Mellanox (MLNX) reported revenue of $25.2 million on Wednesday, in line with most estimates. While its sales were down 13% sequentially, it was able to manage a year-over-year revenue increase of 1.7% for the quarter.
From a product standpoint, one of the most interesting developments was the rapid increase in 40G, or QDR, revenue. Accounting for just 4% of revenue in the second quarter, and 12% in the third quarter, 40G jumped to 34% of Mellanox's top line in the fourth quarter. While there will be framing, media, and transceiver differences between 40G InfiniBand and the four expected variants of 40 Gigabit Ethernet (due for standardization in June 2010), the company believes its early strength in 40G interconnects will cross over to 40G LANs. While traditionally known for InfiniBand, Mellanox also sells 10 Gigabit Ethernet server NICs, including a recently announced 10GBASE-T LAN on Motherboard Controller that uses Teranetics' PHY chips.
Mellanox's balance sheet remains very strong, with $183 million in the bank, and no long-term debt, which means its trading now at about 1.6 times cash. While some of this money is left over from its 2007 IPO, the company generated $31 million in operating cash flow in 2008, so it is not like the cash burn time bombs we saw among communications chip and networking companies earlier this decade.
While the company guided for a 10% sequential revenue decline, its Gross Margins have consistently held in the mid-70s, which is one reason why it has been able to produce respectable cash flows as the economy has softened. As long as it maintains its strong position in the Supercomputing and Enterprise Data Center markets, Mellanox should keep producing cash as the economy strengthens.
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