Mellanox: Fiscal 4Q18 Financial Results
Becoming $1 billion company that could be acquired
This is a Press Release edited by StorageNewsletter.com on February 1, 2019 at 2:44 pm| (in $ million) | 4Q17 | 4Q18 | FY17 | FY18 |
| Revenue | 237.6 | 290.1 | 863.9 | 1088.7 |
| Growth | 22% | 26% | ||
| Net income (loss) | (2.6) | 42.8 | (19.4) | 134.3 |
Mellanox Technologies, Ltd. announced preliminary financial results for its fourth quarter and fiscal year 2018.
“Mellanox had an outstanding 2018, delivering 26% annual revenue growth and achieving $1.09 billion in revenue for the first time in our history. 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.
“We achieved record quarterly revenue in our Ethernet switch business, capitalizing on design wins for our high-performance, feature-rich solutions, which support continued growth in 2019. We maintained our leadership in 25Gb and above Ethernet adapters and continue to benefit from the multi-year transition to higher speeds. Revenue for 100 GbE adapters in 2018 was approximately 2.5 times that of 2017, an indication that the transition to 100Gb technology has begun, which will drive the next leg of growth. We are also gaining traction in a new growth vector for the next generation of intelligent interconnect with our BlueField SmartNICs and storage controllers. We grew our IB business 8% year-over-year and see strong demand for our leading performance HDR 200 Gigabit per second IB solutions for high-performance computing, artificial intelligence, big data, cloud, storage, and additional applications. Our HDR IB solutions have begun to ramp with a healthy backlog for Q1 and beyond. We achieved record Q4 and 2018 revenue with our LinkX cables and transceivers and expect to continue seeing healthy growth of our LinkX product line in 2019. We continue to invest in R&D to maintain our leadership across all product lines to fuel our growth in 2019 and beyond,” he concluded.
Fourth Quarter 2018 – Financial Results Summary
• Revenue of $290.1 million, an increase of 22.1%, compared to $237.6 million in 4FQ17.
• GAAP gross margins of 65.4% in the fourth quarter, compared to 64.1% in the fourth quarter of 2017.
• Non-GAAP gross margins of 69.0%, compared to 68.8% in 4FQ17.
• GAAP operating income of $44.0 million, compared to an operating loss of $6.7 million in 4FQ17.
• Non-GAAP operating income of $78.7 million, or 27.1% of revenue, compared to $38.0 million, or 16.0% of revenue in 4FQ17.
• GAAP net income of $42.8 millio, compared to a net loss of $2.6 million 4FQ17.
• Non-GAAP net income of $77.1 million, compared to $42.9 million in 4FQ17.
• GAAP net income per diluted share of $0.78, compared to a net loss per diluted share of $0.05 in 4FQ17.
• Non-GAAP net income per diluted share of $1.42, compared to $0.82 in 4FQ17.
• Cash provided by operating activities was $96.4 million, compared to $66.9 million in 4FQ17.
• Cash and investments totaled $438.5 million at December 31, 2018, compared to $273.8 million at December 31, 2017.
Fiscal Year 2018 – Financial Highlights
• Revenue of $1,088.7 million in 2018, an increase of 26.0%, compared to $863.9 million in 2017.
• GAAP operating expense of $588.1 million in 2018, compared to $580.5 million in 2017.
• Non-GAAP operating expense of $483.0 million in 2018, a decrease of 1%, compared to $489.3 million in 2017.
• GAAP operating income of $112.1 million in 2018, compared to operating loss of $17.1 million in 2017.
• Non-GAAP operating income of $270.2 million in 2018, or 24.8% of revenue, compared to $118.7 million, or 13.7% of revenue in 2017.
• 2018 GAAP benefit from taxes on income of $22.0 million, mainly due to the reversal of a valuation allowance related to deferred tax assets.
• GAAP net income of $134.3 million in 2018, compared to a net loss of $19.4 million in 2017.
• Non-GAAP net income of $266.5 million, compared to $116.6 million in 2017.
• GAAP net income per diluted share of $2.46, compared to a net loss per diluted share of $0.39 in 2017.
• Non-GAAP net income per diluted share of $5.01, compared to $2.28 in 2017.
• Cash provided by operating activities during FY18 was $264.9 million, compared to $161.3 million during FY17.
First Quarter 2019 Outlook
• Quarterly revenue of $295 million to $305 million
• Non-GAAP gross margins of 68.0% to 69.0%
• Non-GAAP operating expenses of $123 million to $125 million
• Non-GAAP diluted share count of 54.5 million to 55.0 million
Comments
With this quarter's excellent financial results - six consecutive quarters of record revenue, positive outlook for next one (revenue up to 2% to 5%) and two big OEMs (Dell EMC representing 14% of 4FQ18 revenue and HP 11%), Mellanox will be high-priced for several eventual acquirers whose named has been published on several sources on Internet: Xilink, Microsoft and Intel, this later offering $5.5 billion to $6 billion or the equivalent of around 6X annual revenue.
Xilink, in flexible and adaptive processing platforms that enable rapid innovation across a variety of technologies from the endpoint to the edge to the cloud and inventor of the FPGA, hardware programmable SoCs and the ACAP, designed to deliver dynamic processor technology, is largely the smallest one with yearly revenue expected to be $3 billion, and then has few chances to be the final buyer.
Microsoft is not in hardware at all and it's difficult to understand what they are going to do with Mellanox.
Intel is the most serious acquirer as the company is also in IB technology, and even the only competitor of Mellanox in this field following its acquisition QLogic's IB technology in 2012, a business representing 47% of Mellanox in 4FQ18 and 40% for fiscal year. But it means that it will have a monopoly on IB mainly used into HPC market, and, consequently, the prices of IB, already high, could increase in favor of Ethernet. Note that new CFO of Mellanox, Doug Ahrens, worked at Intel.
To read the earnings call transcript (not any word on potential acquisition)
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