10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

OR

£  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period                   to                   

Commission File No. 001-33299

MELLANOX TECHNOLOGIES, LTD.

(Exact Name of Registrant as Specified in Its Charter)

ISRAEL	98-0233400
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)
BEIT MELLANOX, YOKNEAM, ISRAEL	20692
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code: +972-4-909-7200

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x	Accelerated filer o
Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No x

The total number of outstanding shares of the registrant’s Ordinary Shares, nominal value of NIS 0.0175 per share, as of April 25, 2013, was 43,160,173.

MELLANOX TECHNOLOGIES, LTD.

		Page No.
PART I
FINANCIAL INFORMATION
ITEM 1.	Unaudited Condensed Consolidated Financial Statements	3
	Condensed Consolidated Balance Sheets (Unaudited) — March 31, 2013 and December 31, 2012	3
	Condensed Consolidated Statements of Operations (Unaudited) — Three Months Ended March 31, 2013 and 2012	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) — Three Months Ended March 31, 2013 and 2012	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) — Three Months Ended March 31, 2013 and 2012	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	27
ITEM 4.	Controls and Procedures	27
PART II
OTHER INFORMATION
ITEM 1.	Legal Proceedings	28
ITEM 1A.	Risk Factors	28
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
ITEM 3.	Defaults Upon Senior Securities	31
ITEM 4.	Mine Safety Disclosures	31
ITEM 5.	Other Information	31
ITEM 6.	Exhibits	31

2

PART I. FINANCIAL INFORMATION

ITEM 1 — UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MELLANOX TECHNOLOGIES, LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	March 31,		December 31,
	2013		2012
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	126,259	$	117,054
Short-term investments	269,935		302,593
Restricted cash	3,316		3,229
Accounts receivable, net	59,145		58,516
Inventories	45,672		43,318
Deferred taxes and other current assets	16,762		15,616
Total current assets	521,089		540,326
Property and equipment, net	67,229		62,375
Severance assets	9,402		8,907
Intangible assets, net	20,006		16,134
Goodwill	132,885		132,885
Deferred taxes and other long-term assets	14,471		10,419
Total assets	$	765,082	$	771,046
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	25,829	$	37,431
Accrued liabilities	54,168		57,879
Deferred revenue	11,159		12,018
Capital lease liabilities, current	1,251		1,253
Total current liabilities	92,407		108,581
Accrued severance	12,327		11,821
Deferred revenue	8,499		8,366
Capital lease liabilities	2,558		2,835
Other long-term liabilities	12,471		11,635
Total liabilities	128,262		143,238
Commitments and Contingencies (Note 7)
Shareholders’ equity :
Ordinary shares	181		178
Additional paid-in capital	505,340		488,365
Accumulated other comprehensive income	3,285		2,794
Retained earnings	128,014		136,471
Total shareholders’ equity	636,820		627,808
Total liabilities and shareholders’ equity	$	765,082	$	771,046

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

MELLANOX TECHNOLOGIES, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months Ended
	March 31,
	2013			2012
	(In thousands, except per share data)
Total revenues	$	83,080		$	88,738
Cost of revenues	28,948			28,888
Gross profit	54,132			59,850
Operating expenses:
Research and development	38,149			28,958
Sales and marketing	16,414			12,805
General and administrative	7,485			4,857
Total operating expenses	62,048			46,620
Income (loss) from operations	(7,916		)	13,230
Other income, net	213			184
Income (loss) before taxes	(7,703		)	13,414
Provision for taxes on income	(754		)	(968		)
Net income (loss)	$	(8,457	)	$	12,446
Net income (loss) per share — basic	$	(0.20	)	$	0.31
Net income (loss) per share — diluted	$	(0.20	)	$	0.29
Shares used in computing income per share:
Basic	42,901			40,014
Diluted	42,901			42,427

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

MELLANOX TECHNOLOGIES, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

	Three Months Ended
	March 31,
	2013			2012
	(In thousands)
Net income (loss)	$	(8,457	)	$	12,446
Other comprehensive income (loss), net of tax:
Change in unrealized gains/losses on available-for-sale securities, net	58			(129		)
Change in unrealized gains/losses on derivative contracts, net	433			1,325
Total comprehensive income (loss), net of tax	$	(7,966	)	$	13,642

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

MELLANOX TECHNOLOGIES, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Three Months EndedMarch 31,
	2013			2012
	(In thousands)
Cash flows from operating activities:
Net income (loss)	$	(8,457	)	$	12,446
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	7,350			5,288
Deferred income taxes	(1,051		)	(363		)
Share-based compensation	10,375			7,242
Gain on sale of investments	(223		)	(173		)
Excess tax benefits from share-based compensation	(932		)	(957		)
Changes in assets and liabilities, net of effect of acquisition:
Accounts receivable, net	(629		)	1,106
Inventories	(2,866		)	(7,735		)
Prepaid expenses and other assets	(178		)	434
Accounts payable	(6,898		)	2,061
Accrued liabilities and other liabilities	(3,095		)	4,246
Net cash (used in) provided by operating activities	(6,604		)	23,595
Cash flows from investing activities:
Purchase of severance-related insurance policies	(186		)	(194		)
Purchases of short-term investments	(55,176		)	(100,239		)
Proceeds from sales of short-term investments	60,618			513
Proceeds from maturities of short-term investments	27,497			3,581
Decrease in restricted cash deposit	—			94
Purchase of property and equipment	(13,941		)	(4,495		)
Purchase of intangible assets	(6,327		)	—
Purchase of equity investment in a private company	(3,000		)	—
Net cash provided by (used in) investing activities	9,485			(100,740		)
Cash flows from financing activities:
Principal payments on capital lease obligations	(279		)	(79		)
Proceeds from exercise of share awards	5,671			6,199
Excess tax benefit from share-based compensation	932			957
Net cash provided by financing activities	6,324			7,077
Net increase (decrease) in cash and cash equivalents	9,205			(70,068		)
Cash and cash equivalents at beginning of period	117,054			181,258
Cash and cash equivalents at end of period	$	126,259		$	111,190
Non-cash investing and financing activities:
Unpaid property and equipment	$	(4,704	)	$	—
Inventory capitalization	$	512		$	444

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

MELLANOX TECHNOLOGIES, LTD.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Company

Mellanox Technologies, Ltd. (the “Company” or “Mellanox”) was incorporated in Israel and commenced operations in March 1999. Mellanox is a supplier of high-performance semiconductor interconnect products for computing, storage and communications applications.

Principles of presentation

The unaudited condensed consolidated financial statements include the Company’s accounts as well as those of its wholly owned subsidiaries after the elimination of all significant intercompany balances and transactions.

The unaudited condensed consolidated financial statements included in this quarterly report on Form 10-Q have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The year-end unaudited condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures contained in this quarterly report comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, for a quarterly report on Form 10-Q and are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements included herein reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed with the SEC on February 25, 2013. The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2013 or thereafter.

Risks and uncertainties

The Company is subject to all of the risks inherent in a company which operates in the dynamic and competitive semiconductor industry. Significant changes in any of the following areas could have a material adverse impact on the Company’s financial position and results of operations: unpredictable volume or timing of customer orders; ordered product mix; the sales outlook and purchasing patterns of the Company’s customers based on consumer demands and general economic conditions; loss of one or more of the Company’s customers; decreases in the average selling prices of products or increases in the average cost of finished goods; the availability, pricing and timeliness of delivery of components used in the Company’s products; reliance on a limited number of subcontractors to manufacture, assemble, package and production test the Company’s products; the Company’s ability to successfully develop, introduce and sell new or enhanced products in a timely manner; product obsolescence and the Company’s ability to manage product transitions; and the timing of announcements or introductions of new products by the Company’s competitors.

Additionally, the Company has a significant presence in Israel, including research and development activities, corporate facilities and sales support operations. Uncertainty surrounding the political, economic and military conditions in Israel may directly impact the Company’s financial results.

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles in United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net revenues and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to revenue recognition, allowances for doubtful accounts, sales returns and allowances, warranty reserves, inventory reserves, share-based compensation expense, long-term asset

7

valuations, investments, goodwill and purchased intangible asset valuation, deferred income tax asset valuation allowances, uncertain tax positions, litigation and other loss contingencies. These estimates and assumptions are based on current facts, historical experience and various other factors that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs and expenses that are not readily apparent from other sources. The actual results the Company experiences may differ materially and adversely from its original estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

Significant accounting policies

There have been no changes in the Company’s significant accounting policies that were disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2012. See our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on February 25, 2013, for a discussion of significant accounting policies and estimates.

Concentration of credit risk

The following table summarizes the revenues from customers (including original equipment manufacturers) in excess of 10% of the total revenues:

	Three Months EndedMarch 31,
	2013		2012
IBM	19	%	24	%
Hewlett Packard	16	%	18	%

The following table summarizes the accounts receivable balance in excess of 10% of the total accounts receivable:

	March 31, 2013		December 31, 2012
IBM	25	%	21	%
Hewlett Packard	14	%	*

*Less than 10%

At March 31, 2013 and December 31, 2012, based on information filed with the SEC or reported to us, Oracle held approximately 3.8 million ordinary shares of Mellanox. Sales to Oracle mainly through its contract manufacturers in the three months ended March 31, 2013 and March 31, 2012 were $6.9 million and $4.8 million, respectively, and were conducted at arm’s-length. At March 31, 2013 and December 31, 2012, accounts receivable from Oracle totaled $0.3 million and $0.2 million, respectively.

Product warranty

Changes in the Company’s liability for product warranty during the three months ended March 31, 2013 and 2012 are included in Accrued liabilities and are as follows:

	Three Months EndedMarch 31,
	2013			2012
	(in thousands)
Balance, beginning of the period	$	4,447		$	1,097
Warranties issued during the period	2,820			228
Reversal of warranty reserves	(489		)	(35		)
Settlements during the period	(3,259		)	(175		)
Balance, end of the period	$	3,519		$	1,115

8

Net income per share

The following table sets forth the computation of basic and diluted net income (loss) per share for the periods indicated:

	Three Months EndedMarch 31,
	2013			2012
Net income (loss)	$	(8,457	)	$	12,446
Basic and diluted shares:
Weighted average ordinary shares outstanding used to compute basic net income (loss) per share	42,901			40,014
Dilutive effect of employee share option plans	—			2,413
Shares used to compute diluted net income (loss) per share	42,901			42,427
Net income (loss) per share — basic	$	(0.20	)	$	0.31
Net income (loss) per share — diluted	$	(0.20	)	$	0.29

The Company excluded 750,351 and 602,908 outstanding shares for the three months ended March 31, 2013 and March 31, 2012, respectively, from the computation of diluted net income (loss) per ordinary share, because including these outstanding shares would have had an anti-dilutive effect.

Recent accounting pronouncements

Effective January 1, 2013, the Company adopted the authoritative guidance, issued by the Financial Accounting Standards Board (“FASB”) in February, 2013, related to reclassifications out of accumulated other comprehensive income (“OCI”). Under this update, an entity is required to report, in one place, information about reclassifications out of accumulated OCI and to report changes in its accumulated OCI balances. For significant items reclassified out of accumulated OCI to net income in their entirety in the same reporting period, reporting is required about the effect of the reclassifications on the respective line items in the statement where net income is presented. For items that are not reclassified to net income in their entirety in the same reporting period, a cross reference to other disclosures currently required under GAAP is required in the notes to the financial statements. The Company elected to present the information in the notes to the Company’s unaudited condensed consolidated financial statements. The adoption of this guidance had no impact on the Company’s consolidated financial statements.

NOTE 2 — BALANCE SHEET COMPONENTS:

	March 31,2013			December 31,2012
	(in thousands)
Accounts receivable, net:
Accounts receivable	$	59,784		$	59,155
Less: allowance for doubtful accounts	(639		)	(639		)
	$	59,145		$	58,516
Inventories:
Raw materials	$	11,749		$	6,240
Work-in-process	14,683			4,667
Finished goods	19,240			32,411
	$	45,672		$	43,318
Deferred taxes and other current assets:
Prepaid expenses	$	5,584		$	5,346
Forward contracts receivable	3,375			2,942
Deferred taxes	3,813			3,813
VAT receivable	3,248			3,000
Other	742			515
	$	16,762		$	15,616
Property and equipment, net:
Computer equipment and software	$	74,825		$	80,203
Furniture and fixtures	3,777			3,890
Leasehold improvements	27,884			26,590
	106,486			110,683
Less: Accumulated depreciation and amortization	(39,257		)	(48,308		)
	$	67,229		$	62,375
Deferred taxes and other long-term assets:
Equity investments in private companies	$	7,424		$	4,424
Deferred taxes	3,134			2,083
Restricted cash	3,393			3,388
Other assets	520			524
	$	14,471		$	10,419
Accrued liabilities:
Payroll and related expenses	$	35,068		$	37,067
Accrued expenses	10,379			10,104
Product warranty liability	3,519			4,447
Development project	69			640
Other	5,133			5,621
	$	54,168		$	57,879
Other long-term liabilities:
Income tax payable	$	9,521		$	8,838
Deferred rent	$	2,750		$	2,797
Other	200			—
	$	12,471		$	11,635

9

NOTE 3 — FAIR VALUE MEASUREMENTS:

Fair value hierarchy

The Company measures its cash equivalents and marketable securities at fair value. The Company’s cash equivalents are classified within Level 1. Cash equivalents are valued primarily using quoted market prices utilizing market observable inputs. The Company’s investments in debt securities and certificates of deposits are classified within Level 2 as the market inputs to value these instruments consist of market yields, reported trades and broker/dealer quotes. In addition, foreign currency contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments. The Level 3 valuation inputs include the Company’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation. As of March 31, 2013 and December 31, 2012, the Company did not have any financial assets or liabilities valued based on Level 3 valuations.

The following table presents the fair value hierarchy of the Company’s financial assets measured at fair value as of March 31, 2013. There were no financial liabilities as of March 31, 2013.

	Level 1		Level 2		Total
	(in thousands)
Certificates of deposits	$	—	$	92,014	$	92,014
U.S. Government and agency securities	—		67,553		67,553
Commercial paper	—		24,487		24,487
Corporate bonds	—		92,071		92,071
Forward contracts	—		3,375		3,375
Total financial assets	$	—	$	279,500	$	279,500

The following table presents the fair value hierarchy of the Company’s financial assets measured at fair value as of December 31, 2012. There were no financial liabilities as of December 31, 2012.

	Level 1		Level 2		Total
	(in thousands)
Certificates of deposit	$	—	$	90,431	$	90,431
U.S. Government and agency securities	—		115,129		115,129
Commercial paper	—		34,947		34,947
Corporate bonds	—		61,462		61,462
Foreign government bonds	—		7,530		7,530
Forward contracts	—		2,942		2,942
Total financial assets	$	—	$	312,441	$	312,441

There were no transfers between Level 1 and Level 2 securities during the three months ended March 31, 2013.

10

NOTE 4 — INVESTMENTS:

Cash, Cash equivalents and Short-term investments

The short-term investments are classified as available-for-sale securities. The cash, cash equivalents and short-term investments at March 31, 2013 and December 31, 2012 were as follows:

	March 31, 2013
	AmortizedCost			NetUnrealizedGains (Losses)			EstimatedFair Value
	(in thousands)
Cash	$	120,069		$	—		$	120,069
Certificates of deposits	92,028			(14		)	92,014
U.S. Government and agency securities	67,575			(22		)	67,553
Commercial paper	24,469			18			24,487
Corporate bonds	92,143			(72		)	92,071
Total investments	$	396,284		$	(90	)	$	396,194
Less amounts classified as cash and cash equivalents	(126,259		)	—			(126,259		)
	$	270,025		$	(90	)	$	269,935

	December 31, 2012
	AmortizedCost			NetUnrealizedGains (Losses)			EstimatedFair Value
	(in thousands)
Cash	$	110,148		$	—		$	110,148
Certificates of deposit	90,437			(6		)	90,431
U.S. Government and agency securities	115,179			(50		)	115,129
Commercial paper	34,977			(30		)	34,947
Corporate bonds	61,543			(81		)	61,462
Foreign government bonds	7,511			19			7,530
Total investments in marketable securities	$	419,795		$	(148	)	$	419,647
Less amounts classified as cash and cash equivalents	(117,054		)	—			(117,054		)
	$	302,741		$	(148	)	$	302,593

Realized gains upon the sale of marketable securities were less than $0.1 million for the three months ended March 31, 2013 and March 31, 2012. At March 31, 2013, the investments with gross unrealized losses were not deemed to be other-than-temporarily impaired and the unrealized losses were recorded in OCI.

