A newly amended 13G filing with the SEC reveals that Matt Sirovich and Jeremy Mindich’s Scopia Capital currently owns 1.88 million shares in Mellanox Technologies Ltd. (NASDAQ:MLNX), which represent 4.09% of the company’s outstanding common stock. The New York-based hedge fund firm has reduced its position in the company by 1.26 million shares, compared to the stake disclosed in the latest 13F filing.
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With an equity portfolio worth $4.7 billion, Scopia Capital is a value-driven hedge fund founded by Matt Sirovich and Jeremy Mindich in April 2001. It primarily employs a fundamentals-based investment approach and it has been quite successful in delivering strong performance throughout its existence as the hedge fund firm posted an annualized return of 9.65% from its inception in 2001 to August 2012. Even though Scopia Capital’s returns do not stand out from the crowd, the firm provides a really strong downside protection of the capital it manages. Specifically, the hedge fund has delivered positive performance each year ever since its inception, including 2008 when the S&P 500 plummeted by 37% (Scopia Capital returned 1.81%).
Mellanox Technologies Ltd. (NASDAQ:MLNX) is a leading supplier of end-to-end InfiniBand and Ethernet interconnect solutions and services for servers and storage, whose stock is up by 6.30% year-to-date, although it has been losing ground lately, amid weak preliminary results reported by its industry peer, QLogic Corporation (NASDAQ:QLGC).
QLogic is a global leader and technology innovator in high-performance server and storage networking connectivity products and its weak preliminary results were mainly impacted by lower-than-expected demand from overall weakness in the traditional enterprise server and storage markets. Therefore, the market participants anticipate that this weakness in the sector has impacted Mellanox as well, which could explain the significant drop in its stock price lately. However, it is not entirely clear whether the market is right about the weakness in this sector and its effect on Mellanox until the company publishes its financial results on July 22.
One can easily find evidence that Mellanox might not have been hit by the supposed weakness in the traditional enterprise and storage markets. The chip designer has been constantly unveiling innovations that can suppress all the doubts about weak financial results for the current quarter. Moreover, Mellanox has generated earnings growth in recent quarters, which might serve as an indicator that the company has been doing really well. Gilad Shainer, the vice-president of marketing at Mellanox, has recently claimed that the company should try as hard as possible to stay competitive since there is a greater need for increased bandwidth, flexibility, and scalability triggered by the exponential growth of data. It seems that Mellanox has been successful in staying competitive lately; it announced new Ethernet products, including the world’s first non-blocking 100G switch called Spectrum™, that are expected to boost the company’s sales in the upcoming quarters.
Although the level of business activity in this sector might be disappointing for this quarter, we believe that Mellanox will work through these headwinds without suffering too much. A few months ago, Mellanox posted earnings per share of $0.60 for the first quarter, which marked an increase of 445% year-over-year. By the same token, the company reported revenues of $146.7 million, up by 48% on the year. Some analysts polled by Thomson Reuters anticipate revenue growth of 54% for Mellanox during its second quarter and an EPS growth of over 300%. Within our database of over 700 hedge funds, Donald Chiboucis’ Columbus Circle Investors represents the second largest shareholder in Mellanox Technologies Ltd. (NASDAQ:MLNX) with 851,918 shares, following Scopia Capital.
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