Mellanox (MLNX) Surpasses Q3 Earnings and Revenue Estimates

Mellanox MLNX delivered third-quarter 2018 earnings of $1.33 per share, beating the Zacks Consensus Estimate by 13 cents. The figure increased 87.3% year over year.

The company reported revenues of $279.2 million, up 23.7% from the year-ago quarter. The figure also came within the guided range of $270-$280 million and beat the Zacks Consensus Estimate of $276 million.

Innovations in Ethernet adapters, switches and cables boosted demand, which drove the top line. Moreover, Mellanox increased its leadership in the 25 gigabit per second (gbps) and above merchant adapter market this quarter.

Quarter in Details

Mellanox has a 69% market share in the Ethernet business. Notably, the business grew 59% year over year. The need to access and process data at a faster speed due to data growth is increasing demand for high-speed Ethernet adapters.

The company released HDR 200 gigabit InfiniBand this quarter, which enhanced its competitive advantage in the artificial intelligence (AI) market. It was also selected by Texas Advanced Computing Center (TACC) to increase the performance and efficiency of Frontera, which is ranked among the top five fastest supercomputers in the world.

However, InfiniBand declined in the third quarter due to several deals shifting to the current quarter. Revenues were $97.9 million, down from $102.1 million in the second quarter of 2018. Moreover, InfiniBand accounted for 35% of revenues in this quarter, down from 38% in the prior quarter.

Also, revenues from the company's boards witnessed a decline from 51% to 47% sequentially. Revenues for Ethernet switch business declined 21% to 17% sequentially due to delay in ramp timing of two customers but increased 78% on a year-over-year basis.

Moreover, the company is witnessing huge demand for BlueField (system-on-a-chip device) from the world's leading hyperscale cloud and storage companies.

Operating Results

Non-GAAP gross margin in the third quarter was 69.6%, up 50 basis points (bps) from the second quarter of 2018 but down 110 bps on a year-over-year basis.

Non-GAAP operating expenses in the quarter increased $1.9 million sequentially to $121.2 million, primarily attributable to costs and merit-based salary increases.

Non-GAAP research and development expenses in the third quarter were $82.2 million compared with $78.5 million in the second quarter of 2018, representing a sequential increase of 4.7%. This was attributed to new product developments like optical transceivers, active optical cables and direct attach copper cables for using HDR systems.

General and administrative expenses were $9.3 million compared with $10.8 million in the second quarter

Non-GAAP operating income was $38 million, which declined 14.3% year over year. Non-GAAP operating margin was 16% compared with 20% in the year-ago quarter.

Mellanox Technologies, Ltd. Price and Consensus

Mellanox Technologies, Ltd. Price and Consensus | Mellanox Technologies, Ltd. Quote

Balance Sheet & Cash Flow

Mellanox exited the third quarter with cash & investments worth $350.2 million compared with $282.6 million in the second quarter, primarily due to significant demand for end-to-end Ethernet products.

In the third quarter, the company generated cash of $66 million from operations

Further, at the end of the third quarter, Mellanox cleared its outstanding long-term debt of $72.7 million.


Mellanox expects fourth-quarter 2018 revenues to be in the range of $280 million to $290 million. The company is well positioned to reap the benefits of the release of BlueField system chips as well as introduction of 200 gigabit per second InfiniBand and Ethernet products.

Non-GAAP gross margin is expected in the range of 68.5% to 69.5%. Moreover, management expects non-GAAP operating expenses to be in the range of $122 million to $124 million.

Zacks Rank and Other Stocks to Consider

Mellanox currently carries a Zacks Rank #2 (Buy)

Other top-ranked stocks in the broader technology sector include MeetMe, Inc. MEET , Microsoft Corporation MSFT and Nikon Corp. NINOY , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

MeetMe, Microsoft and Nikon have a long-term expected earnings growth rate of 20%, 12.4% and 22.2%, respectively.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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