It looks as though Wall Street has brought forward the season of forgiveness of sins. Otherwise, it’s hard to explain how a string of companies have missed with their results and/or guidance, yet their share prices have responded positively.

It has happened to, among other companies, Intel (INTC), IBM (IBM), Google (GOOG), Qualcomm (QCOM), F5 (FFIV), and our own Check Point Software Technologies Ltd. (Nasdaq: CHKP). Those that met or beat expectations have been rewarded with sharp rises, as in the cases of Mellanox Technologies Ltd. (Nasdaq:MLNX; TASE:MLNX) (up 41%) and SanDisk Corporation (Nasdaq:SNDK) (up 10%). The stiffest “forgiveness” test will come after the close tomorrow, with the financials of the biggest of them all, Apple (AAPL). It is already clear that, at least as far as the September quarter is concerned, it will disappoint with its guidance, because the new generation of its highest selling gadget, the iPhone, will be on the shelves only in October. The September quarter will be hit, for potential iPhone buyers will prefer to wait for the new model.

Today, I am taking advantage of the “perfect storm” in Mellanox, and cashing in a quarter of the position, at a profit of 900% in three and a half years. I am realizing the shares not because the price has reached a peak, but in order that the stock’s proportion of the portfolio should be reasonable. A positive “perfect storm” happens in a stock when an unhyped, niche technology suddenly bursts onto center stage, because of a perfect match with the demands of leading giant players, and because of an absence of substantial competition.

Mellanox’s InfiniBand was considered by many to be a marginal niche from the time that I brought the stock into my portfolio in early 2009, at a price of $8.8, until quite recently. This year, InfiniBand technology perfectly met the demands for fast communications on the part of customers with almost bottomless pockets, such as Google and Facebook (FB), which are all about high speeds with lowest possible latency.

Facebook, which rumor has it is a Mellanox customer, did not need the fiasco of its own IPO on Nasdaq to understand what happens if you have an inadequate technological infrastructure, as it turned out Nasdaq had. Besides technology, big customers, and talented workers, a “perfect storm” also takes courageous management, able to resist temptation and refrain from selling the company too soon, because there are always customers that spot the potential early, and rush to lay down offers that are hard to refuse. In Mellanox’s case, founder and CEO Eyal Waldman was brave enough to refuse an offer from Oracle (ORCL), apparently made close to October 2010, because at the end of that month, Oracle bought 10.2% of Mellanox via the stock market at an average price of $18.5 per share. That now gives Oracle a profit on paper of some $250 million. It’s not clear when Oracle would make that amount through selling Mellanox’s InfiniBand-based products in the normal course of its business…Read More>>

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