductor company, we manufacture design and sell high-performance interconnect products that help to facilitate data transmission between servers, storage systems and embedded solutions. We target today, various markets, HPC high-performance computing, Web 2.0, storage, Enterprise Data Centers, cloud and financial services.

With dual headquarters were founded back in ‘99 in Israel. And with dual headquarters, all of our R&D and operations guys located in Israel and all of our business, sales and marketing guys all in Sunnyvale, California.

We have approximately 1,100 employees, we’re dually listed, we traded on the NASDAQ and the Tel Aviv Stock Exchange. And Q3 was record quarter for us, our revenue year-over-year grew 130%, our operating income was approximately 39% of the revenue.

So what do we do? Each compute and storage system consists of three main blocks, CPU, memory and interconnect. Overtime CPU vendors and memory vendors introduced more and more powerful products. And if the CPU, if the site between memory and CPU is not wide enough, and the interconnect cannot feed data to CPU then CPU would be idle and the system would be inefficient. So what we do, we enhance the efficiency of data centers and clusters, and by doing that using two main protocols InfiniBand and Ethernet.

So when we came to, when we first introduced our product, we offered 10-gigabit per second products, then the market progressed to 20, 40 and last year we introduced our latest generation InfiniBand product, which offered 56-gigabit-per-second bandwidth. The name of the game is bandwidth and latency. We have not only game in town for 53 gigabit InfiniBand products we also sell Ethernet products and we’ll provide bandwidth of 10 gigabits and 40 gigabits-per-second in Ethernet.

HPC has historically be now predominant market, but historically Mellanox has been viewed as a HPC player, but things kept certainly changed over the past few years to there we target additional markets Web 2.0, database enterprise, cloud and storage. There are multiple examples of how our products are used in those markets. In HPC there is a list of 500 computers probably 36 months, the latest release was published yesterday. And out of top 500 supercomputers in the world, 224 computers connected via InfiniBand.

InfiniBand is the most used interconnect in HPC markets today with 45% attach rate. Virginia University is a great example of how our systems are used in HPC. We are able to build a system 287-teraflops with only 648 servers that’s double performance, half of the server come from prior cluster.

In Web 2.0 we provide unmatched ROI. Great example is Microsoft Bing Maps when Microsoft deciding on their various solutions for the Bing Maps they had the alternatives 10 Gig E solutions, 10 Gig Ethernet or Mellanox’s 40 Gigabit InfiniBand, eventually the they decided it on Mellanox’s solution. So they were able to increase by a factor of 10 performance from prior cluster and they were able to achieve that with a cut cost, comparing to 10 Gig E solutions.

And their enterprise database market Oracle has puts on their map. Oracle uses our InfiniBand in their Exa family products, Exadata, Exalogic, Exalystics all around our 40 Gigabit InfiniBand as the backbone. So Oracle customers able to get their Exa performance sometime achieve a reduction of their CapEx by factor five.

Storage is a big market for us it’s a Greenfield for us, we just recently announced several design mills in the storage markets, with EMC, we have two public design wins, it’s a green plan and standard. We also have a design wins with IBM XIV. Oracle we truly believe at InfiniBand has a potential to replace fiber channels in the storage market. If you look at the trend setters today, HPC, Web 2.0, cloud guys none of them use fiber channels in their storage applications.

Also additional reasons, fiber channel highest bandwidth today is 16 degrees per seconds, InfiniBand provides today 56 and going to 100 in the future. We plan a big market and we expect this market to grow. Where we assess or calculate our total available market is by the number of end points sold annually. So we believe that 13.2 million end points sold on annual basis with 8.6 million being in service, 4 million end points in storage and 600,000 in embedded.

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