Mellanox 2018 revenue tops $1 billion for first time in firm’s history

Record results come amid reports of Intel bidding to acquire the Yokne’am-Israel based maker of computer networking products

Shoshanna Solomon was The Times of Israel's Startups and Business reporter

Mellanox CEO Eyal Waldman in his office in Tel Aviv (Shoshanna Solomon/TimesofIsrael)
Mellanox CEO Eyal Waldman in his office in Tel Aviv (Shoshanna Solomon/TimesofIsrael)

Mellanox Technologies Ltd., a maker of high-speed servers and storage switching solutions, said late Wednesday that revenues for 2018 crossed the $1 billion mark for the first time in the firm’s history, as clients demand higher speeds for their cloud platforms, AI computations and data centers.

The record results come amid reports of US giants bidding to acquire the Yokne’am, Israel-based firm. Mellanox shares surged 7.2 percent on the Nasdaq on Wednesday after reports in the Hebrew-language press said US tech giant Intel Corp., a Mellanox competitor and client, made a bid to acquire the firm for $5 billion to $6 billion, a premium to its current market price. Microsoft, a Mellanox client, and US tech firm Xilinx Inc. are also reportedly in the running to buy the firm.

On Thursday, the Calcalist financial website, which broke the news about Intel’s bid on Wednesday saying the firm had made a $6 billion cash and stock offer, reported that Intel has made it to the final stages of the bidding process. Intel and Mellanox have declined to comment on the press reports.

Mellanox shares have advanced some 35% in the past 12 months, bringing its market value to $4.7 billion, as of end of day Wednesday.

“We leveraged top line growth and strong expense discipline to accelerate profitability. We expect to carry this momentum into 2019 and deliver another year of healthy, double-digit revenue growth to drive operating margins even higher,” said Eyal Waldman, president and CEO of Mellanox Technologies, in a statement.

Revenue for 2018 surged 26 percent to $1.09 billion while net income rose to $134.3 million in 2018, compared to a net loss of $19.4 million in 2017.

In an interview with The Times of Israel in 2017, Waldman said that crossing the $1 billion sales target was an important milestone for him, the founder, and the firm.

Revenue for the fourth quarter of the year rose 22 percent to $290.1 million, compared to $237.6 million in the fourth quarter of 2017. Net income rose to 42.8 million in the quarter, compared to a net loss of $2.6 million in the fourth quarter of 2017.

“Fourth quarter revenue of $290.1 million represented the sixth consecutive quarter of record revenue,” Waldman said in a conference call, according to a transcript.

The results stem from the growth in demand for Mellanox’s high-speed Ethernet adapters, switches and cables for use in the cloud, in enterprise data centers and by artificial intelligence customers, to maximize the efficiency of computers.

Tier-2 cloud providers, large scale enterprises, storage customers and others are “broadening” their demand for these Ethernet products, Waldman said in the conference call. “This diverse customer base supports revenue stability for our Ethernet adapter business and is an indication of the meaningful growth opportunities we foresee in 2019 and beyond.”

Sales of Ethernet products surged some 54% in 2018, year on year, Waldman said. The Ethernet line of products accounted for 57% of the company’s full year 2018 revenue. Revenues for the firm’s InfiniBand switch system solution rose 33% in the fourth quarter of 2018, compared to the previous year, driven by research, government deployments and storage applications. InfiniBand represented 40% of the 2018 annual revenue, Doug Ahrens, the chief financial officer of the firm, said.

Operating expenses for the year were flat compared to 2017.

In 2017, New York activist investor Starboard Value LP acquired a 10.7 percent stake in Mellanox in a bid to improve its performance and push it to explore a potential sale.

For 2019, company projected revenue of $295 million to $305 million. Mellanox chiefs did not discuss the acquisition rumors in the conference call Wednesday.

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