Mellanox Technologies Ltd. (MLNX) reported fourth-quarter 2013 loss of 5 cents per share, in line with the Zacks Consensus Estimate. The loss includes stock based compensation but excludes other one-time items.
Quarter Details
Revenues plunged 13.6% from the year-ago quarter to $105.5 million and were short of the Zacks Consensus Estimate of $108.0 million. FDR 56Gb/s InfiniBand revenues contributed 55.0% of revenues while Ethernet products contributed 15.0%.
During the quarter, Hewlett-Packard Co. (HPQ) and IBM Corp (IBM) contributed 15.0% and 11.0% of revenues, respectively.
Non-GAAP gross profit was down 15.4% from the year-ago quarter to $72.3 million, primarily due to lower revenue base. Gross margin for the quarter stood at 68.5% compared with 70.0% in the year-ago quarter. Including stock-based compensation, gross profit came in at $71.9 million.
Non-GAAP operating expenses increased 28.3% year over year to $63.2 million. As a percentage of revenues, operating expenses increased from 40.4% in the year-ago quarter to 49.9%. Including stock-based compensation, operating expenses came at $52.0 million.
Non-GAAP operating profit for the quarter was $9.1 million, down from $36.2 million in the year-ago quarter, primarily due to higher operating expenses. Operating margin was down from 29.6% in the year-ago quarter to 8.62%. Including stock-based compensation, Mellanox reported operating loss of $2.6 million.
Non-GAAP net income was $9.7 million, down from $30.7 million in the year-ago quarter.
Mellanox exited the quarter with $330.2 million in cash and investments versus $306.4 million in the previous quarter. During the quarter, accounts receivable decreased $3.3 million to $70.6 million. Cash flow from operations was $30.7 million compared with $16.4 million cash used in operations in the previous quarter.
Guidance
For the first quarter of 2014, revenues are projected in the range of $100.0 million to $105.0 million and gross margin in the range of 67.5% to 68.5%. Operating expenses are expected to increase 2.0% to 4.0% on a sequential basis. Non-GAAP diluted share count for the quarter is expected to be in the range of 46.0 million to 46.5 million shares.
Our Take
Mellanox reported dismal fourth-quarter results. However, we believe that Mellanox’s product offerings such as InfiniBand products and Ethernet solutions will help the company to drive top-line growth. Moreover, its association with multiple partners in the ecosystem is likely to create a more significant value-add to cloud solutions and consumers going forward.
However, sluggish macroeconomic environment, and increasing competition from its peers such as QLogic (QLGC) may act as headwinds, going forward.
Currently, Mellanox has a Zacks Rank #4 (Sell).
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