The contractual maturities of available-for-sale securities at March 31, 2013 and December 31, 2012 were as follows:

	March 31, 2013				December 31, 2012
	AmortizedCost		Estimated FairValue		AmortizedCost		Estimated FairValue
	(in thousands)
Due in less than one year	$	64,690	$	64,677	$	58,758	$	58,724
Due in one to three years	205,335		205,258		243,983		243,869
	$	270,025	$	269,935	$	302,741	$	302,593

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Restricted cash and deposits

The Company maintains certain cash amounts restricted as to withdrawal or use. The Company maintained a balance of $0.7 million at March 31, 2013 and December 31, 2012 that represented tenant security deposits restricted due to the tenancy agreements and $2.6 million at March 31, 2013 and December 31, 2012, that represented security deposits restricted due to foreign exchange management agreements with two banks.

Investments in privately-held companies

During the first quarter of 2013, the Company invested $3.0 million in a privately-held company, and as of March 31, 2013, the Company held a total of $7.4 million investments in two privately-held companies. Both of these investments are accounted for under the cost method, net of impairment write down.

NOTE 5 — GOODWILL AND INTANGIBLE ASSETS:

The following table presents changes in the carrying amount of goodwill (in thousands):

Balance as of December 31, 2012	$	132,885
Adjustments	—
Balance as of March 31, 2013	$	132,885

The carrying amounts of intangible assets as of March 31, 2013 were as follows:

	GrossCarryingValue		AccumulatedAmortization			NetCarryingValue
	(in thousands)
Developed technology	$	29,459	$	(16,642	)	$	12,817
Customer relationships	10,956		(3,767		)	7,189
Customer contract	1,529		(1,529		)	—
Total intangible assets	$	41,944	$	(21,938	)	$	20,006

The carrying amounts of intangible assets as of December 31, 2012 are as follows:

	GrossCarryingValue		AccumulatedAmortization			NetCarryingValue
	(in thousands)
Licensed technology	$	946	$	(946	)	$	—
Developed technology	23,132		(14,695		)	8,437
Customer relationships	10,956		(3,328		)	7,628
Customer contract	1,529		(1,460		)	69
Total intangible assets	$	36,563	$	(20,429	)	$	16,134

Amortization expense of intangible assets was $2.4 million and $2.4 million for the three months ended March 31, 2013 and 2012, respectively.

The estimated future amortization expenses from amortizable intangible assets were as follows (in thousands):

Remainder of 2013	$	7,850
2014	4,843
2015	2,081
2016	1,482
2017 and thereafter	3,750
	$	20,006

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NOTE 6 — DERIVATIVES AND HEDGING ACTIVITIES:

The Company uses derivative instruments primarily to manage exposures to foreign currency. The Company enters into forward contracts to manage its exposure to changes in the exchange rate of the New Israeli Shekel (“NIS”) against the U.S. dollar. The Company uses forward contracts designated as cash flow hedges to hedge a substantial portion of future forecasted operating expenses in NIS. The Company’s primary objective in entering into these arrangements is to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates. The program is not designated for trading or speculative purposes. The Company’s forward contracts expose the Company to credit risk to the extent that the counterparties may be unable to meet the terms of the agreement. The Company seeks to mitigate such risk by limiting its counterparties to major financial institutions and by spreading the risk across a number of major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored on an ongoing basis.

The gain or loss on the effective portion of a cash flow hedge is initially reported as a component of accumulated other comprehensive income (loss) (“OCI”), and subsequently reclassified into operating expenses in the same period in which the hedged operating expenses are recognized, or reclassified into other income, net, if the hedged transaction becomes probable of not occurring. Any gain or loss after a hedge is de-designated because it is no longer probable of occurring or related to an ineffective portion of a hedge, as well as any amount excluded from the Company’s hedge effectiveness, is recognized as other income (expense) immediately. As of March 31, 2013, the Company had forward contracts in place that hedged future operating expenses of approximately 212.3 million NIS, or approximately $58.2 million based upon the exchange rate as of March 31, 2013. The forward contracts cover a substantial portion of future NIS denominated operating expenses that the Company expects to incur over the next twelve months.

The Company does not use derivative financial instruments for purposes other than cash flow hedges.

Fair value of derivative contracts

Fair value of derivative contracts as of March 31, 2013 and December 31, 2012 were as follows:

	Derivative Assets Reported inOther Current Assets				Derivative Liabilities Reported inOther Current Liabilities
	March 31,2013		December 31,2012		March 31,2013		December 31,2012
	(in thousands)
Foreign exchange contracts designated as cash flow hedges	$	3,375	$	2,942	$	—	$	—
Total derivatives designated as hedging instruments	$	3,375	$	2,942	$	—	$	—

Effect of designated derivative contracts on accumulated other comprehensive income

The following table presents the balance of designated derivative contracts as cash flow hedges as of March 31, 2013 and December 31, 2012, and their impact on OCI for the three months ended March 31, 2013 (in thousands):

December 31, 2012	$	2,942
Amount of gain recognized in OCI (effective portion)	1,712
Amount of gain reclassified from OCI to income (effective portion)	(1,279		)
March 31, 2013	$	3,375

Foreign exchange contracts designated as cash flow hedges relate primarily to operating expenses and the associated gains and losses are expected to be recorded in operating expenses when reclassed out of OCI. The Company expects to realize the accumulated OCI balance related to foreign exchange contracts within the next twelve months.

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Effect of derivative contracts on the condensed consolidated statement of operations

The impact of derivative contracts on total operating expenses in the three months ended March 31, 2013 and 2012 was as follows:

	Three Months Ended March 31,
	2013		2012
	(in thousands)
Gain (loss) on foreign exchange contracts designated as cash flow hedges	$	1,279	$	(137	)

The net gains or losses relating to the ineffective portion of derivative contracts were not material in the three months ended March 31, 2013 and 2012.

NOTE 7— COMMITMENTS AND CONTINGENCIES:

Leases

As of March 31, 2013, future minimum lease payments under non-cancelable operating and capital leases were as follows:

Year Ended December 31,	Capital Leases			Operating Leases
	(in thousands)
2013	$	1,270		$	10,156
2014	1,261			11,878
2015	1,114			7,905
2016	220			6,453
2017 and beyond	—			15,543
Total minimum lease payments	$	3,865		$	51,935
Less: Amount representing interest	(56		)
Present value of capital lease obligations	3,809
Less: Current portion	(1,251		)
Long-term portion of capital lease obligations	$	2,558

Purchase commitments

At March 31, 2013, the Company had non-cancelable purchase commitments of $46.7 million, of which $45.1 million is expected to be paid in 2013 and $1.6 million in 2014 and beyond.

Legal proceedings

The Company considers all legal claims on a quarterly basis in accordance with GAAP and, based on known facts, assesses whether potential losses are considered reasonably possible, probable and estimable.

The Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Unless otherwise specifically disclosed in this note, the Company has determined that no provision for liability nor disclosure is required related to any claim against us because: (a) there is not a reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with respect to such claim; (b) a reasonably possible loss or range of loss cannot be estimated; or (c) such estimate is immaterial. All legal costs associated with litigation are expensed as incurred.

Litigation is inherently unpredictable. However, the Company believes that it has valid defenses with respect to the pending legal matters. It is possible, nevertheless, that the consolidated financial position, cash flows or results of operations could be negatively affected by an unfavorable resolution of one or more of such proceedings, claims or investigations.

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Pending legal proceedings as of March 31, 2013 were as follows:

Avago Technologies Fiber (IP) Singapore Pte. Ltd.

On September 24, 2012, Avago Technologies Fiber (IP) Singapore Pte. Ltd., Avago Technologies General IP (Singapore) Pte. Ltd. and Avago Technologies U.S. Inc. (collectively, “Avago”) filed a complaint against Mellanox Technologies, Ltd., Mellanox Technologies, Inc., IPtronics A/S, IPtronics, Inc., FCI USA, LLC, FCI Deutschland GmbH and FCI SA (collectively, “Respondents”) with the United States International Trade Commission (Inv. No. 337-TA-860).  The complaint alleges that the Respondents have engaged in unfair acts in violation of Section 337 of the Tariff Act of 1930, as amended, through allegedly unlicensed importation, sale for importation and/or sale after importation of products covered by patents asserted by Avago.  Pursuant to the complaint, Avago seeks as permanent relief a limited exclusion order barring from entry into the United States, among other Respondent products, all imported Mellanox optoelectronic devices and products containing the same that allegedly infringe the patents asserted by Avago, and a cease and desist order prohibiting the importation, sale, offer for sale, advertising, solicitation, use and/or warehousing of inventory for distribution of such imported products in the United States. Neither the outcome of the proceeding nor the amount and range of potential damages or exposure associated with the proceeding can be assessed with certainty.  In the event we are not successful in defending the Avago claims, we could be forced to license technology from Avago and be prevented from importing, selling, offering for sale, advertising, soliciting, using and/or warehousing for distribution the allegedly infringing products.  Based on currently available information, the Company believes that the resolution of this proceeding is not likely to have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.

Barnicle Case

On February 7, 2013, Mellanox Technologies, Ltd., the Company’s President and CEO, former CFO and CFO, were sued in a complaint filed in the United States District Court for the Southern District of New York naming it and them as defendants and entitled, Patrick Barnicle, on behalf of himself and others similarly situated v. Mellanox Technologies, Ltd., Eyal Waldman, Michael Gray and Jacob Shulman, Case No. 13 CIV 925. The complaint was filed by Patrick Barnacle for himself as plaintiff and, purportedly, on behalf of persons purchasing the Company’s ordinary shares between April 19, 2012 and January 2, 2013 (the “Class Period”), and alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The complaint alleges that, during the Class Period, the defendants made false or misleading statements (or failed to disclose certain facts) regarding the Company’s business and outlook. Plaintiffs seek unspecified damages, an award of reasonable costs and expenses, including reasonable attorney’s fees, and any other relief deemed just and proper by the court. Based on currently available information, the Company believes that the resolution of this proceeding is not likely to have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.

Ryan Case

On February 14, 2013, Mellanox Technologies, Ltd., the Company’s President and CEO, former CFO and CFO, were sued in a complaint filed in the United States District Court for the Southern District of New York naming it and them as defendants and entitled, David R. Ryan, Jr., on behalf of himself and others similarly situated v. Mellanox Technologies, Ltd., Eyal Waldman, Michael Gray and Jacob Shulman, Case No. 13 CV 1047. The factual allegations and legal claims asserted in the Ryan complaint, as well as the relief sought and the proposed class and class period in the Ryan complaint, are substantially the same as in the Barnicle case described above. Based on currently available information, the Company believes that the resolution of this proceeding is not likely to have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.

Petrov Case

On February 22, 2013, Mellanox Technologies, Ltd., the Company’s President and CEO, former CFO and CFO, were sued in a complaint filed in the United States District Court for the Southern District of New York naming it and them as defendants and entitled, Valentin Petrov, on behalf of himself and others similarly situated v. Mellanox Technologies, Ltd., Eyal Waldman, Michael Gray and Jacob Shulman, Case No. 13 CV 1225. The complaint was filed by Valentin Petrov for himself as plaintiff and, purportedly, on behalf of persons purchasing the Company’s ordinary shares between April 19, 2012 and January 2, 2013 (the “Class Period”), and alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The complaint alleges that, during the Class Period, the defendants made false or misleading statements (or failed to disclose certain facts) regarding the Company’s business and outlook. Plaintiffs seek unspecified damages, an award of reasonable costs and expenses, including reasonable attorney’s fees, and any other relief deemed just and proper by the court. Based on currently available information, the Company believes that the resolution of this proceeding is not likely to have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.

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Weinberger Case

On February 20, 2013 a request for approval of a class action was filed in the Economic Division of the District Court of Tel Aviv-Jaffa against Mellanox Technologies, Ltd., the Company’s President and CEO, former CFO, CFO and each of the members of  the Company’s board of directors (the “Israeli Claim”). The Israeli Claim was filed by Mr. Avigdor Weinberger (the “Claimant”).  The Israeli Claim alleges that the Company, the board members, the Company’s President and CEO, its former CFO and its current CFO are responsible for making misleading statements (or failing to disclose certain facts)  and filings to the public, as a result of which the shares of the Company were allegedly traded at a higher price than their true value during a period commencing on April 19, 2012 and ending January 2, 2013 and, therefore, these parties are responsible for damages caused to the purchasers of the Company’s shares on the Tel Aviv Stock Exchange during this time.  The Claimant seeks an award of compensation to the relevant shareholders for all damages caused to them, including attorney fees and Claimant’s fee and any other relief deemed just and proper by the court. On April 24, 2013, the Claimant and the Company filed a procedural agreement with the court to stay the Israeli Claim pending the completion of the Barnicle, Ryan and Petrov cases disclosed herein. On April 24, 2013, the Israeli court approved this procedural agreement and stayed the Israeli proceedings.  Based on currently available information, the Company believes that the resolution of this proceeding is not likely to have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.

Infinite Data path Case

On February 19, 2013, Infinite Data LLC, a Delaware limited liability company (“Infinite Data”), and a non-practicing entity and exclusive licensee of U.S. patent number 5,790,530 (the “Patent”), filed suit against approximately 25 of the Company’s end users and direct customers of its InfiniBand products in the United States District Court in Delaware. All approximately 25 actions include the same allegation of infringement regarding the Patent and seek the payment of damages, costs, expenses and injunctive relief. Several of the end users and direct customers sued by Infinite Data have tendered indemnification requests to the Company on the basis of existing contractual or asserted statutory obligations imposed on the Company to provide such indemnification. Based on currently available information, the Company believes that the resolution of these proceedings are not likely to have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.

NOTE 8 — SHARE INCENTIVE PLANS:

Share option and restricted share units activity

The following table summarizes the share option activity under the Company’s equity incentive plans during the three months ended March 31, 2013:

	Options Outstanding
	NumberofShares		WeightedAverageExercisePrice
Outstanding at December 31, 2012	3,285,922		$	29.74
Options granted	—		—
Options exercised	(135,769	)	12.40
Options cancelled	(32,986	)	60.14
Outstanding at March 31, 2013	3,117,167		$	30.18

The total pretax intrinsic value of options exercised in the three months ended March 31, 2013 and 2012 was $5.5 million and $9.0 million, respectively. This intrinsic value represents the difference between the fair market value of the Company’s ordinary shares on the date of exercise and the exercise price of each option. Based on the closing price of the Company’s ordinary shares of $55.51 on March 28, 2013, the total pretax intrinsic value of all outstanding options was $95.7 million. The total pretax intrinsic value of exercisable options at March 31, 2013 was $80.2 million.

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Restricted share units (“RSUs”) activity under the Company’s equity incentive plans in the three months ended March 31, 2013 is set forth below:

	Restricted Share Units Outstanding
	NumberofShares		WeightedAverageGrant DateFair Value
Non vested restricted share units at December 31, 2012	1,763,160		$	36.29
Restricted share units granted	639,730		51.38
Restricted share units vested	(332,244	)	30.84
Restricted share units canceled	(45,664	)	29.95
Non vested restricted share units at March 31, 2013	2,024,982		$	41.18

The weighted average fair value of RSUs granted in the three months ended March 31, 2013 and 2012 was $51.38 and $37.09, respectively. The total intrinsic value of all outstanding restricted share units was $112.4 million and $82.9 million as of March 31, 2013 and 2012, respectively. The weighted average fair value of restricted share units granted was $42.88 for the year ended December 31, 2012. The total intrinsic value of all outstanding restricted share units was $104.7 million as of December 31, 2012.

The Company had the following ordinary shares reserved for future issuance under its equity incentive plans as of March 31, 2013:

	Number of Shares
Share options outstanding	3,117,167
Restricted share units outstanding	2,024,982
Shares authorized for future issuance	1,324,135
ESPP shares available for future issuance	1,405,497
Total shares reserved for future issuance as of March 31, 2013	7,871,781

Share-based compensation

The following weighted average assumptions are used to value share options and ESPP shares issued pursuant to the Company’s equity incentive plans for the three months ended March 31, 2013 and 2012:

	Employee ShareOptions		Employee SharePurchase Plan
	Three Months Ended March 31,		Three Months Ended March 31,
	2013 (*)	2012	2013	2012
Dividend yield, %	—	—	—	—
Expected volatility, %	—	54.6	64.4	49.2
Risk free interest rate, %	—	1.38	0.11	0.10
Expected life, years	—	6.25	0.53	0.53
Estimated forfeiture rate, %	—	7.80	—	—

(*) During the three months ended March 31, 2013 there were no share options granted.

The following table summarizes the distribution of total share-based compensation expense in the unaudited condensed consolidated statements of operations:

	Three Months EndedMarch 31,
	2013		2012
	(in thousands)
Cost of goods sold	$	464	$	329
Research and development	5,808		4,181
Sales and marketing	2,124		1,642
General and administrative	1,979		1,090
Total share-based compensation expense	$	10,375	$	7,242

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At March 31, 2013, there was $104.1 million of total unrecognized share-based compensation costs related to non-vested share-based compensation arrangements. The costs are expected to be recognized over a weighted average period of 2.74 years.

