Mellanox: Fear Not Intel’s ‘Omni-Path,’ Says Credit Suisse
By Tiernan Ray; January 11, 2016
Shares of server interconnect chip vendor Mellanox Technologies ( MLNX) are up $1.39, or 3.6%, at $40.06, after Credit Suisse’s John Pitzer raised his rating this morning on the stock to Outperform from Neutral, with a $50 price target, writing that investors should not be overly concerned with competition from Intel ( INTC), and that there are “multiple drivers of upside” for Mellanox.
Regarding Intel, he sees the company’s competing product offering, “Omni-Path,” being somewhat more limited than Mellanox’s chips:
While INTC is clearly intent on brining a competitive product in 2016, we would highlight the flowing offsets – (1) Checks suggest INTC’s Omni-Path is a more proprietary/closed architecture which is somewhat troublesome to customers and targets HPC (less than 50% of MLNX Rev), (2) we believe overall market growth is accelerating and supportive of multiple players, and (3) INTC is as likely to accelerate overall market adoption as it is to take share. MLNX expects to maintain its tech gap – we believe that by the time Omni-Path is on par with EDR, MLNX will be at 200Gbps. Further, MLNX noted that it has not seen customers delay their orders in anticipation of Omni-Path.
(Intel OPA and InfiniBand Enhanced Data Rate (EDR) will run at 100Gbps).
Overall, he likes the company’s prospects in the growing data center market:
MLNX core IP in interconnect (both Infinband and Ethernet) is well suited to our view of Data Growth supporting a sustainable LT Rev CAGR of 15-20% WELL AHEAD of our overall Semiconductor LT CAGR of 6-9%. MLNX now addresses a TAM of ~$8.3bn – including Switch ($5.8bn), Adapters ($1.3bn) and Optical Cables ($1.6bn). We expect this TAM to grow at a ~20% CAGR to $12.4bn by 2017 – including Switch ($8.2bn, 19% CAGR), Adapters ($1.8bn, 17% CAGR) and Optical Cables ($2.5bn, 28% CAGR). We expect a 25%+ CAGR through 2017 in data traffic growth and that 3rd party estimates are potentially woefully under-estimating the potential growth (could be as high as 40+% CAGR) driven by the continued and increasing demand for mobile data, as well as the trend of compute offload to the Cloud – as Web 2.0 and Cloud providers handle exponentially growing data traffic, and Big Data analysis continues to evolve and expand in capability.
He also likes the potential for the pending acquisition of EZchip to expand Mellanox’s market opportunities:
From a strategic perspective, EZCH represents a departure from MLNX’s previous and successful “build out” M&A strategy (IPTronics, Kotura and Voltaire), but is clearly consistent with their stated goal of expanding the Company’s footprint and opportunity in the Data Center and WAN. We view the EZCH acquisition as a positive step towards building the scale necessary to compete in the Data Center/Cloud/Service Provider segments of the market despite EZchip’s recent setbacks at CSCO (~35% of EZCH Rev). CSCO has announced that it will bring its next-gen product internal, but in the 2018 timeframe.
http://blogs.barrons.com/techtraderdaily/2016/01/11/mellanox-fear-not-intels-omni-path-says-credit-suisse/ |
