Why Mellanox Shares Got Mauled

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Israeli fabless semiconductor company Mellanox Technologies (NASDAQ: MLNX  ) plunged 15% today after its fourth-quarter revenue outlook disappointed Wall Street.

So what: Mellanox shares have been crushed in recent months on concerns over slowing growth, and today's revenue warning only reinforces those worries. While Mellanox largely blamed the weak economy for the shortfall, intensifying competition in the space and growing skepticism among analysts over management's forecasts seem to be driving today's pullback more than anything else.

Now what: Management now sees fourth-quarter revenue of $119 million to $121 million, well below its prior view of $145 million to $150 million. "The shortfall is primarily the result of a weaker demand environment, challenging macroeconomic conditions, and a technical issue associated with FDR 56Gb/s InfiniBand cabling which caused approximately $20 million of FDR deployments to be delayed," the company said in a statement. "The cabling issue has been resolved and is not expected to impact revenue in the future." So while today's pullback is certainly frustrating for Mellanox bulls, the seemingly short-term hiccup might be an opportunity to buy more for the long haul.


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