Mellanox Tumbles on Second Sales Forecast Miss
January 24, 2013
Mellanox Technologies Ltd., the Israeli maker of technology used to transfer and store data, plunged 28 percent in after-hours trading in New York after its sales projections missed estimates for a second time this month.
The technology developer sank to $37 by 5:56 p.m., from a closing price of $51.69, as Chief Financial Officer Jacob Shulman said that Mellanox will report first-quarter revenue that trailed analysts’ estimates by as much as 48 percent. The Bloomberg Israel-US Equity Index of the largest U.S.-traded Israeli companies rose 0.5 percent to 86.38 as investors bet Prime Minister Benjamin Netanyahu’s new governing coalition would weaken ultra-Orthodox factions within the parliament.
Revenue for the three months ended March will reach $78 million to $83 million, Shulman said yesterday in a call with analysts after Mellanox reported fourth-quarter earnings. The range compares with the $130.7 million average of 13 sales estimates compiled by Bloomberg. The company sparked a 17 percent drop in its U.S. stock the day after lowering fourth- quarter forecasts Jan. 2. Chief Executive Officer Eyal Waldman said he expects growth to resume in the second quarter.
“It’s very bad for a company to miss twice,” Brian Freed, an analyst at Wunderlich Securities Inc. who has a buy rating on Mellanox, said in a phone interview from Memphis, Tennessee yesterday. “It will, if not permanently then for a very long time, impair the multiple Wall Street is willing to pay for the stock.”
Mellanox gained 7.5 percent during regular trading hours to trade for 14.4 times estimated earnings. Shares of the Yokneam Elit-based company traded in Tel Aviv sank 2.7 percent to 180.20 shekels yesterday, or the equivalent of $48.41.
Inventory Build-up
The sequential drop in revenue is mostly due to a build-up in inventory by one of the company’s customers, CEO Waldman said, without naming the client.
“The majority of the inventory will be depleted in the first quarter of 2013 and we expect growth to resume in the second quarter of 2013 and thereafter,” he said on the call yesterday.
Mellanox said at the beginning of this year that sales for the last three months of 2012 would be $119 million to $121 million, below guidance issued in October for revenue of $145 million to $150 million in the quarter.
Shares have slumped 57 percent in New York since hitting a record $119.93 Sept. 6. Mellanox rallied 270 percent in the first eight months of 2012 on surging demand for its technology from suppliers of information storage and data systems.
“They’ve already shot their credibility to a great degree,” Wunderlich’s Freed said. “Not getting back to beating or meeting estimates is just going to further damage that.”
