Mellanox Technologies (MLNX) Q3 2016 Results - Earnings Call Transcript
Oct. 28, 2016 3:40 AM ET
Eyal D. Waldman - Mellanox Technologies Ltd.; (Opening statement)
Thank you, Jeff. Good afternoon, everyone, and thank you for joining us. I am pleased to announce the sixth consecutive record quarter for Mellanox. Third quarter revenue was $224.2 million, representing 31% year-over-year growth.
We delivered strong sequential growth in our InfiniBand business, driven by strength in high-performance computing along with contributions from data center, storage, cloud, Web 2.0, and machine learning customers.
Ethernet revenues in the quarter grew a healthy 153% year-over-year. Our strength in 25 Gigabit, 50 Gigabit and 100 Gigabit Ethernet adapters and network processors delivered another quarter of robust growth. We believe the transition to 25 Gigabit, 50 Gigabit and 100 Gigabit Ethernet will provide Mellanox significant growth across multiple hyperscale cloud, storage, machine learning and enterprise customers.
Our third quarter results reflect strength in InfiniBand end markets and ongoing revenue diversification into Ethernet. We believe the sequential growth in our InfiniBand revenues, is the result of the continued value customers see from the performance advantages of InfiniBand.
Recent industry testimonials has suggested performance and scalability issues with our competitor's offering. These deficiencies are due to the inability to utilize all of the available CPU cores (03:37) per server resulting in lower system performance, efficiency and utilization.
We believe InfiniBand continues to maintain approximately 90% market share compared to Omni-Path. During the quarter we saw continued growth in our EDR revenues. We anticipate customer deployments using EDR will increase sequentially in the fourth quarter and will reaffirm our prior view that InfiniBand revenue will grow in 2016.
We see application performance advantages of InfiniBand as key differentiator for customers. With the anticipated introduction of our 200 Gigabit solutions in 2017, we expect the technology gap with competitive offerings to widen even farther.
Emerging growth opportunities in machine learning, high-performance computing, storage, cloud, and Web 2.0 offer multiple growth engines for InfiniBand. We expect our InfiniBand business to continue growing in 2017 and beyond.
Our 25 Gigabit, 50 Gigabit and 100 Gigabit Ethernet revenues grew 72% sequentially as some hyperscale and OEM customers began initial deployments of higher speed networks. Growth was driven primarily by adapters as Mellanox continues to be the leader in 25 Gigabit Ethernet and above. Our first mover advantage in 25 Gigabit Ethernet and above products will allow Mellanox to capture a meaningful market share.
We believe that the deployment of 25-Gigabit, 50-Gigabit and 100-Gigabit Ethernet is in the early phases of multiyear growth. Our total serviceable Ethernet market has transitioned in the last two years from hundreds of millions of dollars to billions of dollars as we now offer complete end-to-end Ethernet portfolio delivering key products needed by customers for future data center deployment.
The 40 Gigabit Ethernet technology was mainly adopted by a few hyperscale customers. As a result of this concentration, 40 Gigabit deployments can be lumpy and fluctuate depending on timing of customer build-outs and technology transitions. We expect these customers to transition to 25 Gigabit, 50 Gigabit and 100 Gigabit deployments, utilizing our solutions, along with the vast majority of Ethernet users.
We are well positioned to benefit from the adoption of higher speed networks in the coming years. The leading worldwide server OEMs have adopted our 25 Gigabit, 50 Gigabit and 100 Gigabit solutions as their default network interface cards.
Our LinkX products achieved a significant milestone during the third quarter shipping tens of thousands of 100 Gigabit Ethernet transceivers to hyperscale customers. With silicon photonics products now shipping and continued innovation in our optical cable, transceiver technology and manufacturing capabilities, we believe LinkX revenues are well-positioned for growth and meaningful revenue contribution in the future.
Shipments of our Ethernet switch continued to grow sequentially in the third quarter. Customer engagements remained robust as we continued to see interest in utilizing both our switch systems and silicon products. We believe Spectrum is well-positioned for multiple deployments during 2017.
As of today, we are proud to report real (07:29) leading hyperscale customers have selected Spectrum for future designs and anticipate that other Spectrum engagements will move to deployments in 2017. Spectrum switch revenues are expected to grow sequentially in the fourth quarter, but due to timing of key customer shipments, we don't believe we will be able to achieve material revenue contributions by year-end.
Also,
Harlan Sur - JPMorgan Securities LLC
Okay. Perfect. And then maybe just a little bit more detail on the NPU side. The team introduced the NP-5 back in 2015. I think you guys are still ramping this into new platforms. And so if you can just talk about first of all, is NP-5 growing second half over first half and how is the growth outlook for that product line as we look into 2017.
Eyal D. Waldman - Mellanox Technologies Ltd.
Yeah, NP-5 revenue continues to grow as they're adopted by multiple data communication and networking OEMs. We introduced NPS earlier this year and we expect it to go into deployment later in 2017. The growth of the NP-5 I think is pretty healthy for now. We don't give out the specific numbers but it's as we've expected when we acquired EZchip.
(So, a significant accomplishment from Mellanox creating even further, (not 'farther'; physical distance), from the incessant perceived threat from Omni-Path. This perception has plagued and battered Mellanox for the previous 6 months. Not surprising Eli's NP-5 is performing well. This should bode well for the NPS) |