At December 31, 2012, there was $84.4 million of total unrecognized share-based compensation costs related to non-vested share-based compensation arrangements. The costs are expected to be recognized over a weighted average period of 2.74 years.

NOTE 9 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the three months ended March 31, 2013 and March 31, 2012:

	Unrealized Gains (Losses) on Available-for- Sale Securities			Gains (Losses) on Derivatives			Total
	(in thousands)
Balance at December 31, 2012	$	(148	)	$	2,942		$	2,794
Other comprehensive income/loss before reclassifications	61			1,712			1,773
Amounts reclassified from accumulated other comprehensive income/loss	(3		)	(1,279		)	(1,282		)
Net current-period other comprehensive income/loss, net of taxes	58			433			491
Balance at March 31, 2013	$	(90	)	$	3,375		$	3,285
Balance at December 31, 2011	$	(15	)	$	(1,149	)	$	(1,164	)
Other comprehensive income (loss) before reclassifications	(129		)	1,188			1,059
Amounts reclassified from accumulated other comprehensive income/loss	—			137			137
Net current-period other comprehensive income/loss, net of taxes	(129		)	1,325			1,196
Balance at March 31, 2012	$	(144	)	$	176		$	32

The following table provides details about reclassifications out of accumulated other comprehensive income (loss) for the three months ended March 31, 2013:

Details about Accumulated Other Comprehensive Income Components	Amount Reclassified from Other ComprehensiveIncome			Affected Line Item in theStatement of Operations
	(in thousands)
Gains (losses) on Derivatives	$	(1,279	)	Cost of revenues and Operating expenses
	(73		)	Cost of revenues
	(985		)	Research and development
	(106		)	Sales and marketing
	(115		)	General and administrative
	(1,279		)
Unrealized gains (losses) on Available-for-Sale Securities	(3		)	Other income, net
Total reclassifications for the period	$	(1,282	)	Total

NOTE 10 — INCOME TAXES:

As of March 31, 2013 and December 31, 2012, the Company had unrecognized tax benefits of $14.7 million and $9.7 million, respectively. It is the Company’s policy to classify accrued interest and penalties as part of the unrecognized tax benefits, or tax contingencies, and record the expense in the provision for income taxes. As of March 31, 2013 and December 31, 2012, the amount of accrued interest and penalties totaled $0.5 million and $0.4 million, respectively. As of March 31, 2013, calendar years 2009 through 2012 were open and subject to potential examination in one or more jurisdictions.

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The Company’s effective tax rate is highly dependent upon the geographic distribution of its worldwide earnings or losses, tax regulations and tax holiday benefits in Israel, and the effectiveness of the Company’s tax planning strategies. The Company’s effective tax rates were (9.8%) and 7.2% for the three months ended March 31, 2013 and 2012, respectively. The difference between the Company’s effective tax rates and the 35% federal statutory rate resulted primarily from foreign earnings taxed at rates lower than the federal statutory rate, offset by non-tax-deductible expenses such as share-based compensation expense and the accrual of unrecognized tax benefits, and interest and penalties associated with unrecognized tax positions.

The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous, and the Company is required to make many subjective assumptions and judgments regarding its income tax exposures. In addition, interpretations of and guidance surrounding income tax laws and regulations are subject to change over time. Any changes in the Company’s subjective assumptions and judgments could materially affect amounts recognized in its consolidated balance sheets and statements of income.

ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition as of March 31, 2013 and results of operations for the three  months ended March 31, 2013 and March 31, 2012 should be read together with our financial statements and related notes included elsewhere in this report. This discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve risks, uncertainties and assumptions. Words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “predict,” “potential” and similar expressions, as they relate to us, our business and our management, are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this report. The identification of certain statements as “forward-looking” is not intended to mean that other statements not specifically identified are not forward-looking. All statements other than statements about historical facts are statements that could be deemed forward-looking statements, including, but not limited to, statements that relate to our future revenues, product development and introductions, customer demand, our dependence on key customers for a substantial portion of our revenue, performance of our subcontractors, our ability to consummate acquisitions and integrate their operations successfully, growth rates, market adoption of InfiniBand, competitive factors, gross margins, levels of research, development and other related costs, expenditures, protection of our proprietary rights and patents, tax expenses and benefits, cash flows, management’s plans and objectives for current and future operations, conditions in the Middle East and worldwide economic conditions.

Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those set forth under the section entitled “Risk Factors” in Part II, Item 1A of this report and in the section entitled “Risk Factors” in Part 1, Item 1A of our Annual Report on Form 10-K for fiscal year ended December 31, 2012. We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. All forward-looking statements included in this report are based on information available to us on the date of this report, and we assume no obligation to update any forward-looking statements contained in this report. Quarterly financial results may not be indicative of the financial results of future periods.

Unless the context requires otherwise, references in this report to the “Company,” “we,” “us” and “our” refer to Mellanox Technologies, Ltd. and its wholly owned subsidiaries.

Overview

We are a fabless semiconductor company that produces and supplies high-performance interconnect products that facilitate efficient data transmission between servers, storage systems and communications infrastructure equipment and other embedded systems. We offer adapter, gateway and switch integrated circuits (“ICs”), adapter cards, switch systems, long-haul systems, gateway systems, software, services and cables as an integral part of a total end-to-end networking solution focused on computing, storage and communication applications used in multiple markets, including high-performance computing, or HPC, Web 2.0, storage, financial services, database and cloud. Our adapters and switch ICs provide per port bandwidth up to 10Gb/s, 40Gb/s and 56Gb/s Ethernet, and 10Gb/s (Single Data Rate or SDR), 20Gb/s (Double Data Rate or DDR), 40Gb/s (Quad Data Rate or QDR) and 56Gb/s (Fourteen Data Rate or FDR) InfiniBand. Our switch systems range in port density from 8, 18, 36, 48 and 64 port top-of-rack switches to director-class switches ranging in size from 108 to 648 ports. Connectivity between the adapters and switches is supported with our short reach copper cables and long reach active optical cables, and our management software provides visibility, monitoring and diagnostics for the system.

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As a leader in developing multiple generations of high-speed interconnect solutions, we have established strong relationships with our customers. Our products are incorporated in servers and associated networking solutions produced by the four largest server vendors, Hewlett-Packard, IBM, Dell and Fujitsu. We supply our products to leading storage and communications infrastructure equipment vendors such as Data Direct Networks, Hewlett-Packard, IBM, Isilon/EMC, NetApp, Oracle, TeraData and Xyratex. Additionally, our products are used as embedded solutions by companies such as Advantech, Dalsa Medical, Fujitsu, Mercury, GE Fanuc, Toshiba Medical and Sea Change International.

We are one of the pioneers of InfiniBand, an industry-standard architecture that provides specifications for high-performance interconnects. We believe InfiniBand interconnect solutions deliver industry-leading performance, efficiency and scalability of clustered computing and storage systems that incorporate our products. In addition to supporting InfiniBand, our products also support industry-standard Ethernet transmission protocols providing unique product differentiation and connectivity flexibility. Our products serve as building blocks for creating reliable and scalable InfiniBand and Ethernet solutions with leading performance.

Revenues. We derive revenues from sales of our ICs, cards, switch systems, cables, software and accessories. Our sales have historically been made on the basis of purchase orders rather than long-term agreements. Following the introduction of Romley and Sandy Bridge server and storage platforms by Intel Corporation in March 2012, end users began to upgrade their systems. As a result, the company’s quarterly revenues increased sequentially from the first quarter through the third quarter of 2012.  Revenues have decreased sequentially from the third quarter of 2012 through the first quarter of 2013. The recent decrease was attributed primarily to a weaker demand environment, challenging macroeconomic conditions and a build-up of inventory at an OEM customer Revenues were $83.1 million for the three months ended March 31, 2013, compared to $88.7 million for the three months ended March 31, 2012, representing a decrease of approximately 6%.Our fiscal first quarter 2013 revenues are not necessarily indicative of future results.

To date, we have derived a substantial portion of our revenues from a relatively small number of customers. Sales to our top ten customers represented 74% and 79% of our total revenues for the three months ended March 31, 2013 and 2012, respectively. Sales to customers representing 10% or more of revenues accounted for 35% and 42% of our total revenues for the three months ended March 31, 2013 and 2012, respectively. The loss of one or more of our principal customers, the reduction or deferral of purchases, or changes in the mix of our products ordered by any one of these customers could cause our revenues to decline materially if we are unable to increase our revenues from other customers. Our customers, including our most significant customers, are not obligated by long-term contracts to purchase our products and may cancel orders with limited potential penalties. If any of our large customers reduces or cancels its purchases from us for any reason, it could have an adverse effect on our revenues and results of operations.

At March 31, 2013 and December 31, 2012, based on information filed with the SEC or reported to us, Oracle Corporation held approximately 3.8 million of our ordinary shares. Sales to Oracle mainly through its contract manufacturers in the three months ended March 31, 2013 were $6.9 million, and were conducted at arm’s-length. There were no other material transactions with Oracle during the three months ended March 31, 2013. Sales to Oracle mainly through its contract manufacturers for the three months ended March 31, 2012 were $4.8 million, and were conducted at arm’s-length. At March 31, 2013 and December 31, 2012, accounts receivable from Oracle totaled $0.3 million and $0.2 million, respectively.

Cost of revenues and gross profit. The cost of revenues consists primarily of the cost of silicon wafers purchased from our foundry supplier, costs associated with the assembly, packaging and production testing of our ICs, outside processing costs associated with the manufacture of our adapter cards, and switch systems, purchased cable costs, royalties due to third parties, warranty costs, excess and obsolete inventory costs, depreciation and amortization, and costs of personnel associated with production management, quality assurance and services. In addition, after we purchase wafers from our foundries, we also face yield risk related to manufacturing these wafers into semiconductor devices. Manufacturing yield is the percentage of acceptable product resulting from the manufacturing process, as identified when the product is tested as a finished IC. If our manufacturing yields decrease, our cost per unit increases, which could have a significant adverse impact on our cost of revenues. We do not have long-term pricing agreements with foundry suppliers and contract manufacturers. Accordingly, our costs are subject to price fluctuations based on the overall cyclical demand for semiconductors.

We purchase our inventory pursuant to standard purchase orders. We estimate that lead times for delivery of our finished semiconductors from our foundry supplier and assembly, packaging and production testing subcontractor are approximately three to four months, lead times for delivery from our adapter card manufacturing subcontractor are approximately eight to ten weeks, and lead times for delivery from our switch systems manufacturing subcontractors are approximately twelve weeks. We build inventory based on forecasts of customer orders rather than the actual orders themselves. Our inventory levels increased as a result of our revenues being lower than forecast at the time inventory purchase orders were placed.

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We expect our cost of revenues as a percentage of sales to increase in the future as a result of a reduction in the average sale price of our products and a higher percentage of revenue deriving from sales of switch systems and cables, which generally yield lower gross margins. This trend will depend on overall customer demand for our products, our product mix, composition of our revenues by respective data rate, competitive product offerings and related pricing and our ability to reduce manufacturing costs

Operational Expenses

Research and Development Expenses.  Our research and development expenses consist primarily of salaries, share-based compensation and associated costs for employees engaged in research and development, costs associated with computer aided design software tools, depreciation, allocable facilities and administrative expenses and tape-out costs. Tape-out costs are expenses related to the manufacture of new ICs, including charges for mask sets, prototype wafers, mask set revisions and testing incurred before releasing new ICs into production. We anticipate these expenses will increase in future periods based on an increase in personnel to support our product development activities and the introduction of new products. We anticipate that our research and development expenses will increase as we continue to invest in development of new products and technologies.

Sales and Marketing Expenses. Sales and marketing expenses consist primarily of salaries, incentive compensation, share-based compensation and associated costs for employees engaged in sales, marketing and business development, commission payments to external, sales representatives, advertising, and charges for trade shows, promotions, travel and allocable facilities and administrative expenses. We expect these expenses will increase in absolute dollars in future periods based on an increase in sales, marketing and business development personnel and increased marketing activities.

General and Administrative Expenses. General and administrative expenses consist primarily of salaries, share-based compensation and associated costs for employees engaged in finance, legal, human resources and administrative activities, and other professional service expenses for accounting, corporate legal fees and allocable facilities expenses. We expect these expenses will increase in absolute dollars in future periods based on an increase in personnel to support our business activities.

Amortization of Intangible Assets. Amortization of intangible assets relates to intangible assets resulting from our acquisition of Voltaire Ltd. and purchases of patents and other license rights, which will be amortized over their estimated useful lives. Amortization is included in cost of revenues, research and development, sales and marketing or general and administrative expenses based upon the nature of the intangible asset.

Taxes on Income. Our operations in Israel have been granted “Approved Enterprise” status by the Investment Center of the Israeli Ministry of Industry, Trade and Labor and “Beneficiary Enterprise” status by the Israeli Income Tax Authority, which makes us eligible for tax benefits under the Israeli Law for Encouragement of Capital Investments, 1959. Under the terms of the Beneficiary Enterprise program, income that is attributable to our operations in Yokneam, Israel will be exempt from income tax for a period of ten years commencing when we first generate taxable income after setting off our losses from prior years. Income that is attributable to our operations in Tel Aviv, Israel will be exempt from income tax for a period of two years commencing when we first generate taxable income and will be subject to a reduced income tax rate (generally 10 to 25%, depending on the percentage of foreign investment in the Company) for five to eight years thereafter. The Beneficiary Enterprise tax holiday associated with our Yokneam and Tel Aviv operations began in 2011. The Yokneam tax holiday is expected to expire in 2020 and the Tel Aviv tax holiday is expected to expire between 2015 and 2018.

In the first quarter of 2013, we realigned some of our business activities and, as a result, may utilize carryforward net operating losses in one of our subsidiaries in the future. The valuation allowance established for deferred tax assets will be released if it becomes more likely than not that the subsidiary will generate sufficient future taxable income.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

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We believe that the assumptions and estimates associated with revenue recognition, allowance for doubtful accounts, fair value of financial instruments, short-term investments, inventory valuation, valuation and impairment of goodwill and acquired intangibles, warranty provision, share-based compensation and income taxes have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates. For further information on all of our significant accounting policies, please see Note 1 of the accompanying notes to our consolidated financial statements.

See our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on February 25, 2013, for a discussion of additional critical accounting policies and estimates. There have been no changes in our critical accounting policies as compared to what was disclosed in the Form 10-K for the year ended December 31, 2012.

Results of Operations

The following table sets forth our consolidated statements of operations as a percentage of revenues for the periods indicated:

	Three Months Ended  March 31,
	2013		2012
Total revenues	100	%	100	%
Cost of revenues	35		33
Gross profit	65		67
Operating expenses:
Research and development	46		33
Sales and marketing	20		14
General and administrative	9		5
Total operating expenses	75		52
Income (loss) from operations	(10	)	15
Other income, net	1		0
Provision for taxes on income	(1	)	(1	)
Net income (loss)	(10	)%	14	%

Comparison of the Three Months Ended March 31, 2013 to the Three Months Ended March 31, 2012

The following table represents our total revenues for the three months ended March 31, 2013 and 2012 by product category, interconnect protocol and data rate.

	Three Months Ended March 31,
Product category:	2013		% of Revenues		2012		% of Revenues
	(in thousands)				(in thousands)
ICs	$	11,098	13.4	%	$	14,938	16.8	%
Boards	23,668		28.5	%	28,165		31.8	%
Switch and gateway systems	35,558		42.8	%	31,414		35.4	%
Cables, accessories and other	12,756		15.3	%	14,221		16.0	%
Total revenue	$	83,080	100.0	%	$	88,738	100.0	%

	Three Months Ended March 31,
Interconnect protocol and data rate:	2013		% of Revenues		2012		% of Revenues
	(in thousands)				(in thousands)
InfiniBand:
FDR	$	41,832	50.4	%	$	27,730	31.2	%
QDR	24,962		30.0	%	40,296		45.4	%
DDR	3,643		4.4	%	8,049		9.1	%
SDR	503		0.6	%	232		0.3	%
Total	70,940		85.4	%	76,307		86.0	%
Ethernet	7,840		9.4	%	8,671		9.8	%
Other	4,300		5.2	%	3,760		4.2	%
Total revenue	$	83,080	100.0	%	$	88,738	100.0	%

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Revenues. Revenues were $83.1 million for the three months ended March 31, 2013 compared to $88.7 million for the three months ended March 31, 2012, representing a decrease of 6.4%. The year-over-year revenue decrease was primarily due to increased revenues in the three months ended March 31, 2012 related to pent up demand associated with the launch of Romley and Sandy Bridge platforms by Intel Corporation. In addition, our revenues in the three months ended March 31, 2013 were negatively impacted by depletion of inventory accumulated at an OEM customer during the second half of 2012. Revenues for the three months ended March 31, 2013 are not necessarily indicative of future results.

