Emphasizing Importance of EGM Proposals to Maximize Shareholder Choice
Highlights Successful Execution of Long-Term Growth Strategy and
Focus on Operating Margin Improvement
Company Strongly Positioned to Continue Realizing Benefits of Prior
Investments to Fuel Innovation and Growth
SUNNYVALE, Calif. & YOKNEAM, Israel -- (Business Wire)
Mellanox Technologies, Ltd. (NASDAQ: MLNX), a leading supplier of
high-performance, end-to-end smart interconnect solutions for data
center servers and storage systems, today announced that its Board of
Directors is mailing a letter to shareholders emphasizing the importance
of the Company’s extraordinary general meeting of shareholders and
highlighting its long-term growth strategy and focus on operating margin
improvement.
The full text of the letter follows:
March 12, 2018
Dear Fellow Shareholders,
On behalf of the Mellanox Board of Directors, we are writing to you
today to emphasize that we believe calling an extraordinary general
meeting of shareholders (EGM) is essential to protecting shareholder
choice, to reiterate that continued successful execution of our
long-term growth strategy is delivering value and to provide some
clarity to certain perspectives in the marketplace.
The EGM Proposals Reflect Our Board’s Commitment to Best-in-Class
Governance
At Mellanox’s EGM in May 2018, shareholders will be asked to vote in
favor of two best-in-class governance proposals, designed to enhance
shareholder choice in a contested election by allowing shareholders to
vote for the director candidates who they believe will best guide
Mellanox’s strategy and success over the long term.
First, you will be asked to establish plurality voting in the event
of a contested election. With a plurality voting standard, which has
been adopted by the vast majority of U.S.-listed companies in the event
of contested elections, the Board would consist of the director nominees
gaining the greatest number of votes and all of the directors who serve
on the Board would be elected directly by shareholders. Under our
current majority voting structure, it would be possible for fewer than
11 director candidates to receive the necessary votes to get elected,
leaving vacancies to be filled by those majority-elected directors
rather than by you, our shareholders. Such an outcome becomes
particularly likely in contested elections, where votes may be split
among a larger number of nominees.
Second, you will be asked to vote in favor of the use of universal
proxy cards, which would require any nominee to the Board to consent
to being named as a nominee in any proxy statement or proxy card used in
connection with the general meeting at which directors will be elected.
The adoption of universal proxy cards will provide for all nominees put
forth by either the Board or any shareholder of Mellanox to be listed
together on one universal proxy card, enabling shareholders to elect any
combination of director nominees they choose. Under our current rules,
shareholders may only validly submit one proxy, meaning they cannot
easily cast votes for nominees from both proxies as they could when
voting in person.
The EGM is an Essential Step to Protect Shareholder Choice and
Interests
We strongly believe that the composition of the Mellanox Board of
Directors should reflect the true intentions of our shareholders. We
have carefully taken into consideration many different factors,
including a detailed consideration of all relevant U.S. and Israeli
legal requirements. We have scheduled the EGM as soon as practicable in
order to ensure that all shareholders’ voices will be heard.
On January 17, 2018, without warning and despite what we believed to be
constructive discussions, Starboard Value nominated a full slate of
directors to the Mellanox Board with the intention of replacing all of
the current directors and taking control of the Company. Thus, the
decisions made at the Company’s annual general meeting of shareholders
(AGM) will truly affect the future of Mellanox. In light of this,
the Mellanox Board, in consultation with our independent financial and
legal advisors, immediately conducted a comprehensive assessment on how
to proceed in the best interests of its shareholders. This review made
it clear that updating Mellanox’s proxy voting mechanics to better align
them with best practice in a contested election is an essential first
step and one that needs to be addressed before the 2018 AGM.
The Mellanox Board believes that shareholders will place far greater
value on the freedom to choose the Board they want, without fear of
unintended consequences, than on what amounts to a brief delay in the
Company’s historical AGM schedule.
Executing Our Long-Term Growth Strategy to Deliver Shareholder
Value
Mellanox employs a careful and thoughtful approach to investing and
planning and, as our past investments continue to yield impressive
results, we remain well-positioned to further benefit from our long-term
growth strategy.
With a total addressable market size of approximately $10.6 billion1
forecasted in 2021, the Ethernet segment represents a highly attractive
growth opportunity for the Company. We began investing in R&D efforts
related to Ethernet technology in 2013. The Ethernet design wins we are
now seeing across our product suite are the rewards of our focus on
innovation through R&D and investing in the future. This focused
investment strategy has enabled us to outpace our competitors since
2010, with Mellanox now being the leader in innovative end-to-end
solutions for connecting servers and storage platforms, holding the #1
or #2 position in many of the key markets in which we operate.
