Advanced Computing in the Age of AI | Thursday, October 6, 2022

Smoother Waters Ahead For Mellanox After Choppy 2013 

The major markets that Mellanox Technologies sells its switch chips, switches, and server adapter cards into are inherently choppy and often driven by very large deals in its sales channel. So comparisons of its financial figures can be tough. Such was the case in the company's fourth quarter. Setting some very tough compares aside, Mellanox says that it is growing on all fronts – cloud, storage, and HPC – and expects for sales to grow sequentially each quarter this year and for annual sales to increase in 2014.

For the quarter ended in December 2012, sales were down 13.6 percent to $105.5 million, and costs held steady as research, development, sales, marketing, and other costs all rose. This pushed Mellanox to a $7.3 million loss in the period, compared to an $18.4 million gain a year ago. For the full year, Mellanox had sales of $390.9 million, down 22 percent, and reported a net loss of $22.9 million compared to a gain of $111.4 million in all of 2012.

The numbers are not as bad as they look, Eyal Waldman, president and CEO at Mellanox, explained in a call with Wall Street analysts going over the figures. Intel's delay in the rollout of its "Sandy Bridge" generation of Xeon E5 processors back in the fall of 2011 pushed about $50 million of sales that would have happened that fall into 2012. And, after reviewing its numbers from 2013, Waldman said that another $50 million in sales that would have come in 2013 was similarly pulled into 2012. (He did not explain how or why that happened.) The point is, Mellanox sells a lot of its adapter cards and switch ASICs to partners, who in turn make their own integrate server or storage solutions or build hyperscale systems racked up and ready to roll into the datacenter. So it is tough to tell if a revenue trend is sustainable or not, and to a certain extent, Mellanox can only forecast as well as its own customers – system and switch makers – do.

"Looking back, we now understand why our revenues decreased from 2012 to 2013," said Waldman. "We are proud of what we accomplished throughout 2013."

Given the two-year cadence of new Intel server platforms – not Xeon processors, but new platforms – and a similar pattern for network chip upgrades, perhaps it would be best to look at how Mellanox is doing over a two-year span, comparing like for like. Quarterly snapshots for Cray and SGI are similarly choppy, as are sales of hyperscale servers to all of the big cloud and Web 2.0 players. One big deal can change a quarter, and a six-month product slip, as happened with the Sandy Bridge Xeon E5s, can distort sales. As it turns out, one of Mellanox' partners was over ambitious in ordering components in 2011 for cloud deployments, and that caused some of the revenue bump. Mellanox thought that this represented a new sales level for the market. This was not the case.

The other thing to remember is that Mellanox did actually bring in that extra $100 million in revenues, and most of it dropped to the bottom line in 2012. As 2013 came to a close, Mellanox was sitting on $330.2 million in cash and investments.

Mellanox is preparing for a new wave of servers from Intel later this year and is also gearing up to deliver its 100 Gb/sec networking products in the 2014 to 2015 timeframe, and it is reasonable to guess that Mellanox is trying to get these future InfiniBand and Ethernet products as much aligned to the future "Haswell-EP" Xeon E5 v3 processors and their "Grantley" server platform, due in the second half of this year. Intel has hinted to EnterpriseTech to expect the Haswell/Grantley combo towards the end of 2014. It a good guess is that Intel will launch these in September at its annual Intel Developer Forum in September and ship the first batch of them to big supercomputing centers and cloud builders. Intel was showing off a Haswell Xeon E5 server sled at the Open Compute Summit earlier this week.

On the call, Waldman said that a number of HPC system deals were waiting for the Haswell/Grantley combination later this year. He added that Mellanox did not expect to see the magnitude of bump that the Sandy Bridge/Romley platform gave to Mellanox. This Romley platform included the first Xeon E5s and significantly the first PCI-Express 3.0 peripheral slots that were capable of driving 40 Gb/sec and 56 Gb/sec InfiniBand. That said, Mellanox is expecting for more product shipments in the second half of 2014 than in the first half as Haswell/Grantley rolls out. Some big cloud customers are similarly waiting for the Haswell Xeon E5s, even though the Ivy Bridge Xeon E5s are only four months old.

The rule in the IT racket has always been the same: With Moore's Law always progressing, those that can wait should always wait.

In the final quarter of last year, sales of switch chips and boards accounts for $50.7 million in revenues, or about 48 percent of the Mellanox pie. Switch sales generated $34.8 million in sales, or about a third of total revenues in the quarter. Spread over components and switches, 56 Gb/sec InfiniBand products accounted for $58 million in revenues, which is 55 percent of total revenues and up from a 48 percent slice in the third quarter of last year. The share of revenues driven by 40 Gb/sec InfiniBand products was 17 percent, or about $18 million, and that share was down a point from Q3 2013. Mellanox has a relatively small Ethernet business, which brought in $15.8 million in the quarter across its adapter and switch products.

During the quarter, Mellanox had two customers that comprised more than 10 percent of its total sales. Hewlett-Packard accounted for 15 percent and IBM for 11 percent. Obviously, with IBM selling off its X86 server business to Lenovo, some of this business will shift to a different vendor when the deal closes later this year.

Looking ahead, Mellanox expects for sales to range between $100 million and $105 million in the first quarter of this year. Revenues are projected to increase sequentially as the year progresses.

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