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Mellanox: Fiscal 1Q17 Financial Results

IB revenue down 14% Y/Y, up 17% for Ethernet

(in $ million) 1Q16 1Q17 Growth
Revenue
196.8 188.7 -4%
Net income (loss) (7.2) (12.2)  

Mellanox Technologies, Ltd. announced financial results for its first quarter ended March 31, 2017.

Our first quarter IB revenues were down year-over-year, impacted by delays in the availability of next generation x86 CPUs, seasonal trends in high-performance computing, and technology transitions occurring across several end users and OEM customers. We believe IB has maintained share in HPC, and expect revenues will see sequential growth in the coming quarters driven by current backlog and additional pipeline opportunities,” said Eyal Waldman, president and CEO. “Our first quarter Ethernet revenues grew across all product families sequentially, driven by the adoption of our 25/50/100 gigabit solutions. We expect 2017 to be a growth year for Mellanox.

First Quarter 2017 Highlights
    •    Revenues of $188.7 million decreased 4.1%, compared to $196.8 million in the first quarter of 2016.
    •    GAAP gross margins of 65.8%, compared to 64.2% in the first quarter of 2016.
    •    Non-GAAP gross margins of 71.7%, compared to 71.4% in the first quarter of 2016.
    •    GAAP operating loss was $12.6 million, compared to $3.9 million in the first quarter of 2016.
    •    Non-GAAP operating income was $15.7 million, or 8.3% of revenue, compared to $41.3 million, or 21.0% of revenue in the first quarter of 2016.
    •    GAAP net loss was $12.2 million, compared to $7.2 million in the first quarter of 2016.
    •    Non-GAAP net income was $14.7 million, compared to $39.3 million in the first quarter of 2016.
    •    GAAP net loss per diluted share was $0.25, compared to $0.15 in the first quarter of 2016.
    •    Non-GAAP net income per diluted share was $0.29, compared to $0.81 in the first quarter of 2016.
    •    $35.0 million in cash was provided by operating activities, compared to $48.6 million in the first quarter of 2016.
    •    Cash and investments totaled $325.2 million at March 31, 2017, compared to $328.4 million at December 31, 2016.

Second Quarter 2017 Outlook
    •    Quarterly revenues of $205 million to $215 million
    •    Non-GAAP gross margins of 70.5% to 71.5%
    •    An increase in non-GAAP operating expenses of 3% to 5%
    •    Share-based compensation expense of $17.3 million to $17.8 million
    •    Non-GAAP diluted share count of 50.8 million to 51.3 million shares

Comments

Abstracts of the earnings call transcript:

Eyal Waldman, president and CEO:
"As a result, our IB revenues were down sequentially below our expectation. We believe IB revenues will see sequential growth in coming quarters. Driven by backlog and additional pipeline opportunities, we do not see IB losing share in the market.
"Our recent competitive analysis conducted by a leading global OEM comparing Mellanox's IB to Intel's Omni-Path demonstrated customers can achieve 30% to 250% higher application performance using Mellanox's IB versus Omni-Path."
Jacob Shulman, CFO:
"First quarter IB revenues were at $97 million. Our IB revenues declined 14.3% year-over-year. Revenues from our IB-based products represented 51.4% of revenues in Q1 2017, down from 57.5% of revenues in Q1 2016.
"Our EDR 100Gb/s IB products were up 89% year-over-year and represented 40.9% of IB revenues."

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