Gross Profit and Margin.  Gross profit was $54.1 million for the three months ended March 31, 2013 compared to $59.9 million for the three months ended March 31, 2012, representing a decrease of 9.6%. As a percentage of revenues, gross margin decreased to 65.2% in the three months ended March 31, 2013 from 67.4% in the three months ended March 31, 2012. The gross margin percentage decrease was mainly due to product mix and increased warranty expenses associated with our expansion into new markets. Specifically, the portion of revenues attributed to ICs and boards declined in the three months ended March 31, 2013 while the portion of revenues attributable to switch and gateway systems increased. We garnish higher gross margins on sales of ICs and boards. Gross margin for the three months ended March 31, 2013 is not necessarily indicative of future results.

Research and Development.

The following table presents details of our research and development expenses for the periods indicated:

	Three Months Ended March 31,
	2013		% of Revenues		2012		% of Revenues
	(in thousands)				(in thousands)
Salaries and benefits	$	18,549	22.3	%	$	16,151	18.2	%
Share-based compensation	5,808		7.0	%	4,181		4.7	%
Development and tape-out costs	5,366		6.5	%	2,999		3.4	%
Other	8,426		10.1	%	5,627		6.3	%
Total Research and development	$	38,149	45.9	%	$	28,958	32.6	%

Research and development expenses were $38.1 million in the three months ended March 31, 2013 compared to $29.0 million in the three months ended March 31, 2012, representing an increase of 31.7%. The increase in salaries and benefits and share-based compensation was attributable to headcount additions. Development and design costs increased due to tape-out of our new product Connect X-3 Pro, and higher product test, software and qualification expenses. The increase in other research and development costs was primarily attributable to an increase in facilities and maintenance costs as well as higher depreciation expenses. We expect that research and development expenses will increase in absolute dollars in future periods as we continue to devote more resources to develop new products, meet the changing requirements of our customers, develop new technologies and hire additional personnel.

For a further discussion of share-based compensation included in research and development expense, see “Share-based Compensation Expense” below.

Sales and Marketing.

The following table presents details of our sales and marketing expenses for the periods indicated:

	Three Months Ended March 31,
	2013		% of Revenues		2012		% of Revenues
	(in thousands)				(in thousands)
Salaries and benefits	$	9,314	11.2	%	$	6,907	7.8	%
Share-based compensation	2,124		2.6	%	1,642		1.8	%
Trade shows and promotions	2,502		3.0	%	2,007		2.3	%
Other	2,474		3.0	%	2,249		2.5	%
Total Sales and marketing	$	16,414	19.8	%	$	12,805	14.4	%

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Sales and marketing expenses were $16.4 million for the three months ended March 31, 2013 compared to $12.8 million for the three months ended March 31, 2012, representing an increase of 28.2%. The increase in salaries and benefits and share-based compensation was attributable to headcount additions. The increase in trade show and promotion costs was primarily due to higher expenses related to advertising and cost of equipment for customer product evaluations. The increase in other sales and marketing costs was primarily attributable to higher facilities and maintenance related costs.

For a further discussion of share-based compensation included in sales and marketing expense, see “Share-based Compensation Expense” below.

General and Administrative.

The following table presents details of our general and administrative expenses for the periods indicated:

	Three Months Ended March 31,
	2013		% of Revenues		2012		% of Revenues
	(in thousands)				(in thousands)
Salaries and benefits	$	2,537	3.1	%	$	2,224	2.5	%
Share-based compensation	1,979		2.4	%	1,090		1.2	%
Professional services	1,769		2.1	%	1,220		1.4	%
Other	1,200		1.4	%	323		0.4	%
Total General and administrative	$	7,485	9.0	%	$	4,857	5.5	%

General and administrative expenses were $7.5 million for the three months ended March 31, 2013 compared to $4.9 million for the three months ended March 31, 2012, representing an increase of 54.1%. The increase in salaries and benefits and share-based compensation was attributable to headcount additions. The increase in professional services costs was primarily due to increased legal fees. The increase in other general and administrative costs was due to higher facilities and maintenance, depreciation and travel expenses.

For a further discussion of share-based compensation included in general and administrative expense, see “Share-based Compensation Expense” below.

Share-based Compensation Expense.

The following table summarizes the distribution of total share-based compensation expense in the consolidated statements of operations:

	Three Months Ended March 31,
	2013		2012
	(in thousands)
Cost of goods sold	$	464	$	329
Research and development	5,808		4,181
Sales and marketing	2,124		1,642
General and administrative	1,979		1,090
Total share-based compensation expense	$	10,375	$	7,242

Share-based compensation expenses were $10.4 million for the three months ended March 31, 2013, compared to $7.2 million for the three months ended March 31, 2012, representing an increase of 43.3%. The increase in share-based compensation expense was primarily due to restricted share units granted to existing employees in April 2012 and grants to new employees throughout 2012.

At March 31, 2013, there was $104.1 million of total unrecognized share-based compensation costs related to non-vested share-based compensation arrangements. The costs are expected to be recognized over a weighted average period of 2.74 years.

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Other Income, Net. Other income, net primarily consists of interest earned on cash and cash equivalents and short-term investments, and foreign currency exchange gains and losses. Other income, net remained unchanged at $0.2 million for the three months ended March 31, 2013 and 2012.

Provision for Taxes on Income. Provision for taxes on income was $0.8 million for the three months ended March 31, 2013, compared to $1.0 million for the three months ended March 31, 2012. The effective tax rate was approximately (9.8%) and 7.2% for the three months ended March 31, 2013 and 2012, respectively. The difference between our effective tax rates and the 35% federal statutory rate is primarily due to profits earned in Israel where the tax rate is lower than the U.S. tax rate, partially offset by non-tax-deductible expenses such as share-based compensation expense, accrued unrecognized tax benefits and interest and penalties associated with unrecognized tax positions.

Liquidity and Capital Resources

Since our inception, we have financed our operations through a combination of sales of equity securities and cash generated by operations. As of March 31, 2013, our principal source of liquidity consisted of cash and cash equivalents of $126.3 million and short-term investments of $269.9 million. We expect that our current cash, cash equivalents, short-term investments, and cash flows from operating activities will be sufficient to fund our operations over the next twelve months after taking into account expected increases in research and development expenses, including tape out costs, higher sales and marketing and general and administrative expenses, and capital expenditures to support our infrastructure and growth.

Our cash position, short-term investments, restricted cash and working capital at March 31, 2013 and December 31, 2012 were as follows:

	March 31, 2013		December 31, 2012
	(in thousands)
Cash and cash equivalents	$	126,259	$	117,054
Short-term investments	269,935		302,593
Restricted cash, current	3,316		3,229
Restricted cash, long-term	3,393		3,388
Total	$	402,903	$	426,264
Working capital	$	428,682	$	431,745

Our ratio of current assets to current liabilities was 5.6:1 at March 31, 2013 compared to 5.0:1 at December 31, 2012.

Operating activities

Net cash used by our operating activities amounted to $6.6 million and net cash provided by our operating activities amounted $23.6 million in the three months ended March 31, 2013 and 2012, respectively. Net cash used by operating activities in the three months ended March 31, 2013 was primarily attributable to the net loss of $8.5 million, adjusted by net non-cash items of $15.5 million and changes in assets and liabilities of $13.7 million. Non-cash expenses consisted primarily of $9.4 million of share-based compensation, net of the excess tax benefits, $7.4 million for depreciation and amortization, offset by a decrease of $1.1 million for deferred income taxes. The $13.7 million cash outflow from changes in assets and liabilities resulted from a decrease in accounts payable of $6.9 million due to lower manufacturing related purchases during the quarter, a decrease of $3.1 million in accrued liabilities primarily due to lower payroll accruals and manufacturing related liabilities, an increase in inventories of $2.9 million, and increases in accounts receivable of $0.6 million and in prepaid expenses and other assets of $0.2 million.

Net cash provided by our operating activities amounted to $23.6 million in the three months ended March 31, 2012. Net cash provided by operating activities in the three months ended March 31, 2012 was primarily attributable to the net income of $12.4 million, adjusted by net non-cash items of $11.0 million and changes in assets and liabilities of $0.1 million. Non-cash expenses consisted primarily of $6.3 million of share-based compensation, net of the excess tax benefits, and $5.3 million for depreciation and amortization. The $0.1 million cash inflow from changes in assets and liabilities resulted from an increase in accounts payable of $2.1 million due to the timing of purchases during the quarter, an increase of $4.2 million in accrued liabilities primarily due to higher payroll obligations and decreases in accounts receivable of $1.1 million and in prepaid expense and other assets of $0.4 million, partially offset by an increase in inventories of $7.7 million to support increased demand from our customers.

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Investing activities

Net cash provided by investing activities was $9.5 million in the three months ended March 31, 2013. Cash provided by investing activities was primarily attributable to net sales and maturities of short-term investments of $32.9 million, partially offset by purchases of property and equipment of $13.9 million, purchases of intangible assets of $6.3 million and an equity investment of $3.0 million in a private company.

Net cash used in investing activities was $100.7 million in the three months ended March 31, 2012. Cash used in investing activities was primarily attributable to net purchases of short-term investments of $96.1 million and purchases of property and equipment of $4.5 million.

Financing activities

Our financing activities generated $6.3 million in the three months ended March 31, 2013. Cash provided by financing activities was primarily due to proceeds of $5.7 million from share option exercises and purchases pursuant to our employee share purchase plan, and an excess tax benefit from share-based compensation of $0.9 million, partially offset by principal payments on capital lease obligations of $0.3 million.

Our financing activities generated $7.1 million in the three months ended March 31, 2012. Cash provided by financing activities was primarily due to proceeds of approximately $6.2 million from share option exercises and purchases pursuant to our employee share purchase plan, and an excess tax benefit from share-based compensation of approximately $1.0 million, partially offset by principal payments on capital lease obligations of $0.1 million.

Off-Balance Sheet Arrangements

As of March 31, 2013, we did not have any off-balance sheet arrangements.

Contractual Obligations

The following table summarizes our contractual obligations at March 31, 2013, and the effect those obligations are expected to have on our liquidity and cash flows in future periods:

			Payments Due by Period
Contractual Obligations:	Total		Less Than 1 Year		1-3 Years		3-5 Years		Beyond 5 Years
	(in thousands)
Commitments under capital lease	$	3,865	$	1,270	$	2,595	$	—	$	—
Non-cancelable operating lease commitments	51,935		13,420		17,823		11,721		8,971
Purchase commitments	46,714		45,177		1,387		150		—
Total	$	102,514	$	59,867	$	21,805	$	11,871	$	8,971

For purposes of this table, purchase obligations for the purchase of goods or services are defined as agreements that are enforceable and legally binding and that specify all significant terms including: fixed or minimum purchase quantities; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Our purchase orders are based on our current manufacturing needs and are fulfilled by our vendors within short time horizons. We do not have significant agreements for the purchase of raw materials or other goods specifying minimum quantities or set prices that exceed our expected requirements.

Recent Accounting Standards

See Note 1, “The Company and Summary of Significant Accounting Policies—Recent accounting pronouncements” of the Notes to the Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report, for a full description of recent accounting standards, including the respective dates of adoption and effects on our condensed consolidated financial position, results of operations and cash flows.

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ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Fluctuation Risk

We do not have any long-term borrowings. Our investments consist of cash and cash equivalents, short-term deposits, and interest bearing investments in U.S. government debt securities and corporate bonds with an average maturity of less than one year. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. By policy, we limit the amount of our credit exposure through diversification and restricting our investments to highly rated securities. At the time of purchase, we do not invest more than $7.0 million in individual securities, except U.S. Treasury or agency securities. Highly rated securities are defined as having a minimum Moody or Standard & Poor’s rating of A2 or A, respectively. We have not experienced any material losses on cash equivalents or short-term investments. We do not enter into investments for trading or speculative purposes. Our investments are exposed to market risk due to a fluctuation in interest rates, which may affect our interest income and the fair market value of our investments. Due to the short-term nature of our investment portfolio, we do not believe an immediate 1% change in interest rates would have a material effect on the fair market value of our portfolio, and therefore we do not expect our operating results or cash flows to be materially affected by a sudden change in market interest rates.

Foreign Currency Exchange Risk

We derive all of our revenues in U.S. dollars. The U.S. dollar is our functional and reporting currency in all of our foreign locations. However, a significant portion of our headcount related expenses, consisting principally of salaries and related personnel expenses, and our Israeli facility expenses are denominated in new Israeli shekels, or NIS. This foreign currency exposure gives rise to market risk associated with exchange rate movements of the U.S. dollar against the NIS. Furthermore, we anticipate that a material portion of our expenses will continue to be denominated in NIS. To the extent the U.S. dollar weakens against the NIS, we will experience a negative impact on our profits.

To protect against reductions in the value and the volatility of future cash flows caused by changes in foreign currency exchange rates, we have established a balance sheet and anticipated transaction risk management program. Currency forward contracts and natural hedges are generally utilized in this hedging program. We do not enter into forward contracts for trading or speculative purposes. Our hedging program reduces, but does not eliminate, the impact of currency exchange rate movements (see Part II, Item 1A, “Risk Factors”). If we were to experience a 10% change in currency exchange rates, the impact on assets and liabilities denominated in currencies other than the U.S. dollar, after taking into account hedges and offsetting positions, would result in a loss before taxes of approximately $1.3 million at March 31, 2013. There would also be an impact on future operating expenses denominated in currencies other than the U.S. dollar.  At March 31, 2013, approximately $10.4 million of our monthly operating expenses were denominated in NIS. As of March 31, 2013, we had forward contracts in place that hedged future operating expenses of approximately 212.3 million NIS, or approximately $58.2 million based upon the exchange rate on March 31, 2013. The forward contracts cover a significant portion of future NIS denominated operating expenses expected to occur over the next twelve months. Our derivatives expose us to credit risk to the extent that the counterparties may be unable to meet the terms of the agreement. We seek to mitigate such risk by limiting our counterparties to major financial institutions and by spreading the risk across a number of major financial institutions. However, under current market conditions, failure of one or more of these financial institutions is possible and could result in incurred losses.

ITEM 4 — CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on the foregoing, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

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Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial statements.

PART II. OTHER INFORMATION

ITEM 1 — LEGAL PROCEEDINGS

See Note 7, “Commitments and Contingencies—Legal proceedings” of the Notes to the Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report, for a full description of legal proceedings and related contingencies and their effects on our condensed consolidated financial position, results of operations and cash flows.

We may, from time to time, become a party to various other legal proceedings arising in the ordinary course of business. We may also be indirectly affected by administrative or court proceedings or actions in which we are not involved, but which have general applicability to the semiconductor industry.

ITEM 1A — RISK FACTORS

Investing in our ordinary shares involves a high degree of risk. You should carefully consider the following risk factors, in addition to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012, the other information set forth in this report and our other filings with the SEC, before purchasing our ordinary shares. Each of these risk factors could harm our business, financial condition or operating results, as well as decrease the value of an investment in our ordinary shares.

There have been no material changes from risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012, except for the following:

Risks Related to Our Business

We depend on a small number of customers for a significant portion of our sales, and the loss of any one of these customers will adversely affect our revenues.

A small number of customers account for a significant portion of our revenues. For the three months ended March 31, 2013, sales to IBM and Hewlett-Packard accounted for 19% and 16%, respectively, of our total revenues, while sales to our top ten customers accounted for 74% of our revenues. For the three months ended March 31, 2012, sales to IBM and Hewlett-Packard accounted for 24% and 18%, respectively, of our total revenues, while sales to our top ten customers accounted for 79% of our revenues. For the year ended December 31, 2012, sales to Hewlett-Packard and IBM accounted for 20% and 19%, respectively, of our total revenues, while sales to our top ten customers accounted for 74% of our revenues. Because the majority of servers, storage, communications infrastructure equipment and embedded systems are sold by a relatively small number of vendors, we expect that we will continue to depend on a small number of customers to account for a significant percentage of our revenues for the foreseeable future. Our customers, including our most significant customers, are not obligated by long-term contracts to purchase our products and may cancel orders with limited potential penalties. If any of our large customers reduces or cancels its purchases from us for any reason, it could have an adverse effect on our revenues and results of operations.

Risks Related to Operations in Israel and Other Foreign Countries

We are susceptible to additional risks from our international operations.

We derived 48% and 50% of our revenues in the three months ended March 31, 2013 and 2012, respectively, from sales outside of North America. As a result, we face additional risks from doing business internationally, including:

·reduced protection of intellectual property rights in some countries;

·difficulties in staffing and managing foreign operations;

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·longer sales and payment cycles;

·greater difficulties in collecting accounts receivable;

·adverse economic conditions;

·seasonal reductions in business activity;

·potentially adverse tax consequences;

·laws and business practices favoring local competition;

·costs and difficulties of customizing products for foreign countries;

·compliance with a wide variety of complex foreign laws and treaties;

·compliance with the United States’ Foreign Corrupt Practices Act and similar anti-bribery laws in other jurisdictions;

·compliance with export control and regulations;

·licenses, tariffs, other trade barriers, transit restrictions and other regulatory or contractual limitations on our ability to sell or develop our products in certain foreign markets;

·foreign currency exchange risks;

·fluctuations in freight rates and transportation disruptions;

·political and economic instability;

·variance and unexpected changes in local laws and regulations;

·natural disasters and public health emergencies; and

·trade and travel restrictions.

