In Scathing Letter, Activist Investor Criticizes Mellanox for High Expenses

In November, Starboard became the biggest Mellanox shareholder. In a Monday letter, it called the chip designer an “underperforming company”

Dror Reich 18:2308.01.18
New York-based activist investor Starboard Value LP sent a letter to the board of Mellanox Technologies Ltd on Monday, urging the company to reduce expenses by cutting down workforce and research and development costs. In November, Starboard acquired a 10.7% stake of Nasdaq-listed Mellanox for $250 million, becoming the tech company’s largest shareholder.


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Israel-based Mellanox develops and manufactures electronic components that facilitate data transfers between servers and storage devices. The company is traded at a market capitalization of $3.3 billion, up some 30% since Starboard’s acquisition. Mellanox employs approximately 2,700, with 2,000 employed in the company’s research and development facilities in Israel.
Mellanox CEO Eyal Waldman. Photo: Tomi Harpaz Mellanox CEO Eyal Waldman. Photo: Tomi Harpaz


Founded in 2002, Starboard is an investment firm focused on tech companies, whose strategy includes restructuring companies and replacing their management.


In the third quarter of 2017, Starboard reported $226 million in revenue, a modest 1% increase from the same period last year. In its forecast for the last quarter of 2017, Starboard estimated revenues of $230-$240 million.


In its letter to Mellanox, prompted by the company’s recently announced financial forecast for 2018, Starboard criticized Mellanox’s financial performance and spending, calling it an “underperforming company.”



“Despite an extremely strong product and technology portfolio, Mellanox has been one of the worst performing semiconductor companies for an extended period of time,” the letter read. Starboard referred to Mellanox’s excessive spending and tendency to miss out on growth opportunities as contributing factors to its poor stock price performance.


Starboard also wrote that Mellanox displayed one of the highest gaps between gross margin and operating margin in the entire semiconductor industry, driven by excessive spending on research and development and administrative expenses.
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