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Mellanox revenues spike thanks to Voltaire

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Expanding out from InfiniBand to Ethernet switches through its acquisition of Voltaire last November is paying off on the top line for switch and server converged networking adapter maker Mellanox Technologies, but it's hurting the bottom line in the short-term.

In the second quarter ended in June, Mellanox posted sales of $63.3m, up 58.5 per cent, but net income dropped by 60 per cent to $2.1m, thanks to sales, marketing, research, and development costs that nearly doubled. But this is a short-term phenomenon associated with the development of the SwitchX switch ASIC that Mellanox created to run both InfiniBand and Ethernet traffic – eventually at the same time, once the software stack is fully cooked. The SwitchX chips were announced in April.

Eyal Waldman, president and CEO at Mellanox, said that prototype products based on the SwitchX chips and their companion server-side converged adapter silicon, which were announced in June and which are called ConnectX-3, would be generally available at the end of the third quarter or early in the fourth quarter of this year.

Waldman added that these products, which will support the InfiniBand protocol running at 56Gb/sec (the so-called Fourteen Data Rate or FDR speed) in one set of products and 40 Gigabit Ethernet in another set, will carry higher average selling prices than the current 40Gb/sec InfiniBand and 10 Gigabit Ethernet gear that Mellanox is peddling.

Mellanox is also expecting to get a boost from the delivery of Intel's "Sandy Bridge" Xeon processors for two-socket servers, due sometime before the third quarter ends. Those chips will be used in Intel's "Romley" server platform, which will eventually span machines with one, two, or four sockets using a variety of Sandy Bridge chips.

"We expect to see higher attach rates with the Romley platform, just like we saw with the Nehalem platform," Waldman said on a conference call with Wall Street analysts going over the financial results.

Waldman said that during the second quarter, product sales were up 45 percent, year on year, but Mellanox did not supply a revenue figure for its hardware and software sales as distinct from services and support sales.

Mellanox CFO Michael Gray said that switches accounted for 29 percent of revenues in the quarter, with chips, boards, adapters, and other gear sold directly and to OEM partners accounting for 53 per cent of sales. 40Gb/sec InfiniBand products accounted for 66 per cent of overall product sales (down two points sequentially from the first quarter) and 20Gb/sec InfiniBand switches accounted for 8 per cent of sales (down 3 points sequentially). Revenues for 10GE hardware rose by 45 per cent and made up 6 percent of overall sales.

Mellanox had three customers that comprised more than 10 percent of total sales each in the quarter, and a fourth that came close. French server maker Bull closed a bunch of large supercomputer deals in Europe and managed to account for 11 per cent of Mellanox revenues in Q2; HP made up 15 per cent and IBM was responsible for 13 per cent.

Oracle didn't break through 10 per cent this time, but Waldman said that Oracle came close and said that he had high hopes for Oracle's Exadata and Exalogic appliance servers, which are based on InfiniBand switches made by Oracle using Mellanox silicon.

Last fall, just a month ahead of the announcement of the Voltaire acquisition, Oracle ponied up an undisclosed amount of cash to take a 10.2 per cent stake in Mellanox. With all of the networking acquisitions going on these days, it is a wonder that Mellanox is a freestanding company at all. The company has a $1bn market capitalization and will break through $250m in sales this year and claims to be well on the way toward $1bn in sales in the next several years.

Looking ahead to the third quarter, Gray said that Mellanox expects for sales to be in the range of $67.5m and $68m. Presumably the company will have a big bump in sales in Q4, but neither Waldman nor Gray talked about that today. They saved that for the discussion for the third quarter, thirteen weeks hence, and after the first SwitchX products will be ready for sale – or at least close. ®

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