Our principal research and development facilities are located in Israel, and our directors, executive officers and other key employees are located primarily in Israel and the United States. In addition, we engage sales representatives in various countries throughout the world to market and sell our products in those countries and surrounding regions. If we encounter any of the above risks in our international operations, we could experience slower than expected revenue growth and our business could be harmed.

Exchange rate fluctuations between the U.S. dollar and the NIS may negatively affect our earnings.

Although all of our revenues and a majority of our expenses are denominated in U.S. dollars, a significant portion of our research and development expenses and our Israeli facility expenses are incurred in new Israeli shekels, or NIS. As a result, we are exposed to risk to the extent that the inflation rate in Israel exceeds the rate of devaluation of the NIS in relation to the U.S. dollar, or if the timing of these devaluations lags behind inflation in Israel. In that event, the U.S. dollar cost of our research and development operations in Israel will increase and our U.S. dollar-measured results of operations will be adversely affected. To the extent that the value of the NIS increases against the U.S. dollar, our expenses on a U.S. dollar cost basis increase. We cannot predict any future trends in the rate of inflation in Israel or the rate of appreciation of the NIS against the U.S. dollar. The Israeli rate of inflation amounted to 2.7%, 2.2% and 1.6% for the years ended December 31, 2010, 2011 and 2012, respectively and to 0.4% and 0% for the three months ended March 31, 2012 and 2013, respectively. The increase in value of the NIS against the U.S. dollar amounted 6.0% in the year ended December 31, 2010. The increase in value of the U.S dollar against the NIS amounted to 7.7% in the year ended December 31, 2011.The increase in value of the NIS against the U.S. dollar amounted to 2.3% in the year ended December 31, 2012. The increase in value of the U.S. dollar against the NIS amounted to 2.8% and 2.3% in the three months ended March 31, 2012 and 2013, respectively. If the U.S. dollar cost of our research and development operations and facility expenses in Israel increases, our dollar-measured results of

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operations will be adversely affected. Our operations also could be adversely affected if we are unable to guard against currency fluctuations in the future. Further, because all of our international revenues are denominated in U.S. dollars, a strengthening of the dollar versus other currencies could make our products less competitive in foreign markets and the collection of our receivables more difficult. To help manage this risk we have been engaged in foreign currency hedging activities. These measures, however, may not adequately protect us from material adverse effects due to the impact of inflation in Israel and changes in value of NIS against the U.S. dollar.

Risks Related to Our Ordinary Shares

The ownership of our ordinary shares will continue to be highly concentrated, and your interests may conflict with the interests of our existing shareholders.

As of March 31, 2013, based on information filed with the SEC or reported to us, Oracle Corporation and certain entities affiliated with Fidelity Management & Research Company, Migdal Insurance and Financial Holdings and Psagot Investments house Ltd beneficially owned an aggregate of approximately 35% of our outstanding ordinary shares, and taken together with our executive officers and directors and their affiliates, beneficially owned an aggregate of approximately 41% of our outstanding ordinary shares. Accordingly, these shareholders, should they act as a group, would have significant influence over the outcome of corporate actions requiring shareholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transaction. These shareholders could delay or prevent a change of control of our company, even if such a change of control would benefit our other shareholders. The significant concentration of share ownership may adversely affect the trading price of our ordinary shares due to investors’ perception that conflicts of interest may exist or arise.

The price of our ordinary shares may continue to be volatile, and the value of an investment in our ordinary shares may decline.

During the three months ended March 31 2013, our shares traded as low as $41.75 and as high as $65.77 per share. During the last 52 weeks our shares traded as low as $39.71 per share and as high as $120.05 per share. Factors that could cause volatility in the market price of our ordinary shares include, but are not limited to:

·quarterly variations in our results of operations or those of our competitors;

·announcements by us, our customers or rumors from sources other than our company related to acquisitions, new products, significant contracts, commercial relationships or capital commitments;

·our ability to develop and market new and enhanced products on a timely basis;

·disruption to our operations;

·geopolitical instability;

·the emergence of new sales channels in which we are unable to compete effectively;

·any major change in our board of directors or management;

·changes in financial estimates, including our ability to meet our future revenue and operating profit or loss projections;

·changes in governmental regulations or in the status of our regulatory approvals;

·general economic conditions and slow or negative growth of related markets;

·commencement of, or our involvement in, litigation;

·changes in earnings estimates or recommendations by securities analysts;

·whether our operating results meet our guidance or the expectations of investors or securities analysts;

·continuing international conflicts and acts of terrorism; and

·changes in accounting rules.

30

In addition, the stock markets in general, and the markets for semiconductor stocks in particular, have experienced extreme volatility that often has been unrelated to the operating performance of the issuer. These broad market fluctuations may adversely affect the trading price or liquidity of our ordinary shares. When the market price of a stock has been volatile and declined, holders of that stock have sometimes instituted securities class action litigation against the issuer. Lawsuits brought against us by shareholders, such as the shareholder class action suits filed in February 2013 against us and certain of our current and former executive officers, could cause us to incur substantial costs defending the lawsuits and divert the attention of our management from the operation of our business.

ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3 — DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4 — MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5 — OTHER INFORMATION

None.

ITEM 6 — EXHIBITS

	3.1 (1)	Amended and Restated Articles of Association of Mellanox Technologies, Ltd. (as amended on May 16, 2011).
	31.1	Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certification of the Company’s Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2	Certification of the Company’s Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS (2)		XBRL Instance Document
101.SCH (2)		XBRL Taxonomy Extension Schema Document
101.CAL (2)		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB (2)		XBRL Taxonomy Extension Label Linkbase Document
101.PRE (2)		XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF (2)		XBRL Taxonomy Extension Definition Linkbase Document

(1)Incorporated by reference to Exhibit A to the Company’s Definitive Proxy Statement on Schedule 14A (File No. 001-33299) filed on April 11, 2011.

(2)Pursuant to Rule 406T of SEC Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, and are deemed not filed for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.

31

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 3, 2013	Mellanox Technologies, Ltd.
	/s/ Jacob Shulman
	Jacob Shulman
	Chief Financial Officer
	(Duly Authorized Officer and Principal Financial Officer)

32

Exhibit Index

	3.1 (1)	Amended and Restated Articles of Association of Mellanox Technologies, Ltd. (as amended on May 16, 2011).
	31.1	Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certification of the Company’s Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2	Certification of the Company’s Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS (2)		XBRL Instance Document
101.SCH (2)		XBRL Taxonomy Extension Schema Document
101.CAL (2)		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB (2)		XBRL Taxonomy Extension Label Linkbase Document
101.PRE (2)		XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF (2)		XBRL Taxonomy Extension Definition Linkbase Document

(1)Incorporated by reference to Exhibit A to the Company’s Definitive Proxy Statement on Schedule 14A (File No. 001-33299) filed on April 11, 2011.

(2)Pursuant to Rule 406T of SEC Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, and are deemed not filed for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.

33

EX-31.1

EXHIBIT 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Eyal Waldman, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Mellanox Technologies, Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 3, 2013
	By:	/s/ Eyal Waldman
		Name: Eyal Waldman
		Title: President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jacob Shulman, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Mellanox Technologies, Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 3, 2013
	By:	/s/ Jacob Shulman
		Name: Jacob Shulman
		Title: Chief Financial Officer

EX-32.1

EXHIBIT 32.1

Certification of Chief Executive Officer

Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

I, Eyal Waldman, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(i) the Quarterly Report of Mellanox Technologies, Ltd. on Form 10-Q for the quarter ended March 31, 2013, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods covered by the Quarterly Report.

In Witness Whereof, the undersigned has set his hand hereto as of the 3rd day of May, 2013.

	By:	/s/ Eyal Waldman
		Name: Eyal Waldman
		Title: President and Chief Executive Officer
Dated: May 3, 2013

This certification accompanies the Form 10-Q to which it relates to, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by references into any filings of Mellanox Technologies, Ltd. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

EX-32.2

EXHIBIT 32.2

Certification of Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

I, Jacob Shulman, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(i) the Quarterly Report of Mellanox Technologies, Ltd. on Form 10-Q for the quarter ended March 31, 2013, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods covered by the Quarterly Report.

In Witness Whereof, the undersigned has set his hand hereto as of the 3rd day of May, 2013.

	By:	/s/ Jacob Shulman
		Name: Jacob Shulman
		Title: Chief Financial Officer
Dated: May 3, 2013

This certification accompanies the Form 10-Q to which it relates to, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by references into any filings of Mellanox Technologies, Ltd. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

XML

SHARE INCENTIVE PLANS: (Details 4) (USD $)	3 Months Ended		12 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Share-based compensation expense
Total share-based compensation expense	$ 10,375,000	$ 7,242,000
Total unrecognized share-based compensation costs related to non-vested awards	104,100,000		84,400,000
Expected to be recognized over a weighted average period	2 years 8 months 26 days		2 years 8 months 26 days
Cost of goods sold
Share-based compensation expense
Total share-based compensation expense	464,000	329,000
Research and development expense
Share-based compensation expense
Total share-based compensation expense	5,808,000	4,181,000
Sales and marketing expense
Share-based compensation expense
Total share-based compensation expense	2,124,000	1,642,000
General and administrative expense
Share-based compensation expense
Total share-based compensation expense	$ 1,979,000	$ 1,090,000

XML

GOODWILL AND INTANGIBLE ASSETS: (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Changes in the carrying amount of goodwill
Balance at the beginning of the period	$ 132,885,000
Balance at the end of the period	132,885,000
Intangible assets
Gross carrying value of amortizable intangible assets	41,944,000		36,563,000
Accumulated Amortization	(21,938,000)		(20,429,000)
Net carrying value of amortizable intangible assets	20,006,000		16,134,000
Amortization expense of intangible assets	2,400,000	2,400,000
Estimated future amortization expenses from amortizable intangible assets
Remainder of 2013	7,850,000
2014	4,843,000
2015	2,081,000
2016	1,482,000
2017 and thereafter	3,750,000
Net carrying value of amortizable intangible assets	20,006,000		16,134,000
Licensed technology
Intangible assets
Gross carrying value of amortizable intangible assets			946,000
Accumulated Amortization			(946,000)
Developed technology
Intangible assets
Gross carrying value of amortizable intangible assets	29,459,000		23,132,000
Accumulated Amortization	(16,642,000)		(14,695,000)
Net carrying value of amortizable intangible assets	12,817,000		8,437,000
Estimated future amortization expenses from amortizable intangible assets
Net carrying value of amortizable intangible assets	12,817,000		8,437,000
Customer relationships
Intangible assets
Gross carrying value of amortizable intangible assets	10,956,000		10,956,000
Accumulated Amortization	(3,767,000)		(3,328,000)
Net carrying value of amortizable intangible assets	7,189,000		7,628,000
Estimated future amortization expenses from amortizable intangible assets
Net carrying value of amortizable intangible assets	7,189,000		7,628,000
Customer contract
Intangible assets
Gross carrying value of amortizable intangible assets	1,529,000		1,529,000
Accumulated Amortization	(1,529,000)		(1,460,000)
Net carrying value of amortizable intangible assets			69,000
Estimated future amortization expenses from amortizable intangible assets
Net carrying value of amortizable intangible assets			$ 69,000

XML

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): (Tables)

3 Months Ended

Mar. 31, 2013

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):

Summary of the changes in accumulated balances of other comprehensive income (loss)

	Unrealized Gains (Losses) on Available-for- Sale Securities			Gains (Losses) on Derivatives			Total
	(in thousands)
Balance at December 31, 2012	$	(148	)	$	2,942		$	2,794
Other comprehensive income/loss before reclassifications	61			1,712			1,773
Amounts reclassified from accumulated other comprehensive income/loss	(3		)	(1,279		)	(1,282		)
Net current-period other comprehensive income/loss, net of taxes	58			433			491
Balance at March 31, 2013	$	(90	)	$	3,375		$	3,285
Balance at December 31, 2011	$	(15	)	$	(1,149	)	$	(1,164	)
Other comprehensive income (loss) before reclassifications	(129		)	1,188			1,059
Amounts reclassified from accumulated other comprehensive income/loss	—			137			137
Net current-period other comprehensive income/loss, net of taxes	(129		)	1,325			1,196
Balance at March 31, 2012	$	(144	)	$	176		$	32

Schedule of reclassifications out of accumulated other comprehensive income (loss)

Details about Accumulated Other Comprehensive Income Components	Amount Reclassified from Other ComprehensiveIncome			Affected Line Item in theStatement of Operations
	(in thousands)
Gains (losses) on Derivatives	$	(1,279	)	Cost of revenues and Operating expenses
	(73		)	Cost of revenues
	(985		)	Research and development
	(106		)	Sales and marketing
	(115		)	General and administrative
	(1,279		)
Unrealized gains (losses) on Available-for-Sale Securities	(3		)	Other income, net
Total reclassifications for the period	$	(1,282	)	Total

XML

INCOME TAXES: (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
INCOME TAXES:
Unrecognized tax benefits	$ 14.7		$ 9.7
Total amount of accrued interest or penalties related to unrecognized tax benefit	$ 0.5		$ 0.4
Effective tax rate (as a percent)	9.80%	7.20%
Federal statutory rate (as a percent)	35.00%

XML

SHARE INCENTIVE PLANS: (Details 2) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended		12 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Ordinary shares reserved for future issuance under equity incentive plans
Total shares reserved for future issuance (in shares)	7,871,781
Restricted share unit
Activity in nonvested restricted stock units outstanding
Non vested restricted share units at the beginning of the period (in shares)	1,763,160
Restricted share units granted (in shares)	639,730
Restricted share units vested (in shares)	(332,244)
Restricted share units cancelled (in shares)	(45,664)
Non vested restricted share units at the end of the period (in shares)	2,024,982		1,763,160
Weighted Average Grant Date Fair Value, Restricted Stock Units Outstanding
Non vested restricted share units at the beginning of the period (in dollars per share)	$ 36.29
Restricted stock units granted (in dollars per share)	$ 51.38	$ 37.09	$ 42.88
Restricted stock units vested (in dollars per share)	$ 30.84
Restricted stock units cancelled (in dollars per share)	$ 29.95
Non vested restricted share units at the end of the period (in dollars per share)	$ 41.18		$ 36.29
Total intrinsic value of all outstanding restricted share units	$ 112.4	$ 82.9	$ 104.7
Employee Share Purchase Plan
Ordinary shares reserved for future issuance under equity incentive plans
Share authorized for future issuance (in shares)	1,405,497
Global Plan
Ordinary shares reserved for future issuance under equity incentive plans
Share authorized for future issuance (in shares)	1,324,135
Stock options
Ordinary shares reserved for future issuance under equity incentive plans
Shares outstanding	3,117,167

XML

INVESTMENTS:

3 Months Ended

Mar. 31, 2013

INVESTMENTS:

INVESTMENTS:

NOTE 4 — INVESTMENTS:

Cash, Cash equivalents and Short-term investments

The short-term investments are classified as available-for-sale securities. The cash, cash equivalents and short-term investments at March 31, 2013 and December 31, 2012 were as follows:

	March 31, 2013
	AmortizedCost			NetUnrealizedGains (Losses)			EstimatedFair Value
	(in thousands)
Cash	$	120,069		$	—		$	120,069
Certificates of deposits	92,028			(14		)	92,014
U.S. Government and agency securities	67,575			(22		)	67,553
Commercial paper	24,469			18			24,487
Corporate bonds	92,143			(72		)	92,071
Total investments	$	396,284		$	(90	)	$	396,194
Less amounts classified as cash and cash equivalents	(126,259		)	—			(126,259		)
	$	270,025		$	(90	)	$	269,935

	December 31, 2012
	AmortizedCost			NetUnrealizedGains (Losses)			EstimatedFair Value
	(in thousands)
Cash	$	110,148		$	—		$	110,148
Certificates of deposit	90,437			(6		)	90,431
U.S. Government and agency securities	115,179			(50		)	115,129
Commercial paper	34,977			(30		)	34,947
Corporate bonds	61,543			(81		)	61,462
Foreign government bonds	7,511			19			7,530
Total investments in marketable securities	$	419,795		$	(148	)	$	419,647
Less amounts classified as cash and cash equivalents	(117,054		)	—			(117,054		)
	$	302,741		$	(148	)	$	302,593

Realized gains upon the sale of marketable securities were less than $0.1 million for the three months ended March 31, 2013 and March 31, 2012. At March 31, 2013, the investments with gross unrealized losses were not deemed to be other-than-temporarily impaired and the unrealized losses were recorded in OCI.

