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Mellanox Enhances Ethernet Switches With New ECF Technology

Zacks Equity Research

Mellanox Technologies, Ltd. MLNX upped the ante in Ethernet business by introducing Ethernet Cloud Fabric (ECF) technology. The latest technology enhances the performance of the company’s Spectrum-2 family of Ethernet switches, which offer data transfer speed of 100/200/400 Gb/s (or Gigabits per second).

ECF enables packet forwarding rate of 8.33 billion packets per second and utilizes Ethernet Storage Fabric (ESF) technology. This accelerates complex application processes including AI, edge computing, machine learning (ML), to mention a few.

Moreover, ECF supports robust Open Ethernet platforms and network operating systems including Cumulus Linux, Mellanox Onyx, to mention a few, making it flexible for use.

Mellanox expects Spectrum-2 based SN3000 portfolio of Ethernet switches, enhanced with ECF technology, to be available in the third quarter.

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Strength in Spectrum 2 to Drive Ethernet Business

Mellanox’s Spectrum 2 family of switches is based on high performance ASICs. This allows its data center customers to reduce power consumption and enable low latency, improving total cost of ownership (TCO).

Robust Ethernet connectivity enables customers to optimize networks and accelerate complex workloads. The switches come in spine,super-spine and leaf form factors.

Noteworthy innovations in Mellanox’s Ethernet switches with ECF technology are expected to boost adoption, in turn favoring the top line. In fact, the switches are already witnessing traction from notable companies including Hewlett Packard Enterprise, Cumulus Networks, among others.

Markedly, in 2018, Mellanox’s Ethernet revenues increased 54% year over year to approximately $618 million.

Mellanox Technologies, Ltd. Revenue (Quarterly)

Mellanox Technologies, Ltd. Revenue (Quarterly)
Mellanox Technologies, Ltd. Revenue (Quarterly)

Mellanox Technologies, Ltd. revenue-quarterly | Mellanox Technologies, Ltd. Quote

Alluring Growth Prospects

The need to access and process data at a faster speed due to data growth in data centers is increasing demand for high-speed Ethernet switches among hyperscale cloud service providers (CSPs).

Per Zion Market Research, global industrial Ethernet market is expected to witness double-digit growth and hit $58.98 billion by 2022.

Increasing bandwidth and growing capacity of data centers in this connected data-intensive era are other notable factors advancing the cause for high-speed Ethernet switches.

According to IDC, revenues for the worldwide Ethernet switch market (Layer 2/3) were $28.1 billion in 2018, up 9.1% year over year. The robust increase is primarily attributed to strong demand from CSPs and the digital transformation imperative. Moreover, the research firm predicts momentum to continue through 2019, which is a positive.

Notably, per recent IDC estimates, the global datasphere will grow to 175 zettabytes (that is a trillion gigabytes) by 2025, from 33 zettabytes in 2018. This exponential growth is expected to favor adoption of Mellanox’s interconnect solutions driven by growing demand for higher network speeds for fast processing of data.

In this regard, it is important to note that, NVIDIA NVDA expects to conclude Mellanox acquisition by the end of calendar year 2019.

Competition a Headwind

Companies like Broadcom AVGO, Cisco CSCO, Arista Networks, Marvell, to name a few, are striving to upgrade their Ethernet portfolio with innovative functionalities.

Like any other growing market, the industrial Ethernet market is witnessing intensifying competition, which remains a major concern.

Zacks Rank

Mellanox currently carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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