In fiscal 2017, the Company made significant strategic investments to
complete its data center-focused portfolio. Specifically:
-
Improving InfiniBand competitive strength in AI and HPC markets
through InfiniBand 200Gb/s generation, to be introduced shortly;
-
Developing the BlueField family of products from our EZchip
acquisition, which provides Mellanox access to a $2 billion
addressable system-on-a-chip (SoC) market2; and
-
Increasing the deployment of Spectrum Ethernet Switch platforms.
Strongly Positioned to Continue Realizing the Benefits of Our
Prior Investments
Our emphasis on R&D has enabled us to create the most
cutting-edge solutions in the industry, resulting in consistent
revenue growth, averaging 27% on a pro forma basis since the Company’s
initial public offering in 2007. Our fiscal 2017 results demonstrate the
successful execution of our multi-year revenue diversification strategy
and our leadership position in 25Gb+ Ethernet adapters. Notably, our
Ethernet switch business in the 25Gb+ segment grew 41% sequentially in
the fourth quarter of 2017, as customers around the world increasingly
adopted our Ethernet products.
These trends are holding firm, and customer transition from 10Gb/s to
25Gb+ Ethernet adapters is accelerating across the board – we believe in
large part due to Mellanox. We foresaw this industry shift, which is why
we made the right investments and worked so diligently to position our
business to have the technology and capacity to capture market share and
meet demand when the transition began. In fact, we recently raised
our guidance estimates for the first quarter of 2018. Based on the
mid-point of our guidance, we expect to deliver around 30%
year-over-year growth in revenue and 11% operating margin expansion.
Importantly, our strong financial performance was a direct result of the
investments we made years before in 25Gb+ Ethernet technology.
Executing a Disciplined Campaign to Dramatically Drive Operating
Margin Improvements
Mellanox is also focused on expanding market share and improving
operating margins. We are committed to achieving these objectives,
while maintaining our competitive advantage of superior technology for
the long term. We are rationalizing our product portfolio and
focusing our investment on businesses with the greatest potential for
growth and highest return on investment capital. Due to our ongoing
cost-cutting initiatives, we continue to reduce our operating expenses.
Recently, we announced that we are ceasing investment in a new
generation of network processing family of products, and discontinuing
our development in 1550 nanometer silicon photonics.
The Board and management team are fully focused on executing the
Company’s strategy of driving sustainable growth, which we are seeing in
the accelerated adoption of key products across the customer base, while
at the same time delivering on our commitment to more efficiently manage
costs. In line with our strategy, we plan to end fiscal 2018 with
operating margins in the 20%+ range. And as we scale faster with our
Ethernet solutions, we anticipate growing and driving further
efficiencies to reach operating margins in the 30s.
Mellanox is, and Will Continue to Be, a Growth Story
Mellanox has been executing on our growth strategy, and we are
delivering positive results. The tremendous growth and success we
have achieved is a culmination of years of carefully planned investment,
as well as a direct result of our Board and management team’s extensive
expertise and dedication to research and development. We
are seeing significant design wins across our product suite, penetrating
key markets and building traction with customers.
The value we have created over the past two quarters is the result of
the widespread adoption of 25Gb+ technology in every major market around
the world – a trend for which Mellanox has long anticipated and planned.
In short, our R&D strategy is working and proven in our financial
results. Cost cuts can drive profitability in the short term, but they
can also stifle innovation and growth and have limited upside over the
long term, particularly if they are undertaken to meet specific
operating margin targets and not with a view towards sustainable value
creation. Growth takes vision, time, investment, expertise and
patience – but the upside is significant and more sustainable than
financial engineering. That is the true long-term value we are
creating at Mellanox for all shareholders.
New Independent Directors Further Enhance Our Diverse,
Highly-Qualified Board Committed to Shareholder Value Creation
Mellanox has a diverse and experienced Board that is actively engaged in
overseeing the execution of our strategy to continue to increase
revenue, expand market share and improve our operating margins. Our
Board is composed of 11 highly qualified and experienced directors, nine
of whom are independent and all of whom are seasoned leaders committed
to driving shareholder value.