The contractual maturities of available-for-sale securities at March 31, 2013 and December 31, 2012 were as follows:

	March 31, 2013				December 31, 2012
	AmortizedCost		Estimated FairValue		AmortizedCost		Estimated FairValue
	(in thousands)
Due in less than one year	$	64,690	$	64,677	$	58,758	$	58,724
Due in one to three years	205,335		205,258		243,983		243,869
	$	270,025	$	269,935	$	302,741	$	302,593

Restricted cash and deposits

The Company maintains certain cash amounts restricted as to withdrawal or use. The Company maintained a balance of $0.7 million at March 31, 2013 and December 31, 2012 that represented tenant security deposits restricted due to the tenancy agreements and $2.6 million at March 31, 2013 and December 31, 2012, that represented security deposits restricted due to foreign exchange management agreements with two banks.

Investments in privately-held companies

During the first quarter of 2013, the Company invested $3.0 million in a privately-held company, and as of March 31, 2013, the Company held a total of $7.4 million investments in two privately-held companies. Both of these investments are accounted for under the cost method, net of impairment write down.

XML

THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Details 4) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Net income per share
Net income (loss)	$ (8,457)	$ 12,446
Basic and diluted shares:
Weighted average ordinary shares outstanding used to compute basic net income (loss) per share	42,901,000	40,014,000
Dilutive effect of employee share option plans (in shares)		2,413,000
Shares used to compute diluted net income (loss) per share	42,901,000	42,427,000
Net income (loss) per share - basic (in dollars per share)	$ (0.20)	$ 0.31
Net income (loss) per share - diluted (in dollars per share)	$ (0.20)	$ 0.29
Outstanding shares excluded from the computation of diluted net income (loss) per ordinary share	750,351	602,908

XML

THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Details 3) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Changes in the entity's liability for product warranty
Balance, beginning of the period	$ 4,447	$ 1,097
Warranties issued during the period	2,820	228
Reversal of warranty reserves	(489)	(35)
Settlements during the period	(3,259)	(175)
Balance, end of the period	$ 3,519	$ 1,115

XML

BALANCE SHEET COMPONENTS: (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012	Dec. 31, 2011
Accounts receivable, net:
Accounts receivable	$ 59,784	$ 59,155
Less: allowance for doubtful accounts	(639)	(639)
Accounts receivable, net	59,145	58,516
Inventories:
Raw materials	11,749	6,240
Work-in-process	14,683	4,667
Finished goods	19,240	32,411
Inventories	45,672	43,318
Deferred taxes and other current assets:
Prepaid expenses	5,584	5,346
Forward contracts receivable	3,375	2,942
Deferred taxes	3,813	3,813
VAT receivable	3,248	3,000
Other	742	515
Deferred taxes and other current assets	16,762	15,616
Property and equipment
Property and equipment, gross	106,486	110,683
Less: Accumulated depreciation and amortization	(39,257)	(48,308)
Property and equipment, net	67,229	62,375
Deferred taxes and other long-term assets:
Equity investments in private companies	7,424	4,424
Deferred taxes	3,134	2,083
Restricted cash	3,393	3,388
Other assets	520	524
Deferred taxes and other long-term assets	14,471	10,419
Accrued liabilities:
Payroll and related expenses	35,068	37,067
Accrued expenses	10,379	10,104
Product warranty liability	3,519	4,447	1,115	1,097
Development project	69	640
Other	5,133	5,621
Accrued liabilities	54,168	57,879
Other long-term liabilities:
Income tax payable	9,521	8,838
Deferred rent	2,750	2,797
Other	200
Other long-term liabilities	12,471	11,635
Computer equipment and software
Property and equipment
Property and equipment, gross	74,825	80,203
Furniture and fixtures
Property and equipment
Property and equipment, gross	3,777	3,890
Leasehold improvements
Property and equipment
Property and equipment, gross	$ 27,884	$ 26,590

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FAIR VALUE MEASUREMENTS: (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Financial assets measured at fair value
Financial liabilities	$ 0	$ 0
Transfers between Level 1 and Level 2	0
Fair Value, Measurements, Recurring Basis | Level 2
Financial assets measured at fair value
Financial assets	27,950	312,441
Fair Value, Measurements, Recurring Basis | Level 2 | Certificates of deposits
Financial assets measured at fair value
Financial assets	92,014	90,431
Fair Value, Measurements, Recurring Basis | Level 2 | U.S. Government and agency securities
Financial assets measured at fair value
Financial assets	67,553	115,129
Fair Value, Measurements, Recurring Basis | Level 2 | Commercial paper
Financial assets measured at fair value
Financial assets	24,487	34,947
Fair Value, Measurements, Recurring Basis | Level 2 | Corporate bonds
Financial assets measured at fair value
Financial assets	92,071	61,462
Fair Value, Measurements, Recurring Basis | Level 2 | Foreign government bonds
Financial assets measured at fair value
Financial assets		7,530
Fair Value, Measurements, Recurring Basis | Level 2 | Forward contracts
Financial assets measured at fair value
Financial assets	3,375	2,942
Fair Value, Measurements, Recurring Basis | Total
Financial assets measured at fair value
Financial assets	279,500	312,441
Fair Value, Measurements, Recurring Basis | Total | Certificates of deposits
Financial assets measured at fair value
Financial assets	92,014	90,431
Fair Value, Measurements, Recurring Basis | Total | U.S. Government and agency securities
Financial assets measured at fair value
Financial assets	67,553	115,129
Fair Value, Measurements, Recurring Basis | Total | Commercial paper
Financial assets measured at fair value
Financial assets	24,487	34,947
Fair Value, Measurements, Recurring Basis | Total | Corporate bonds
Financial assets measured at fair value
Financial assets	92,071	61,462
Fair Value, Measurements, Recurring Basis | Total | Foreign government bonds
Financial assets measured at fair value
Financial assets		7,530
Fair Value, Measurements, Recurring Basis | Total | Forward contracts
Financial assets measured at fair value
Financial assets	$ 3,375	$ 2,942

XML

FAIR VALUE MEASUREMENTS:

3 Months Ended

Mar. 31, 2013

FAIR VALUE MEASUREMENTS:

FAIR VALUE MEASUREMENTS:

NOTE 3 — FAIR VALUE MEASUREMENTS:

Fair value hierarchy

The Company measures its cash equivalents and marketable securities at fair value. The Company’s cash equivalents are classified within Level 1. Cash equivalents are valued primarily using quoted market prices utilizing market observable inputs. The Company’s investments in debt securities and certificates of deposits are classified within Level 2 as the market inputs to value these instruments consist of market yields, reported trades and broker/dealer quotes. In addition, foreign currency contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments. The Level 3 valuation inputs include the Company’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation. As of March 31, 2013 and December 31, 2012, the Company did not have any financial assets or liabilities valued based on Level 3 valuations.

The following table presents the fair value hierarchy of the Company’s financial assets measured at fair value as of March 31, 2013. There were no financial liabilities as of March 31, 2013.

	Level 1		Level 2		Total
	(in thousands)
Certificates of deposits	$	—	$	92,014	$	92,014
U.S. Government and agency securities	—		67,553		67,553
Commercial paper	—		24,487		24,487
Corporate bonds	—		92,071		92,071
Forward contracts	—		3,375		3,375
Total financial assets	$	—	$	279,500	$	279,500

The following table presents the fair value hierarchy of the Company’s financial assets measured at fair value as of December 31, 2012. There were no financial liabilities as of December 31, 2012.

	Level 1		Level 2		Total
	(in thousands)
Certificates of deposit	$	—	$	90,431	$	90,431
U.S. Government and agency securities	—		115,129		115,129
Commercial paper	—		34,947		34,947
Corporate bonds	—		61,462		61,462
Foreign government bonds	—		7,530		7,530
Forward contracts	—		2,942		2,942
Total financial assets	$	—	$	312,441	$	312,441

There were no transfers between Level 1 and Level 2 securities during the three months ended March 31, 2013.

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INVESTMENTS: (Details) (USD $)	3 Months Ended		3 Months Ended
	Mar. 31, 2013 item	Dec. 31, 2012	Mar. 31, 2013 Maximum	Mar. 31, 2012 Maximum	Mar. 31, 2013 Cash	Dec. 31, 2012 Cash	Mar. 31, 2013 Certificates of deposits	Dec. 31, 2012 Certificates of deposits	Mar. 31, 2013 U.S. Government and agency securities	Dec. 31, 2012 U.S. Government and agency securities	Mar. 31, 2013 Commercial paper	Dec. 31, 2012 Commercial paper	Mar. 31, 2013 Corporate bonds	Dec. 31, 2012 Corporate bonds	Dec. 31, 2012 Foreign government bonds
Amortized Cost
Total investments in marketable securities	$ 396,284,000	$ 419,795,000			$ 120,069,000	$ 110,148,000	$ 92,028,000	$ 90,437,000	$ 67,575,000	$ 115,179,000	$ 24,469,000	$ 34,977,000	$ 92,143,000	$ 61,543,000	$ 7,511,000
Less amounts classified as cash and cash equivalents	(126,259,000)	(117,054,000)
Short term investments, amortized cost	270,025,000	302,741,000
Estimated Fair Value
Short term investments, fair value	396,194,000	419,647,000			120,069,000	110,148,000	92,014,000	90,431,000	67,553,000	115,129,000	24,487,000	34,947,000	92,071,000	61,462,000	7,530,000
Less amounts classified as cash and cash equivalents	(126,259,000)	(117,054,000)
Short-term investments classified as available-for-sale securities	269,935,000	302,593,000
Net Unrealized Gains (Losses)
Gross Unrealized Gains (Losses)	(90,000)	(148,000)					(14,000)	(6,000)	(22,000)	(50,000)	18,000	(30,000)	(72,000)	(81,000)	19,000
Realized gains (losses) on sale of marketable securities			100,000	100,000
Amortized cost
Due in less than one year	64,690,000	58,758,000
Due in one to three years	205,335,000	243,983,000
Amortized cost	270,025,000	302,741,000
Estimated fair value
Due in less than one year	64,677,000	58,724,000
Due in one to three years	205,258,000	243,869,000
Estimated fair value	269,935,000	302,593,000
Restricted cash and deposits
Tenants' security deposits restricted due to tenancy agreement	700,000	700,000
Security deposits restricted due to foreign exchange management agreement	2,600,000	2,600,000
Number of banks under foreign exchange management agreement	2
Investment in a privately-held company	3,000,000
Investment in a privately-held company accounted for under the cost method	$ 7,400,000
Number of privately-held companies in which the entity held investments	2

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Accumulated other comprehensive income (loss)
Balance at the beginning of the period	$ 2,794	$ (1,164)
Other comprehensive income (loss) before reclassifications	1,773	1,059
Amounts reclassified from accumulated other comprehensive income/loss	(1,282)	137
Net current-period other comprehensive income/loss, net of taxes	491	1,196
Balance at the end of the period	3,285	32
Unrealized Gains (Losses) on Available-for-Sale Securities
Accumulated other comprehensive income (loss)
Balance at the beginning of the period	(148)	(15)
Other comprehensive income (loss) before reclassifications	61	(129)
Amounts reclassified from accumulated other comprehensive income/loss	(3)
Net current-period other comprehensive income/loss, net of taxes	58	(129)
Balance at the end of the period	(90)	(144)
Gains (Losses) on Derivatives
Accumulated other comprehensive income (loss)
Balance at the beginning of the period	2,942	(1,149)
Other comprehensive income (loss) before reclassifications	1,712	1,188
Amounts reclassified from accumulated other comprehensive income/loss	(1,279)	137
Net current-period other comprehensive income/loss, net of taxes	433	1,325
Balance at the end of the period	$ 3,375	$ 176

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Current assets:
Cash and cash equivalents	$ 126,259	$ 117,054
Short-term investments	269,935	302,593
Restricted cash	3,316	3,229
Accounts receivable, net	59,145	58,516
Inventories	45,672	43,318
Deferred taxes and other current assets	16,762	15,616
Total current assets	521,089	540,326
Property and equipment, net	67,229	62,375
Severance assets	9,402	8,907
Intangible assets, net	20,006	16,134
Goodwill	132,885	132,885
Deferred taxes and other long-term assets	14,471	10,419
Total assets	765,082	771,046
Current liabilities:
Accounts payable	25,829	37,431
Accrued liabilities	54,168	57,879
Deferred revenue	11,159	12,018
Capital lease liabilities, current	1,251	1,253
Total current liabilities	92,407	108,581
Accrued severance	12,327	11,821
Deferred revenue	8,499	8,366
Capital lease liabilities	2,558	2,835
Other long-term liabilities	12,471	11,635
Total liabilities	128,262	143,238
Commitments and Contingencies (Note 7)
Shareholders' equity:
Ordinary shares	181	178
Additional paid-in capital	505,340	488,365
Accumulated other comprehensive income	3,285	2,794
Retained earnings	128,014	136,471
Total shareholders' equity	636,820	627,808
Total liabilities and shareholders' equity	$ 765,082	$ 771,046

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THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

3 Months Ended

Mar. 31, 2013

THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

NOTE 1 — THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Company

Mellanox Technologies, Ltd. (the “Company” or “Mellanox”) was incorporated in Israel and commenced operations in March 1999. Mellanox is a supplier of high-performance semiconductor interconnect products for computing, storage and communications applications.

Principles of presentation

The unaudited condensed consolidated financial statements include the Company’s accounts as well as those of its wholly owned subsidiaries after the elimination of all significant intercompany balances and transactions.

The unaudited condensed consolidated financial statements included in this quarterly report on Form 10-Q have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The year-end unaudited condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures contained in this quarterly report comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, for a quarterly report on Form 10-Q and are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements included herein reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed with the SEC on February 25, 2013. The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2013 or thereafter.

Risks and uncertainties

The Company is subject to all of the risks inherent in a company which operates in the dynamic and competitive semiconductor industry. Significant changes in any of the following areas could have a material adverse impact on the Company’s financial position and results of operations: unpredictable volume or timing of customer orders; ordered product mix; the sales outlook and purchasing patterns of the Company’s customers based on consumer demands and general economic conditions; loss of one or more of the Company’s customers; decreases in the average selling prices of products or increases in the average cost of finished goods; the availability, pricing and timeliness of delivery of components used in the Company’s products; reliance on a limited number of subcontractors to manufacture, assemble, package and production test the Company’s products; the Company’s ability to successfully develop, introduce and sell new or enhanced products in a timely manner; product obsolescence and the Company’s ability to manage product transitions; and the timing of announcements or introductions of new products by the Company’s competitors.

Additionally, the Company has a significant presence in Israel, including research and development activities, corporate facilities and sales support operations. Uncertainty surrounding the political, economic and military conditions in Israel may directly impact the Company’s financial results.

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles in United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net revenues and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to revenue recognition, allowances for doubtful accounts, sales returns and allowances, warranty reserves, inventory reserves, share-based compensation expense, long-term asset valuations, investments, goodwill and purchased intangible asset valuation, deferred income tax asset valuation allowances, uncertain tax positions, litigation and other loss contingencies. These estimates and assumptions are based on current facts, historical experience and various other factors that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs and expenses that are not readily apparent from other sources. The actual results the Company experiences may differ materially and adversely from its original estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

Significant accounting policies

There have been no changes in the Company’s significant accounting policies that were disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2012. See our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on February 25, 2013, for a discussion of significant accounting policies and estimates.

Concentration of credit risk

The following table summarizes the revenues from customers (including original equipment manufacturers) in excess of 10% of the total revenues:

	Three Months EndedMarch 31,
	2013		2012
IBM	19	%	24	%
Hewlett Packard	16	%	18	%

The following table summarizes the accounts receivable balance in excess of 10% of the total accounts receivable:

	March 31, 2013		December 31, 2012
IBM	25	%	21	%
Hewlett Packard	14	%	*

* Less than 10%

At March 31, 2013 and December 31, 2012, based on information filed with the SEC or reported to us, Oracle held approximately 3.8 million ordinary shares of Mellanox. Sales to Oracle mainly through its contract manufacturers in the three months ended March 31, 2013 and March 31, 2012 were $6.9 million and $4.8 million, respectively, and were conducted at arm’s-length. At March 31, 2013 and December 31, 2012, accounts receivable from Oracle totaled $0.3 million and $0.2 million, respectively.

