Bloomberg News

Mellanox Discount Swells as Intel Joins Market: Israel Overnight

January 24, 2012

Jan. 24 (Bloomberg) -- New York-traded shares of Mellanox Technologies Ltd. sank, swelling the discount versus Tel Aviv to the most in a month, as Intel Corp. agreed to buy assets of QLogic Corp., a competitor to the Israeli adapter maker.

Mellanox dropped 6.8 percent to $31.35 on the Nasdaq Stock Market yesterday, posting the biggest decline on the Bloomberg Israel-US 25 Index of the largest U.S.-traded Israeli companies and widening the gap with the shares in Tel Aviv to $1.29. The stock lost 3.4 percent to 119.20 shekels, or $31.50 at 9:57 a.m. in Tel Aviv today. Check Point Software Technologies Ltd. and Nice Systems Ltd. climbed on speculation a surprise reduction in interest rates will benefit exporters as the shekel weakens.

Yokneam Elit, Israel-based Mellanox will probably report record 2011 sales of $258 million tomorrow, according to the median estimate of analysts surveyed by Bloomberg, buoyed by the company’s domination of the market for InfiniBand, a technology used in data centers. Intel, the world’s largest semiconductor maker, will buy QLogic’s InfiniBand assets, boosting competition for the smaller Mellanox, according to Wunderlich Securities Inc.

“These two companies dominate the market and Mellanox always had a significant lead on QLogic,” said Brian Freed, an analyst at Wunderlich in Denver. “Three years from now, this track record of dominating the market may change to a company that could potentially be chasing Intel.”

‘Troubling Sign’

Aliso Viejo, California-based QLogic said yesterday it will sell its InfiniBand assets to Intel, also headquartered in California, for $125 million in cash.

Mellanox controls 85 percent of the InfiniBand market, according to Kevin Cassidy, an analyst at Steifel Nicolaus & Co. in New York.

Partly owned by Oracle Corp., the world’s second-largest software maker, Mellanox trades at 28.4 times estimated earnings, 88 percent higher than the average for companies on the Nasdaq Composite Index.

Oracle’s profit before some costs in the quarter ended Nov. 30 was 54 cents a share, on revenue excluding certain items of $8.81 billion, according to a Dec. 20 statement. Analysts had projected profit of 57 cents on sales of $9.23 billion, the average of estimates compiled by Bloomberg.

“Oracle’s soft results are a troubling sign,” Jonathan Kreizman, a Tel Aviv-based analyst at Clal Finance Brokerage Ltd. wrote in a report e-mailed yesterday.

Stanley Fischer

Israel’s central bank cut its benchmark interest rate yesterday for the third time since the end of September, saying that Europe, recipient of about 30 percent of Israel’s exports, is facing a recession that is hindering growth in the nation’s economy.

The monetary policy committee, led by Governor Stanley Fischer, reduced the rate by a 25 basis points, or 0.25 percentage point, to 2.5 percent. Ten of 23 economists surveyed by Bloomberg predicted a cut, and the remainder forecast no change.

The shekel lost 0.1 percent to 3.7834 a dollar today. The currency was the worst performer among emerging markets in Europe, Middle East and Africa yesterday.

Check Point, the world’s second-largest maker of network security equipment, climbed 2 percent to $55.83. Nice Systems, the Israeli maker of digital surveillance and monitoring systems, gained 1 percent to $35.85. The Ra’anana, Israel-based company’s Tel Aviv shares slipped to 134.70 shekels, or the equivalent of $35.59, today.

‘Good for Exporters’

“The rate cut is certainly good for exporters,” Jonathan Katz, a Jerusalem-based economist for HSBC Holdings Plc, said by phone yesterday. “Right now, Fischer is probably pleased with the level of the shekel. It’s a secondary motivation for a rate cut to support exporters.”

Israel, whose population of 7.8 million is similar in size to Switzerland’s, has about 60 companies traded on the Nasdaq, the most of any country outside the U.S. after China. The country is also home to the largest number of startup companies per capita in the world.

Perrigo Co., the largest U.S. maker of generic over-the- counter drugs, advanced 1.2 percent in New York to $99.66 yesterday after its shares in Tel Aviv fell 0.5 percent to 372.20 shekels, or the equivalent of $98.48. The $1.18 premium was the biggest among dually-listed companies. The Tel Aviv shares rose 0.6 percent to 374.50 shekels, or $98.96, today.

Perrigo and Canadian drugmaker Apotex Inc. were sued by Meda Pharmaceuticals Inc. and accused of infringing a U.S. patent for the nasal spray Astepro, used to treat allergies, according to a complaint filed on Jan. 19 in federal court in Trenton, New Jersey.

Bond Sale

Meda, based in Somerset, New Jersey, contends Perrigo, based in Allegan, Michigan, and Apotex, of Toronto, plan to market copies of the drug before its U.S. patent expires in 2028.

Israel sold $1.5 billion of 10-year bonds yesterday in the nation’s first offering of international securities in three years. The notes were priced to yield 205 basis points more than similar-maturity U.S. Treasuries, according to a person familiar with the deal who declined to be identified because he isn’t allowed to speak publicly.

Rated A+ by Standard & Poor’s, the fifth-highest investment grade, Israel last sold $1.5 billion of 10-year bonds in February 2009 to yield 262.5 basis points above Treasuries.

--With assistance from Susan Lerner in Jerusalem. Editors: Emma O’Brien, Brendan Walsh

To contact the reporter on this story: Tal Barak Harif in New York at tbarak@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net


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