Notably, our Board recently welcomed two new, independent directors,
Steve Sanghi and Umesh Padval, concluding our search that began last
year to fill two vacant board seats. As CEO of Microchip since 1991,
Steve has established himself as one of the best operators in the
semiconductor industry with a proven ability to drive profitable growth
and value creation. Since joining the board of Integrated Device
Technology in 2008, Umesh has seen significant operating margin
expansion and stock price appreciation, resulting in over 5x market cap
growth during his tenure.Each is a skilled and deeply
knowledgeable leader who brings new perspectives and extensive
semiconductor industry knowledge to our team. We are confident that
their leadership abilities will be invaluable to Mellanox as we continue
to execute on our strategic plan.
The EGM Will Ensure That Your Voice Will Be Heard
Rushing into an AGM with our existing voting policies puts our
company, shareholders and progress at risk. Mellanox, like many
Israel-domiciled corporations, does not have articles of association
that provide for a fair and transparent contested election. The
unintended consequences of rushing into an AGM without first solving for
the majority vote standard and establishing a universal proxy card could
be exploited at the expense of Mellanox and its shareholders.
This year’s EGM was scheduled on approximately the same timeline as our
2017 uncontested AGM. In light of the requirement to hold the EGM first,
the AGM has been pushed out. Following the EGM, we intend to immediately
begin the process of scheduling the AGM, which we anticipate holding on
July 25, 2018, in accordance with the Israeli Companies Law and
Mellanox’s articles of association.
The Mellanox Board of Directors will be sending you proxy materials
shortly so that you can vote to approve these best-in-class governance
proposals: establishing plurality voting and requiring the use of
universal proxy cards in the event of contested elections. Preliminary
copies of the proxy materials have been filed with the U.S. Securities
and Exchange Commission and are publicly available on our website at
ir.mellanox.com/financials.cfm.
The Mellanox Board is committed to building and protecting your
investment by holding the EGM promptly and taking the steps necessary to
align our governance policies with your interests and ensure that the
composition of our Board fairly reflects shareholders’ intentions.
On behalf of your Board of Directors, thank you for your continued
support.
Sincerely,
Irwin Federman
Chairman of the Board
Eyal Waldman
President, CEO and Director
About Mellanox
Mellanox Technologies (NASDAQ: MLNX) is a leading supplier of end-to-end
InfiniBand and Ethernet smart interconnect solutions and services for
servers and storage. Mellanox interconnect solutions increase data
center efficiency by providing the highest throughput and lowest
latency, delivering data faster to applications and unlocking system
performance capability. Mellanox offers a choice of fast interconnect
products: adapters, switches, software and silicon that accelerate
application runtime and maximize business results for a wide range of
markets including high performance computing, enterprise data centers,
Web 2.0, cloud, storage and financial services. More information is
available at: www.mellanox.com.
Safe Harbor Statement under the Private Securities Litigation Reform
Act of 1995
All statements included or incorporated by reference in this Current
Report, other than statements or characterizations of historical fact,
are forward-looking statements, including the Company’s outlook for the
three months ending March 31, 2018 and the full fiscal year ending
December 31, 2018, statements related to trends in the market for the
Company’s solutions and services, opportunities for the Company in the
fiscal year ending December 31, 2018 and beyond, and future product
capabilities. These forward-looking statements are based on the
Company’s current expectations, estimates and projections about the
Company’s industry and business, management’s beliefs and certain
assumptions made by the Company, all of which are subject to change.
