Mellanox (MLNX) Guides Higher Q1 Revenues On Robust Adoption

Mellanox Technologies, Ltd. (NASDAQ:MLNX) recently revised first-quarter fiscal 2018 outlook. The company now projects revenues between $240 million and $250 million, compared with the earlier guided range of $222-$232 million.

Notably, the Zacks Consensus Estimates for revenues is now pegged at $226.7 million.

Management expects rapid adoption of its 25 gigabit per second (gbps) Ethernet adapters to drive growth in the near term.

However, Mellanox reiterated the rest of the guidance provided on Jan 18.

Non-GAAP gross margin is still anticipated in the range of 68.5-69.5%. Non-GAAP operating expenses are also expected in the range of $120-$122 million.

Shares of Mellanox have gained 39.2% in the last year, outperforming the Zacks industry’s rally of 15.7%.

Rapid Adoption: Key Catalyst

The ongoing customer transition to 25, 50 and 100 gbps Ethernet solutions is a key catalyst.

In fourth-quarter fiscal 2017, revenues increased 7.2% year over year and 5.3% sequentially to $237.6 million, primarily driven by strong adoption of the company’s 25 gbps and above Ethernet switch business.

Moreover, adoption of 100 Gigabit EDR solutions in machine learning, artificial intelligence (“AI”), high-performance computing, database and storage contributed toward revenue growth. Further, InfiBand’s adoption aided Mellanox to hold its leadership position in the high-performance interconnects space.

Furthermore, introduction of 200 gigabit Ethernet solutions will augur well for the company given growing demand for such products.

The company started shipping BlueField chips in the last quarter resulting from EZchip acquisition which continues to gain market traction. Moreover, new design wins for Spectrum products is likely to benefit Mellanox.

Collaborations, Contract Wins to Drive Growth

Mellanox’s collaborations with the likes of NEC Corporation, Atos, VMware, Hewlett Packard Enterprise and Microsemi Corporation have helped expand footprint in the cloud and datacenter as well as high performance computing market.

Apart from the Ethernet solutions, strong demand for Infiniband solution has been driver catalyst. Of late, InfiniBand has been the preferred interconnect for AI and deep learning systems.

Further, Mellanox has won contracts from the likes of NetApp (NASDAQ:NTAP), the University of Toronto and NASA Ames Research Center, which reflects strong demand for its solutions.

Zacks Rank and Other Stocks to Consider

Currently, Mellanox sports a Zacks Rank #1 (Strong Buy).

Other top-ranked stocks in the broader technology sector worth considering are Nvidia Corporation (NASDAQ:NVDA) , Aspen Technology (NASDAQ:AZPN) and DST Systems (NYSE:DST) . All the three stocks flaunt a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA, Aspen and DST have a long-term expected earnings growth rate of 10.25%, 10.50% and 10%, respectively.

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