Product warranty

Changes in the Company’s liability for product warranty during the three months ended March 31, 2013 and 2012 are included in Accrued liabilities and are as follows:

	Three Months EndedMarch 31,
	2013			2012
	(in thousands)
Balance, beginning of the period	$	4,447		$	1,097
Warranties issued during the period	2,820			228
Reversal of warranty reserves	(489		)	(35		)
Settlements during the period	(3,259		)	(175		)
Balance, end of the period	$	3,519		$	1,115

Net income per share

The following table sets forth the computation of basic and diluted net income (loss) per share for the periods indicated:

	Three Months EndedMarch 31,
	2013			2012
Net income (loss)	$	(8,457	)	$	12,446
Basic and diluted shares:
Weighted average ordinary shares outstanding used to compute basic net income (loss) per share	42,901			40,014
Dilutive effect of employee share option plans	—			2,413
Shares used to compute diluted net income (loss) per share	42,901			42,427
Net income (loss) per share — basic	$	(0.20	)	$	0.31
Net income (loss) per share — diluted	$	(0.20	)	$	0.29

The Company excluded 750,351 and 602,908 outstanding shares for the three months ended March 31, 2013 and March 31, 2012, respectively, from the computation of diluted net income (loss) per ordinary share, because including these outstanding shares would have had an anti-dilutive effect.

Recent accounting pronouncements

Effective January 1, 2013, the Company adopted the authoritative guidance, issued by the Financial Accounting Standards Board (“FASB”) in February, 2013, related to reclassifications out of accumulated other comprehensive income (“OCI”). Under this update, an entity is required to report, in one place, information about reclassifications out of accumulated OCI and to report changes in its accumulated OCI balances. For significant items reclassified out of accumulated OCI to net income in their entirety in the same reporting period, reporting is required about the effect of the reclassifications on the respective line items in the statement where net income is presented. For items that are not reclassified to net income in their entirety in the same reporting period, a cross reference to other disclosures currently required under GAAP is required in the notes to the financial statements. The Company elected to present the information in the notes to the Company’s unaudited condensed consolidated financial statements. The adoption of this guidance had no impact on the Company’s consolidated financial statements.

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COMMITMENTS AND CONTINGENCIES: (Details) (USD $)			0 Months Ended
	Mar. 31, 2013	Dec. 31, 2012	Feb. 19, 2013 Infinite Data path Case item
Legal proceedings
Number of end users and direct customers sued under Infinite Data path Case			25
Number of actions			25
Future minimum payments under non-cancelable capital leases
2013	$ 1,270,000
2014	1,261,000
2015	1,114,000
2016	220,000
Total minimum lease payments	3,865,000
Less: Amount representing interest	(56,000)
Present value of capital lease obligations	3,809,000
Less: Current portion	(1,251,000)	(1,253,000)
Long-term portion of capital lease obligations	2,558,000	2,835,000
Future minimum payments under non-cancelable operating leases
2013	10,156,000
2014	11,878,000
2015	7,905,000
2016	6,453,000
2017 and beyond	15,543,000
Total minimum lease payments	51,935,000
Purchase commitments
Amount of non-cancelable purchase commitments	46,700,000
Amount of non-cancelable purchase commitments expected to be paid within one year	45,100,000
Amount of non-cancelable purchase commitments expected to be paid within two years and beyond	1,600,000
Legal proceedings
Provision for liability	$ 0

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DERIVATIVES AND HEDGING ACTIVITIES: (Tables)

3 Months Ended

Mar. 31, 2013

DERIVATIVES AND HEDGING ACTIVITIES:

Schedule of fair value of derivative contracts

	Derivative Assets Reported inOther Current Assets				Derivative Liabilities Reported inOther Current Liabilities
	March 31,2013		December 31,2012		March 31,2013		December 31,2012
	(in thousands)
Foreign exchange contracts designated as cash flow hedges	$	3,375	$	2,942	$	—	$	—
Total derivatives designated as hedging instruments	$	3,375	$	2,942	$	—	$	—

Schedule of designated derivative contracts as cash flow hedges and their impact on OCI

The following table presents the balance of designated derivative contracts as cash flow hedges as of March 31, 2013 and December 31, 2012, and their impact on OCI for the three months ended March 31, 2013 (in thousands):

December 31, 2012	$	2,942
Amount of gain recognized in OCI (effective portion)	1,712
Amount of gain reclassified from OCI to income (effective portion)	(1,279		)
March 31, 2013	$	3,375

Effect of Designated Derivative Contracts on the Condensed Consolidated Statement of Operations

	Three Months Ended March 31,
	2013		2012
	(in thousands)
Gain (loss) on foreign exchange contracts designated as cash flow hedges	$	1,279	$	(137	)

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SHARE INCENTIVE PLANS: (Details) (Stock options, USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Mar. 28, 2013
Stock options
Stock option activity under equity incentive plans
Options outstanding at the beginning of the period (in shares)	3,285,922
Options granted (in shares)	0
Options exercised (in shares)	(135,769)
Options cancelled (in shares)	(32,986)
Options outstanding at the end of the period (in shares)	3,117,167
Weighted average exercise price of options outstanding
Options outstanding at the beginning of the period (in dollars per share)	$ 29.74
Options exercised (in dollars per share)	$ 12.40
Options cancelled (in dollars per share)	$ 60.14
Options outstanding at the end of the period (in dollars per share)	$ 30.18
Total pretax intrinsic value of options exercised	$ 5.5	$ 9.0
Closing price of ordinary shares (in dollars per share)			$ 55.51
Total pretax intrinsic value of all outstanding options			95.7
Total pretax intrinsic value of all exercisable options	$ 80.2

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SHARE INCENTIVE PLANS: (Tables)

3 Months Ended

Mar. 31, 2013

SHARE INCENTIVE PLANS:

Summary of share option awards activity under equity incentive plans

	Options Outstanding
	NumberofShares		WeightedAverageExercisePrice
Outstanding at December 31, 2012	3,285,922		$	29.74
Options granted	—		—
Options exercised	(135,769	)	12.40
Options cancelled	(32,986	)	60.14
Outstanding at March 31, 2013	3,117,167		$	30.18

Summary of restricted share units activity

	Restricted Share Units Outstanding
	NumberofShares		WeightedAverageGrant DateFair Value
Non vested restricted share units at December 31, 2012	1,763,160		$	36.29
Restricted share units granted	639,730		51.38
Restricted share units vested	(332,244	)	30.84
Restricted share units canceled	(45,664	)	29.95
Non vested restricted share units at March 31, 2013	2,024,982		$	41.18

Summary of ordinary shares reserved for future issuance under equity incentive plans

	Number of Shares
Share options outstanding	3,117,167
Restricted share units outstanding	2,024,982
Shares authorized for future issuance	1,324,135
ESPP shares available for future issuance	1,405,497
Total shares reserved for future issuance as of March 31, 2013	7,871,781

Schedule of weighted average assumptions used to value share options and ESPP shares issued

	Employee ShareOptions		Employee SharePurchase Plan
	Three Months Ended March 31,		Three Months Ended March 31,
	2013 (*)	2012	2013	2012
Dividend yield, %	—	—	—	—
Expected volatility, %	—	54.6	64.4	49.2
Risk free interest rate, %	—	1.38	0.11	0.10
Expected life, years	—	6.25	0.53	0.53
Estimated forfeiture rate, %	—	7.80	—	—

(*)During the three months ended March 31, 2013 there were no share options granted.

Summary of the distribution of total share-based compensation expense

	Three Months EndedMarch 31,
	2013		2012
	(in thousands)
Cost of goods sold	$	464	$	329
Research and development	5,808		4,181
Sales and marketing	2,124		1,642
General and administrative	1,979		1,090
Total share-based compensation expense	$	10,375	$	7,242

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BALANCE SHEET COMPONENTS:

3 Months Ended

Mar. 31, 2013

BALANCE SHEET COMPONENTS:

BALANCE SHEET COMPONENTS:

NOTE 2 — BALANCE SHEET COMPONENTS:

	March 31,2013			December 31,2012
	(in thousands)
Accounts receivable, net:
Accounts receivable	$	59,784		$	59,155
Less: allowance for doubtful accounts	(639		)	(639		)
	$	59,145		$	58,516
Inventories:
Raw materials	$	11,749		$	6,240
Work-in-process	14,683			4,667
Finished goods	19,240			32,411
	$	45,672		$	43,318
Deferred taxes and other current assets:
Prepaid expenses	$	5,584		$	5,346
Forward contracts receivable	3,375			2,942
Deferred taxes	3,813			3,813
VAT receivable	3,248			3,000
Other	742			515
	$	16,762		$	15,616
Property and equipment, net:
Computer equipment and software	$	74,825		$	80,203
Furniture and fixtures	3,777			3,890
Leasehold improvements	27,884			26,590
	106,486			110,683
Less: Accumulated depreciation and amortization	(39,257		)	(48,308		)
	$	67,229		$	62,375
Deferred taxes and other long-term assets:
Equity investments in private companies	$	7,424		$	4,424
Deferred taxes	3,134			2,083
Restricted cash	3,393			3,388
Other assets	520			524
	$	14,471		$	10,419
Accrued liabilities:
Payroll and related expenses	$	35,068		$	37,067
Accrued expenses	10,379			10,104
Product warranty liability	3,519			4,447
Development project	69			640
Other	5,133			5,621
	$	54,168		$	57,879
Other long-term liabilities:
Income tax payable	$	9,521		$	8,838
Deferred rent	$	2,750		$	2,797
Other	200			—
	$	12,471		$	11,635

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Total revenues	$ 83,080	$ 88,738
Cost of revenues	28,948	28,888
Gross profit	54,132	59,850
Operating expenses:
Research and development	38,149	28,958
Sales and marketing	16,414	12,805
General and administrative	7,485	4,857
Total operating expenses	62,048	46,620
Income (loss) from operations	(7,916)	13,230
Other income, net	213	184
Income (loss) before taxes	(7,703)	13,414
Provision for taxes on income	(754)	(968)
Net income (loss)	$ (8,457)	$ 12,446
Net income (loss) per share - basic (in dollars per share)	$ (0.20)	$ 0.31
Net income (loss) per share - diluted (in dollars per share)	$ (0.20)	$ 0.29
Shares used in computing income per share:
Basic (in shares)	42,901	40,014
Diluted (in shares)	42,901	42,427

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THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Tables)

3 Months Ended

Mar. 31, 2013

THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Schedule of revenues and accounts receivable from customers

The following table summarizes the revenues from customers (including original equipment manufacturers) in excess of 10% of the total revenues:

	Three Months EndedMarch 31,
	2013		2012
IBM	19	%	24	%
Hewlett Packard	16	%	18	%

The following table summarizes the accounts receivable balance in excess of 10% of the total accounts receivable:

	March 31, 2013		December 31, 2012
IBM	25	%	21	%
Hewlett Packard	14	%	*

* Less than 10%

Schedule of changes in the entity's liability for product warranty

	Three Months EndedMarch 31,
	2013			2012
	(in thousands)
Balance, beginning of the period	$	4,447		$	1,097
Warranties issued during the period	2,820			228
Reversal of warranty reserves	(489		)	(35		)
Settlements during the period	(3,259		)	(175		)
Balance, end of the period	$	3,519		$	1,115

Schedule of computation of basic and diluted net income (loss) per share

	Three Months EndedMarch 31,
	2013			2012
Net income (loss)	$	(8,457	)	$	12,446
Basic and diluted shares:
Weighted average ordinary shares outstanding used to compute basic net income (loss) per share	42,901			40,014
Dilutive effect of employee share option plans	—			2,413
Shares used to compute diluted net income (loss) per share	42,901			42,427
Net income (loss) per share — basic	$	(0.20	)	$	0.31
Net income (loss) per share — diluted	$	(0.20	)	$	0.29

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2013	Apr. 25, 2013
Document and Entity Information
Entity Registrant Name	Mellanox Technologies, Ltd.
Entity Central Index Key	0001356104
Document Type	10-Q
Document Period End Date	Mar. 31, 2013
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		43,160,173
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1

XML

BALANCE SHEET COMPONENTS: (Tables)

3 Months Ended

Mar. 31, 2013

BALANCE SHEET COMPONENTS:

Schedule of balance sheet components

	March 31,2013			December 31,2012
	(in thousands)
Accounts receivable, net:
Accounts receivable	$	59,784		$	59,155
Less: allowance for doubtful accounts	(639		)	(639		)
	$	59,145		$	58,516
Inventories:
Raw materials	$	11,749		$	6,240
Work-in-process	14,683			4,667
Finished goods	19,240			32,411
	$	45,672		$	43,318
Deferred taxes and other current assets:
Prepaid expenses	$	5,584		$	5,346
Forward contracts receivable	3,375			2,942
Deferred taxes	3,813			3,813
VAT receivable	3,248			3,000
Other	742			515
	$	16,762		$	15,616
Property and equipment, net:
Computer equipment and software	$	74,825		$	80,203
Furniture and fixtures	3,777			3,890
Leasehold improvements	27,884			26,590
	106,486			110,683
Less: Accumulated depreciation and amortization	(39,257		)	(48,308		)
	$	67,229		$	62,375
Deferred taxes and other long-term assets:
Equity investments in private companies	$	7,424		$	4,424
Deferred taxes	3,134			2,083
Restricted cash	3,393			3,388
Other assets	520			524
	$	14,471		$	10,419
Accrued liabilities:
Payroll and related expenses	$	35,068		$	37,067
Accrued expenses	10,379			10,104
Product warranty liability	3,519			4,447
Development project	69			640
Other	5,133			5,621
	$	54,168		$	57,879
Other long-term liabilities:
Income tax payable	$	9,521		$	8,838
Deferred rent	$	2,750		$	2,797
Other	200			—
	$	12,471		$	11,635

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net income (loss)	$ (8,457)	$ 12,446
Other comprehensive income (loss), net of tax:
Change in unrealized gains/losses on available-for-sale securities, net	58	(129)
Change in unrealized gains/losses on derivative contracts, net	433	1,325
Total comprehensive income (loss), net of tax	$ (7,966)	$ 13,642

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COMMITMENTS AND CONTINGENCIES:

3 Months Ended

Mar. 31, 2013

COMMITMENTS AND CONTINGENCIES:

COMMITMENTS AND CONTINGENCIES:

NOTE 7— COMMITMENTS AND CONTINGENCIES:

Leases

As of March 31, 2013, future minimum lease payments under non-cancelable operating and capital leases were as follows:

Year Ended December 31,	Capital Leases			Operating Leases
	(in thousands)
2013	$	1,270		$	10,156
2014	1,261			11,878
2015	1,114			7,905
2016	220			6,453
2017 and beyond	—			15,543
Total minimum lease payments	$	3,865		$	51,935
Less: Amount representing interest	(56		)
Present value of capital lease obligations	3,809
Less: Current portion	(1,251		)
Long-term portion of capital lease obligations	$	2,558

Purchase commitments

At March 31, 2013, the Company had non-cancelable purchase commitments of $46.7 million, of which $45.1 million is expected to be paid in 2013 and $1.6 million in 2014 and beyond.

Legal proceedings

The Company considers all legal claims on a quarterly basis in accordance with GAAP and, based on known facts, assesses whether potential losses are considered reasonably possible, probable and estimable.

The Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Unless otherwise specifically disclosed in this note, the Company has determined that no provision for liability nor disclosure is required related to any claim against us because: (a) there is not a reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with respect to such claim; (b) a reasonably possible loss or range of loss cannot be estimated; or (c) such estimate is immaterial. All legal costs associated with litigation are expensed as incurred.

Litigation is inherently unpredictable. However, the Company believes that it has valid defenses with respect to the pending legal matters. It is possible, nevertheless, that the consolidated financial position, cash flows or results of operations could be negatively affected by an unfavorable resolution of one or more of such proceedings, claims or investigations.

Pending legal proceedings as of March 31, 2013 were as follows:

Avago Technologies Fiber (IP) Singapore Pte. Ltd.

On September 24, 2012, Avago Technologies Fiber (IP) Singapore Pte. Ltd., Avago Technologies General IP (Singapore) Pte. Ltd. and Avago Technologies U.S. Inc. (collectively, “Avago”) filed a complaint against Mellanox Technologies, Ltd., Mellanox Technologies, Inc., IPtronics A/S, IPtronics, Inc., FCI USA, LLC, FCI Deutschland GmbH and FCI SA (collectively, “Respondents”) with the United States International Trade Commission (Inv. No. 337-TA-860).  The complaint alleges that the Respondents have engaged in unfair acts in violation of Section 337 of the Tariff Act of 1930, as amended, through allegedly unlicensed importation, sale for importation and/or sale after importation of products covered by patents asserted by Avago.  Pursuant to the complaint, Avago seeks as permanent relief a limited exclusion order barring from entry into the United States, among other Respondent products, all imported Mellanox optoelectronic devices and products containing the same that allegedly infringe the patents asserted by Avago, and a cease and desist order prohibiting the importation, sale, offer for sale, advertising, solicitation, use and/or warehousing of inventory for distribution of such imported products in the United States. Neither the outcome of the proceeding nor the amount and range of potential damages or exposure associated with the proceeding can be assessed with certainty.  In the event we are not successful in defending the Avago claims, we could be forced to license technology from Avago and be prevented from importing, selling, offering for sale, advertising, soliciting, using and/or warehousing for distribution the allegedly infringing products.  Based on currently available information, the Company believes that the resolution of this proceeding is not likely to have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.