Forward-looking statements can often be identified by words such as
“projects,” “anticipates,” “expects,” “intends,” “plans,” “predicts,”
“believes,” “seeks,” “estimates,” “may,” “will,” “should,” “would,”
“could,” “potential,” “continue,” “ongoing,” similar expressions and
variations or negatives of these words. These forward-looking statements
are not guarantees of future results and are subject to risks,
uncertainties and assumptions that could cause the Company’s actual
results to differ materially and adversely from those expressed in any
forward-looking statement. The risks and uncertainties that could cause
the Company’s results to differ materially from those expressed or
implied by such forward-looking statements include the continued
expansion of the Company’s product line, customer base and the total
available market of the Company’s products, the continued growth in
demand for the Company’s products, the continued, increased demand for
industry standards-based technology, the Company’s ability to react to
trends and challenges in its business and the markets in which it
operates, the Company’s ability to anticipate market needs or develop
new or enhanced products to meet those needs, the adoption rate of the
Company’s products, the Company’s ability to establish and maintain
successful relationships with its OEM partners, the Company’s ability to
effectively compete in its industry, fluctuations in demand, sales
cycles and prices for the Company’s products and services, the Company’s
success converting design wins to revenue-generating product shipments,
the continued launch and volume ramp of large customer sales
opportunities, the Company’s ability to protect its intellectual
property rights, the Company’s ability to successfully acquire
businesses and technologies and to successfully integrate and operate
these acquired businesses, the Company’s success in realizing the
anticipated benefits of mergers and acquisitions, and the Company’s
ability to obtain debt at competitive rates or in sufficient amounts in
order to fund its contractual commitments. Furthermore, the majority of
the Company’s quarterly revenues are derived from customer orders
received and fulfilled in the same quarterly period. The Company has
limited visibility into actual end-user demand as such demand impacts
the Company and its OEM customer inventory balances in any given
quarter. Consequently, this introduces risk and uncertainty into the
Company’s revenue and production forecasts and business planning and
could negatively impact its financial results. In addition, current
uncertainty in the global economic environment poses a risk to the
overall economy as businesses may defer purchases in response to tighter
credit conditions, changing overall demand for the Company’s products,
and negative financial news. Consequently, the Company’s results could
differ materially from its prior results due to these general economic
and market conditions, political events and other risks and
uncertainties described more fully in the Company’s documents filed with
or furnished to the Securities and Exchange Commission (the “SEC”).
More information about the risks, uncertainties and assumptions that may
impact our business is set forth in the Company’s annual report
on Form 10-K filed with the SEC on February 16, 2018. All
forward-looking statements in this letter to shareholders, including the
outlook for the three months ending March 31, 2018 and the full fiscal
year ending December 31, 2018, are based on information available to the
Company as of the date hereof, and the Company assumes no obligation to
update these forward-looking statements.
Important Additional Information and Where You Can Find It
The Company and certain of its directors and executive officers may be
deemed to be participants in a solicitation of proxies in connection
with the matters to be considered at the EGM and the 2018 AGM.
Information regarding the names of the Company’s directors and executive
officers and their respective interests in the Company by security
holdings or otherwise is set forth in the Company’s preliminary proxy
statement filed with the SEC on March 7, 2018 and reports filed by the
Company and Forms 3 and Forms 4 filed by the Company’s executive
officers and directors with the SEC after March 7, 2018. These documents
are available free of charge at the SEC’s website at www.sec.gov.
Additional information regarding the identity of participants, and their
direct or indirect interests, by security holdings or otherwise, will be
set forth in the Company’s proxy statements for its EGM and its 2018
AGM, including the schedules and appendices thereto.
The Company intends to furnish its definitive proxy statements and WHITE
proxy cards for the EGM and the 2018 AGM to each shareholder entitled to
delivery of a proxy, and intends to file such definitive proxy
statements and WHITE proxy cards with the SEC. THE COMPANY URGES ITS
SHAREHOLDERS TO CAREFULLY READ SUCH DEFINITIVE PROXY STATEMENTS
(INCLUDING ANY SUPPLEMENTS OR AMENDMENTS THERETO), ACCOMPANYING WHITE
PROXY CARDS AND ANY OTHER RELEVANT DOCUMENTS THAT THE COMPANY MAY FILE
WITH THE SEC, WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN
IMPORTANT INFORMATION. Copies of the definitive proxy statements, any
solicitation materials and any other documents filed by the Company with
the SEC will be made available free of charge at the SEC’s website at www.sec.gov.
These documents will also be made available free of charge on the
Company’s website at www.mellanox.com
or by contacting the Company’s proxy solicitor, Mackenzie Partners, Inc.
at mlnxproxy@mackenziepartners.com.
1 Crehan Research, Linley Group, LightCounting; Switches and
Adapters
2 Infonetics Research: The Linley Group and EZchip, July 2014
View source version on businesswire.com: http://www.businesswire.com/news/home/20180312005506/en/
Contacts:
Mellanox Technologies, Ltd.
Investor Contact
Jeffrey
Schreiner, +1-408-916-0012
jschreiner@mellanox.com
or
Media
Contact
Joele Frank, Wilkinson Brimmer Katcher
Jed Repko,
Jeff Kauth, Kaitlin Kikalo
+1-415-869-3950 / +1-212-355-4449
or
Israel
PR Contact
Galai Communications Public Relations
Jonathan
Wolf, +972 3-613-52-84
yoni@galaipr.com
or
Israel
IR Contact
Gelbart Kahana Investor Relations
Emanuel
Kahana, +972 3-607-47-17
mano@gk-biz.com
Source: Mellanox Technologies, Ltd.
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