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Mellanox Cut Most After Apple on Sales: Israel Overnight

January 24, 2013

Mellanox Technologies Ltd. (MLNX:US)’s price target was cut the most among the world’s 374 largest technology companies after Apple Inc. (AAPL:US) as sales guidance missed analysts’ projections for the second time this month.

The Israeli maker of software used to transfer and store data fell 1.3 percent to $51.01 yesterday in New York on trading volume more than eight times its three-month daily average. The Bloomberg Israel-US Equity Index (ISRA25BN) of the largest U.S.-traded Israeli companies lost 0.3 percent to 86.15. EZchip Semiconductor Ltd. (EZCH:US) rallied the most in three weeks after Maxim Group LLC recommended buying the shares.

Mellanox, based in Yokneam, Israel, forecast on Jan. 23 first-quarter sales that trailed estimates (MLNX:US) by as much as 48 percent, prompting analysts to reduce the share’s price target by an average $16.5. The target reduction was the most after that for Cupertino, California-based Apple, which sank 12 percent yesterday on slower profit growth. A Jan. 2 revenue forecast from Mellanox also missed projections.

“Credibility has been shattered -- I’m actually surprised it’s not down more,” Jim Oberweis, who oversees $700 million as president of Oberweis Asset Management Inc. including Mellanox shares said by phone yesterday from Lisle, Illinois. “They gave enough data a few weeks ago where there’s just no way you could come to the first-quarter number being as bad as it is.”

Mellanox shares traded in Tel Aviv retreated 14 percent to 155 shekels, or the equivalent of $41.76, leaving Mellanox’s New York stock to close at the largest premium to the Israeli security since April.

‘Ask Questions’

At least 11 analysts cut (MLNX:US) their 12-month price estimate on Mellanox’s shares after the company said sales for the three months ended March will reach $78 million to $83 million, below the $130.7 million average of 13 estimates compiled by Bloomberg. The company said that a buildup in inventory by one of the company’s customers caused the revision.

The new outlook followed a fourth-quarter revenue guidance reduction at the beginning of the month to a range of $119 million to $121 million from $145 million to $150 million.

“The magnitude of the overall slowdown in the business leads us to ask questions,” Brent Bracelin, an analyst at Pacific Crest Securities LLC who cut his rating in Mellanox to sector perform from outperform, said by phone from Portland, Oregon. “At this point, we need to do more work to really understand what’s going on at that company.”

Mellanox was unaware of the inventory buildup at one of its customers until after the conference call in which the company reduced its fourth-quarter guidance, Chief Executive Officer Eyal Waldman, said in a telephone interview yesterday from Sunnyvale, California.

Inventory Buildup

“We found out about the extent of the inventory buildup last week,” Waldman said. “We’re continuing to build mechanisms to prevent this from happening in the future.”

Mellanox’s price-target reduction over the past week was second to Apple’s among companies listed on the Nasdaq Computer Index. (IXK) Analysts reduced their estimate on the stock of the maker of iPads and iPhones by an average $90.6 after it reported the slowest profit growth since 2003 and the weakest sales increase in 14 quarters.

Prior to the fourth quarter of 2012, Mellanox had reported sales and profit that topped (MLNX:US) analysts’ estimates for 23 consecutive quarters. Revenue grew 93 percent last year.

“To grow on top of what they did last year was going to be very difficult,” Andrew Nowinski, an analyst at Piper Jaffray Cos who maintained his buy rating on the stock, said by phone yesterday from Minneapolis. “They went five years without missing estimates.”

EZchip Buy

International Business Machines Corp. (IBM:US) was Mellanox’s largest customer in the fourth quarter, accounting for 17 percent of revenue, followed by Hewlett-Packard Co., comprising 14 percent, Chief Finance Officer Jacob Shulman said on the Jan. 23 conference call.

EZchip, the Israeli chipmaker whose customers include Juniper Networks Inc. and Cisco Systems Inc., gained the most since Jan. 2, advancing 2.2 percent to $33.34 after Ashok Kumar, an analyst at Maxim Group, began coverage of the stock with a buy rating. Shares traded in Tel Aviv lost 1.5 percent to 122.2 shekels, or the equivalent of $32.93.

MagicJack VocalTec Ltd. (CALL:US), the Israeli company whose founders invented the technology used to make telephone calls over the Internet, lost 8.1 percent to $13.85, the lowest since June 1. The Netanya, Israel-based company appointed Gerald Vento as its chief executive officer on Jan. 1, replacing Daniel Borislow.

To contact the reporter on this story: Leon Lazaroff in New York at

To contact the editor responsible for this story: Emma O’Brien at

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