Bloomberg News

Oracle Sinks Mellanox as Hardware Drops: Israel Overnight

March 21, 2013

Mellanox Technologies Ltd. (MLNX:US) slid in New York as the prospect of slowing sales to Oracle Corp. (ORCL:US) added to concern that the Israeli company will record its first ever revenue drop this year.

Shares of Mellanox, which makes technology used to transfer and store data, slipped 1 percent to $54.66 in the U.S., after slumping to a two-week low in Tel Aviv. The Bloomberg Israel-US Equity Index (ISRA25BN) of the biggest Israeli companies in New York retreated 0.2 percent to 90.73, while MagicJack VocalTec Ltd. (CALL:US) surged the most since March 6.

Oracle, a Redwood City, California-based maker of business applications, said March 20 that hardware sales will plunge as much as 23 percent in the current quarter as companies move to Web-based programs. The U.S. company buys Mellanox’s InfiniBand product and accounted for 5.6 percent of 2012 sales, Piper Jaffray Cos. estimates. Revenue for Mellanox, set for its second straight quarterly decline, will drop 10 percent this year, according to estimates compiled by Bloomberg.

“The entire hardware revenue that they report is correlated to Mellanox,” Andrew Nowinski, an analyst at Piper Jaffray who has rated Mellanox the equivalent of buy since January, said by phone from Minneapolis yesterday. “We could see disappointments in the first half of the year, unless they land some large deals to offset weakness at Oracle.”

Fiscal third-quarter profit excluding some items was 65 cents a share on adjusted sales of $8.97 billion, the company said in a statement yesterday. That compares with analysts’ average projection for profit of 66 cents on sales of $9.37 billion, according to data compiled by Bloomberg. Sales in the hardware segment declined 23 percent to $671 million, the company said.

CEO Confidence

Orders of technology products and services, such as hardware upgrades, may be hampered by corporate managers who remain reluctant to spend, according to Bloomberg Industries. Chief executive officer confidence fell 1.4 percent in March, the first decline since November, an index compiled by Chief Executive magazine showed.

Sales at Mellanox will decline to $450.7 million in 2013, according to the consensus of 14 analysts compiled by Bloomberg.

Mellanox forecast Jan. 23 first-quarter sales that trailed analysts’ estimates by as much as 48 percent amid a build-up in inventory by one of its customers. Sales for the three months ending March 31 will reach $83 million at most, the company said. Earlier in January, Mellanox cut its fourth-quarter revenue forecast on weaker demand and a product glitch. Until that quarter, Mellanox had surpassed analysts’ sales estimates every reporting period since its initial public offering in 2007.

Mellanox Customers

Ashley Paula, of public relations firm Waggener Edstrom, which represents Mellanox, said in an e-mail yesterday that the company declined to comment.

Customers use the InfiniBand product in their hardware to connect storage, big data and cloud computing. Sales to Hewlett- Packard Co. accounted for 20 percent of Mellanox’s total revenue in 2012, while International Business Machines Corp. made up 19 percent, the Israeli company said in its annual report filed Feb. 25.

“Oracle is a less than 10 percent customer for Mellanox, so it’s not the most important driver,” Alex Gauna, an analyst at JMP Securities LLC in San Francisco, said by telephone yesterday. He raised his recommendation to the equivalent of buy on Mellanox on March 7. “There’s more volatility in store for this stock because we think things are improving and the cycle is turning in tech spending, but it’s not going to be a clean turn.”

MagicJack, EZchip

Oracle, in addition to being a customer of Mellanox, holds an 8.8 percent (MLNX:US) stake, according to a filing March 19.

Mellanox retreated 3.4 percent in Tel Aviv to 197 shekels, or $53.74, for a sixth day of declines, the longest stretch since October. Israel’s benchmark TA-25 Index fell 0.8 percent to 1,239.09, the most in a month.

MagicJack rallied 6 percent to $13.04, rising for a third day in New York. It was the biggest gainer on the Bloomberg Israel-US Index.

EZchip Semiconductor Ltd. (EZCH) slid 2 percent to $24.82, the first retreat in New York since March 12. Shares in Tel Aviv slipped 3.6 percent to 90.68 shekels, or $24.73.

American depositary receipts of Nice Systems Ltd. (NICE) gained 1.6 percent to $37.20. Imperial Capital Group Inc. analyst Jeffrey Kessler re-initiated coverage of the maker of analytical telecommunications products with the equivalent of buy and a price target of $43. In Tel Aviv, Nice added 0.1 percent to 134.70 shekels, or $36.74.

To contact the reporter on this story: Leslie Picker in New York at lpicker2@bloomberg.net

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


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Companies Mentioned

  • MLNX
    (Mellanox Technologies Ltd)
    • $44.27 USD
    • -0.60
    • -1.36%
  • ORCL
    (Oracle Corp)
    • $38.09 USD
    • -0.19
    • -0.5%
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