Mellanox holder Starboard Value delivers letter to CEO, board
Starboard Value delivered a letter to Mellanox CEO Eyal Waldman and the board, saying: "We invested in Mellanox because we believe the Company is deeply undervalued and there are significant opportunities to create value based on actions within the control of management and the Board... Unfortunately, despite an extremely strong product and technology portfolio, Mellanox has been one of the worst performing semiconductor companies for an extended period of time... This consistent underperformance is troubling and puzzling, given both the strong performance of Mellanox's peers and the tailwinds provided by the company's favorable exposure to many of the most attractive end markets in the industry: high-performance computing, cloud computing, hyperscale data centers, and artificial intelligence. This underperformance has led to a crisis of confidence among investors and has contributed to Mellanox trading at a meaningful discount to its peers. We believe that this poor stock price performance has been driven by a pattern of weak execution that has included both excessive spending and missed growth opportunities... It now appears that due to our involvement and other external pressures, you and the Board recognize there is a problem. However, while the new targets for 2018 that were disclosed in December represent a modest improvement, we remain concerned that these commitments are merely reactionary, and, even if these new goals are achieved, do not come close to addressing the magnitude of the problem. Moreover, given Mellanox's extended history of underperformance and missed expectations, we believe that the company lacks sufficient credibility to convince shareholders that it will hit even these modest targets... We are also concerned that the targets outlined for 2018 are solely reliant on revenue growth to drive operating margin expansion, adding additional risk to the plan... Looking forward, we have severe concerns regarding the company's recently announced plan - we do not believe that it goes nearly far enough to address the magnitude of the problem and there remains significant skepticism about whether the company can hit even these modest targets. Our goal is for Mellanox to create substantial value for the benefit of all shareholders. However, the time for fringe changes and marginal improvements has long passed. Given the significant and continuing underperformance at Mellanox, and the high level of frustration among the shareholder base, the company's recently announced targets are not nearly enough to offset years of poor performance and missed expectations."