A Decent Quarter With A So-So GuideRevenue rose 7% yoy for the fourth quarter, giving Mellanox a decent end to a weak year (revenue growth up just 1%) pressured by sales erosion in the InfiniBand business. Ethernet has emerged as the new growth driver, with revenue up 73% (and up 11% sequentially) on strong growth in 25/50/100 products and switching. InfiniBand managed to eke out some sequential growth (up 2%), but revenue was down 22% yoy. On a more positive note, EDR (within InfiniBand) was up 3% from last year.

Margins remain a sore spot, though. Gross margin (non-GAAP) declined about three points from last year and operating income (non-GAAP) fell 14% with a four-point drop in operating margin.

Although management lifted guidance for 2018, there were issues here too. While flat opex might seem like a positive relative to double-digit revenue growth expectations (particularly when margins are such a talking point), the fact that the company isn't going to reap better expense leverage (a year-over-year decline) from shuttering the NPU and 1550nm silicon photonics efforts is disappointing. I would argue that management is most likely "reinvesting" some of the savings into other R&D areas, but that is speculation on my part.