MLNX

Mellanox Technologies, Ltd. (MLNX)

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Mellanox Technologies, Ltd. (MLNX)

Q2 2008 Earnings Call Transcript

July 23, 2008 5:00 pm ET

Executives

Lee-Ann Stewart – IR

Eyal Waldman – Chairman, President and CEO

Michael Gray – CFO

Analysts

Adam Benjamin – Jefferies

Armand Pagosi [ph] – Credit Suisse

Brent Bracelin – Pacific Crest Securities

Kevin Cassidy – Thomas Weisel Partners

Irit Jakoby – Susquehanna

Quince Slattery – Symmetry Peak Management

Presentation

Operator

Good day, everyone, and welcome to today's Mellanox Technologies second quarter 2008 earnings conference call. Today's call is being recorded. (Operator instructions) At this time, I would like to turn the call over Lee-Ann Stewart. Please go ahead.

Lee-Ann Stewart

Thank you. Good afternoon, and welcome to Mellanox Technologies second quarter 2008 conference call. Leading the call today will be Eyal Waldman, Chairman, President, and CEO of Mellanox Technologies, and Michael Gray, Chief Financial Officer.

By now you've seen our press release and associated financial information that we furnished on Form 8-K this afternoon. In addition to reviewing our financial results, some of our comments today will include forward-looking statements within the meaning of section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities and Exchange Act of 1934 as amended, based on our current expectations.

These looking-looking comments entail various significant risks and uncertainties that could cause our actual results to differ materially from those expressed in such forward-looking statements.

Forward-looking statements in this conference are generally identified by words such as “believes,” “anticipates,” “expects,” “intends,” “may,” “will,” and other similar expressions. However, these words are not the only way we identify forward-looking statements. In addition, any statements that refer to expectations, projections, forecasts, predictions, or other characterizations of future events or circumstances are forward-looking statements.

Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today. We undertake no obligation to update any of the information contained in the forward-looking statement that we make today. We have provided additional information in today's press release and in our Form 10-K filed on March 24, 2008 and 10-K filed on May 5, 2008 about some risk factors that could cause our actual results to differ materially from those in the forward-looking statements.

If you do not have copies of our 10-K or 10-Q, you can find it on our Web site www.mellanox.com or we will be happy to provide them to you.

Now I will turn the call over to Eyal for his opening remarks. Eyal.

Eyal Waldman

Thank you, Lee-Ann. Good afternoon, everyone, and thank you for joining us for our Second Quarter 2008 Earning Conference Call.

On the call today I will highlight the results and achievements of the second quarter and then I will turn the call over to Michael Gray, our Chief Financial Officer, who will discuss the financial results in more details and give our third quarter guidance. After that, I will discuss our business and plans for the future and then we will be happy to take your questions.

The second quarter marks our eighth consecutive quarter of record revenue for Mellanox. Our second quarter revenue increased 12% sequentially to $28.2 million. Operating income was $6.4 million, or 23% of sales.

Non-GAAP net income increased to $9.6 million or $0.28 per diluted share. Gross margins were 79.8% and we generated record cash from operations of $10.1 million while ending the quarter with more than $165 million in cash.

In the second quarter we increased shipments of our flagship ConnectX Adapter by 21% as compared to Q1 of 2008. 84% of our second quarter revenue was based on our 20-gigabit per second products consistent with the first quarter.

We started shipping our 40-gigabit per second products in the second quarter and expect this technology to ramp in the coming years. Our 40-gigabit per second products include ConnectX Adapter silicon in cards, and our 40-gigabit per second InfiniScale IV Switch Silicon and Platforms.

During the second quarter, our core InfiniBand products continued to expand into mainstream enterprise business applications. HP and SGI announced data warehousing solutions that integrate our 20-gigabit per second InfiniBand adapters and switch products together with Oracle 11g database solution.

These systems use InfiniBand to efficiently connect servers and storage resources together and provide organizations demanding the best cost performance with turnkey easy to deploy low power solutions.

Cloud computing allows IT managers to access vast computing storage and application resources across the Internet. IBM introduced their power optimized iDataPlex server rack platform that specifically targets cloud computing and Web 2.0 service providers utilizing our 20-gigabit per second InfiniBand adapters and switches based on our silicon.

Virtualization is increasing the demand for efficient data center interconnect and remains a key market driver for our products. During the quarter, SoftBank Telecom, one of Japan's largest telecommunication firms deploy load balancing and disaster recovery applications between VMware virtualized servers, using our InfiniBand adapters in two CPUs, 500 kilometers apart. InfiniBand wider in network equipment provides a direct link between remote data centers, which optimizes system up time and load balancing.

IT departments in capital markets must analyze ever increasing amounts of market data with decreasing tolerance for transaction latency. We announced that our 20-gigabit per second InfiniBand adapters provide the low latency and highest group of interconnect demanded by market data distribution and automated trading system, and we now – and we are now deployed at major North American equity exchanges.

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