Barnicle Case

On February 7, 2013, Mellanox Technologies, Ltd., the Company’s President and CEO, former CFO and CFO, were sued in a complaint filed in the United States District Court for the Southern District of New York naming it and them as defendants and entitled, Patrick Barnicle, on behalf of himself and others similarly situated v. Mellanox Technologies, Ltd., Eyal Waldman, Michael Gray and Jacob Shulman, Case No. 13 CIV 925. The complaint was filed by Patrick Barnacle for himself as plaintiff and, purportedly, on behalf of persons purchasing the Company’s ordinary shares between April 19, 2012 and January 2, 2013 (the “Class Period”), and alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The complaint alleges that, during the Class Period, the defendants made false or misleading statements (or failed to disclose certain facts) regarding the Company’s business and outlook. Plaintiffs seek unspecified damages, an award of reasonable costs and expenses, including reasonable attorney’s fees, and any other relief deemed just and proper by the court. Based on currently available information, the Company believes that the resolution of this proceeding is not likely to have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.

Ryan Case

On February 14, 2013, Mellanox Technologies, Ltd., the Company’s President and CEO, former CFO and CFO, were sued in a complaint filed in the United States District Court for the Southern District of New York naming it and them as defendants and entitled, David R. Ryan, Jr., on behalf of himself and others similarly situated v. Mellanox Technologies, Ltd., Eyal Waldman, Michael Gray and Jacob Shulman, Case No. 13 CV 1047. The factual allegations and legal claims asserted in the Ryan complaint, as well as the relief sought and the proposed class and class period in the Ryan complaint, are substantially the same as in the Barnicle case described above. Based on currently available information, the Company believes that the resolution of this proceeding is not likely to have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.

Petrov Case

On February 22, 2013, Mellanox Technologies, Ltd., the Company’s President and CEO, former CFO and CFO, were sued in a complaint filed in the United States District Court for the Southern District of New York naming it and them as defendants and entitled, Valentin Petrov, on behalf of himself and others similarly situated v. Mellanox Technologies, Ltd., Eyal Waldman, Michael Gray and Jacob Shulman, Case No. 13 CV 1225. The complaint was filed by Valentin Petrov for himself as plaintiff and, purportedly, on behalf of persons purchasing the Company’s ordinary shares between April 19, 2012 and January 2, 2013 (the “Class Period”), and alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The complaint alleges that, during the Class Period, the defendants made false or misleading statements (or failed to disclose certain facts) regarding the Company’s business and outlook. Plaintiffs seek unspecified damages, an award of reasonable costs and expenses, including reasonable attorney’s fees, and any other relief deemed just and proper by the court. Based on currently available information, the Company believes that the resolution of this proceeding is not likely to have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.

Weinberger Case

On February 20, 2013 a request for approval of a class action was filed in the Economic Division of the District Court of Tel Aviv-Jaffa against Mellanox Technologies, Ltd., the Company’s President and CEO, former CFO, CFO and each of the members of  the Company’s board of directors (the “Israeli Claim”). The Israeli Claim was filed by Mr. Avigdor Weinberger (the “Claimant”).  The Israeli Claim alleges that the Company, the board members, the Company’s President and CEO, its former CFO and its current CFO are responsible for making misleading statements (or failing to disclose certain facts)  and filings to the public, as a result of which the shares of the Company were allegedly traded at a higher price than their true value during a period commencing on April 19, 2012 and ending January 2, 2013 and, therefore, these parties are responsible for damages caused to the purchasers of the Company’s shares on the Tel Aviv Stock Exchange during this time.  The Claimant seeks an award of compensation to the relevant shareholders for all damages caused to them, including attorney fees and Claimant’s fee and any other relief deemed just and proper by the court. On April 24, 2013, the Claimant and the Company filed a procedural agreement with the court to stay the Israeli Claim pending the completion of the Barnicle, Ryan and Petrov cases disclosed herein. On April 24, 2013, the Israeli court approved this procedural agreement and stayed the Israeli proceedings.  Based on currently available information, the Company believes that the resolution of this proceeding is not likely to have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.

Infinite Data path Case

On February 19, 2013, Infinite Data LLC, a Delaware limited liability company (“Infinite Data”), and a non-practicing entity and exclusive licensee of U.S. patent number 5,790,530 (the “Patent”), filed suit against approximately 25 of the Company’s end users and direct customers of its InfiniBand products in the United States District Court in Delaware. All approximately 25 actions include the same allegation of infringement regarding the Patent and seek the payment of damages, costs, expenses and injunctive relief. Several of the end users and direct customers sued by Infinite Data have tendered indemnification requests to the Company on the basis of existing contractual or asserted statutory obligations imposed on the Company to provide such indemnification. Based on currently available information, the Company believes that the resolution of these proceedings are not likely to have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.

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DERIVATIVES AND HEDGING ACTIVITIES:

3 Months Ended

Mar. 31, 2013

DERIVATIVES AND HEDGING ACTIVITIES:

DERIVATIVES AND HEDGING ACTIVITIES:

NOTE 6 — DERIVATIVES AND HEDGING ACTIVITIES:

The Company uses derivative instruments primarily to manage exposures to foreign currency. The Company enters into forward contracts to manage its exposure to changes in the exchange rate of the New Israeli Shekel (“NIS”) against the U.S. dollar. The Company uses forward contracts designated as cash flow hedges to hedge a substantial portion of future forecasted operating expenses in NIS. The Company’s primary objective in entering into these arrangements is to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates. The program is not designated for trading or speculative purposes. The Company’s forward contracts expose the Company to credit risk to the extent that the counterparties may be unable to meet the terms of the agreement. The Company seeks to mitigate such risk by limiting its counterparties to major financial institutions and by spreading the risk across a number of major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored on an ongoing basis.

The gain or loss on the effective portion of a cash flow hedge is initially reported as a component of accumulated other comprehensive income (loss) (“OCI”), and subsequently reclassified into operating expenses in the same period in which the hedged operating expenses are recognized, or reclassified into other income, net, if the hedged transaction becomes probable of not occurring. Any gain or loss after a hedge is de-designated because it is no longer probable of occurring or related to an ineffective portion of a hedge, as well as any amount excluded from the Company’s hedge effectiveness, is recognized as other income (expense) immediately. As of March 31, 2013, the Company had forward contracts in place that hedged future operating expenses of approximately 212.3 million NIS, or approximately $58.2 million based upon the exchange rate as of March 31, 2013. The forward contracts cover a substantial portion of future NIS denominated operating expenses that the Company expects to incur over the next twelve months.

The Company does not use derivative financial instruments for purposes other than cash flow hedges.

Fair value of derivative contracts

Fair value of derivative contracts as of March 31, 2013 and December 31, 2012 were as follows:

	Derivative Assets Reported inOther Current Assets				Derivative Liabilities Reported inOther Current Liabilities
	March 31,2013		December 31,2012		March 31,2013		December 31,2012
	(in thousands)
Foreign exchange contracts designated as cash flow hedges	$	3,375	$	2,942	$	—	$	—
Total derivatives designated as hedging instruments	$	3,375	$	2,942	$	—	$	—

Effect of designated derivative contracts on accumulated other comprehensive income

The following table presents the balance of designated derivative contracts as cash flow hedges as of March 31, 2013 and December 31, 2012, and their impact on OCI for the three months ended March 31, 2013 (in thousands):

December 31, 2012	$	2,942
Amount of gain recognized in OCI (effective portion)	1,712
Amount of gain reclassified from OCI to income (effective portion)	(1,279		)
March 31, 2013	$	3,375

Foreign exchange contracts designated as cash flow hedges relate primarily to operating expenses and the associated gains and losses are expected to be recorded in operating expenses when reclassed out of OCI. The Company expects to realize the accumulated OCI balance related to foreign exchange contracts within the next twelve months.

Effect of derivative contracts on the condensed consolidated statement of operations

The impact of derivative contracts on total operating expenses in the three months ended March 31, 2013 and 2012 was as follows:

	Three Months Ended March 31,
	2013		2012
	(in thousands)
Gain (loss) on foreign exchange contracts designated as cash flow hedges	$	1,279	$	(137	)

The net gains or losses relating to the ineffective portion of derivative contracts were not material in the three months ended March 31, 2013 and 2012.

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COMMITMENTS AND CONTINGENCIES: (Tables)

3 Months Ended

Mar. 31, 2013

COMMITMENTS AND CONTINGENCIES:

Schedule of future minimum lease payments under non-cancelable operating and capital leases

Year Ended December 31,	Capital Leases			Operating Leases
	(in thousands)
2013	$	1,270		$	10,156
2014	1,261			11,878
2015	1,114			7,905
2016	220			6,453
2017 and beyond	—			15,543
Total minimum lease payments	$	3,865		$	51,935
Less: Amount representing interest	(56		)
Present value of capital lease obligations	3,809
Less: Current portion	(1,251		)
Long-term portion of capital lease obligations	$	2,558

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FAIR VALUE MEASUREMENTS: (Tables)

3 Months Ended

Mar. 31, 2013

FAIR VALUE MEASUREMENTS:

Schedule of the fair value hierarchy of the Company's financial assets measured at fair value

The following table presents the fair value hierarchy of the Company’s financial assets measured at fair value as of March 31, 2013. There were no financial liabilities as of March 31, 2013.

	Level 1		Level 2		Total
	(in thousands)
Certificates of deposits	$	—	$	92,014	$	92,014
U.S. Government and agency securities	—		67,553		67,553
Commercial paper	—		24,487		24,487
Corporate bonds	—		92,071		92,071
Forward contracts	—		3,375		3,375
Total financial assets	$	—	$	279,500	$	279,500

The following table presents the fair value hierarchy of the Company’s financial assets measured at fair value as of December 31, 2012. There were no financial liabilities as of December 31, 2012.

	Level 1		Level 2		Total
	(in thousands)
Certificates of deposit	$	—	$	90,431	$	90,431
U.S. Government and agency securities	—		115,129		115,129
Commercial paper	—		34,947		34,947
Corporate bonds	—		61,462		61,462
Foreign government bonds	—		7,530		7,530
Forward contracts	—		2,942		2,942
Total financial assets	$	—	$	312,441	$	312,441

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INCOME TAXES:

3 Months Ended

Mar. 31, 2013

INCOME TAXES:

INCOME TAXES:

NOTE 10 — INCOME TAXES:

As of March 31, 2013 and December 31, 2012, the Company had unrecognized tax benefits of $14.7 million and $9.7 million, respectively. It is the Company’s policy to classify accrued interest and penalties as part of the unrecognized tax benefits, or tax contingencies, and record the expense in the provision for income taxes. As of March 31, 2013 and December 31, 2012, the amount of accrued interest and penalties totaled $0.5 million and $0.4 million, respectively. As of March 31, 2013, calendar years 2009 through 2012 were open and subject to potential examination in one or more jurisdictions.

The Company’s effective tax rate is highly dependent upon the geographic distribution of its worldwide earnings or losses, tax regulations and tax holiday benefits in Israel, and the effectiveness of the Company’s tax planning strategies. The Company’s effective tax rates were (9.8%) and 7.2% for the three months ended March 31, 2013 and 2012, respectively. The difference between the Company’s effective tax rates and the 35% federal statutory rate resulted primarily from foreign earnings taxed at rates lower than the federal statutory rate, offset by non-tax-deductible expenses such as share-based compensation expense and the accrual of unrecognized tax benefits, and interest and penalties associated with unrecognized tax positions.

The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous, and the Company is required to make many subjective assumptions and judgments regarding its income tax exposures. In addition, interpretations of and guidance surrounding income tax laws and regulations are subject to change over time. Any changes in the Company’s subjective assumptions and judgments could materially affect amounts recognized in its consolidated balance sheets and statements of income.

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SHARE INCENTIVE PLANS:

3 Months Ended

Mar. 31, 2013

SHARE INCENTIVE PLANS:

SHARE INCENTIVE PLANS:

NOTE 8 — SHARE INCENTIVE PLANS:

Share option and restricted share units activity

The following table summarizes the share option activity under the Company’s equity incentive plans during the three months ended March 31, 2013:

	Options Outstanding
	NumberofShares		WeightedAverageExercisePrice
Outstanding at December 31, 2012	3,285,922		$	29.74
Options granted	—		—
Options exercised	(135,769	)	12.40
Options cancelled	(32,986	)	60.14
Outstanding at March 31, 2013	3,117,167		$	30.18

The total pretax intrinsic value of options exercised in the three months ended March 31, 2013 and 2012 was $5.5 million and $9.0 million, respectively. This intrinsic value represents the difference between the fair market value of the Company’s ordinary shares on the date of exercise and the exercise price of each option. Based on the closing price of the Company’s ordinary shares of $55.51 on March 28, 2013, the total pretax intrinsic value of all outstanding options was $95.7 million. The total pretax intrinsic value of exercisable options at March 31, 2013 was $80.2 million.

Restricted share units (“RSUs”) activity under the Company’s equity incentive plans in the three months ended March 31, 2013 is set forth below:

	Restricted Share Units Outstanding
	NumberofShares		WeightedAverageGrant DateFair Value
Non vested restricted share units at December 31, 2012	1,763,160		$	36.29
Restricted share units granted	639,730		51.38
Restricted share units vested	(332,244	)	30.84
Restricted share units canceled	(45,664	)	29.95
Non vested restricted share units at March 31, 2013	2,024,982		$	41.18

The weighted average fair value of RSUs granted in the three months ended March 31, 2013 and 2012 was $51.38 and $37.09, respectively. The total intrinsic value of all outstanding restricted share units was $112.4 million and $82.9 million as of March 31, 2013 and 2012, respectively. The weighted average fair value of restricted share units granted was $42.88 for the year ended December 31, 2012. The total intrinsic value of all outstanding restricted share units was $104.7 million as of December 31, 2012.

The Company had the following ordinary shares reserved for future issuance under its equity incentive plans as of March 31, 2013:

	Number of Shares
Share options outstanding	3,117,167
Restricted share units outstanding	2,024,982
Shares authorized for future issuance	1,324,135
ESPP shares available for future issuance	1,405,497
Total shares reserved for future issuance as of March 31, 2013	7,871,781

Share-based compensation

The following weighted average assumptions are used to value share options and ESPP shares issued pursuant to the Company’s equity incentive plans for the three months ended March 31, 2013 and 2012:

	Employee ShareOptions		Employee SharePurchase Plan
	Three Months Ended March 31,		Three Months Ended March 31,
	2013 (*)	2012	2013	2012
Dividend yield, %	—	—	—	—
Expected volatility, %	—	54.6	64.4	49.2
Risk free interest rate, %	—	1.38	0.11	0.10
Expected life, years	—	6.25	0.53	0.53
Estimated forfeiture rate, %	—	7.80	—	—

(*)During the three months ended March 31, 2013 there were no share options granted.

The following table summarizes the distribution of total share-based compensation expense in the unaudited condensed consolidated statements of operations:

	Three Months EndedMarch 31,
	2013		2012
	(in thousands)
Cost of goods sold	$	464	$	329
Research and development	5,808		4,181
Sales and marketing	2,124		1,642
General and administrative	1,979		1,090
Total share-based compensation expense	$	10,375	$	7,242

At March 31, 2013, there was $104.1 million of total unrecognized share-based compensation costs related to non-vested share-based compensation arrangements. The costs are expected to be recognized over a weighted average period of 2.74 years.

At December 31, 2012, there was $84.4 million of total unrecognized share-based compensation costs related to non-vested share-based compensation arrangements. The costs are expected to be recognized over a weighted average period of 2.74 years.

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):

3 Months Ended

Mar. 31, 2013

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):

NOTE 9 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the three months ended March 31, 2013 and March 31, 2012:

	Unrealized Gains (Losses) on Available-for- Sale Securities			Gains (Losses) on Derivatives			Total
	(in thousands)
Balance at December 31, 2012	$	(148	)	$	2,942		$	2,794
Other comprehensive income/loss before reclassifications	61			1,712			1,773
Amounts reclassified from accumulated other comprehensive income/loss	(3		)	(1,279		)	(1,282		)
Net current-period other comprehensive income/loss, net of taxes	58			433			491
Balance at March 31, 2013	$	(90	)	$	3,375		$	3,285
Balance at December 31, 2011	$	(15	)	$	(1,149	)	$	(1,164	)
Other comprehensive income (loss) before reclassifications	(129		)	1,188			1,059
Amounts reclassified from accumulated other comprehensive income/loss	—			137			137
Net current-period other comprehensive income/loss, net of taxes	(129		)	1,325			1,196
Balance at March 31, 2012	$	(144	)	$	176		$	32

The following table provides details about reclassifications out of accumulated other comprehensive income (loss) for the three months ended March 31, 2013:

Details about Accumulated Other Comprehensive Income Components	Amount Reclassified from Other ComprehensiveIncome			Affected Line Item in theStatement of Operations
	(in thousands)
Gains (losses) on Derivatives	$	(1,279	)	Cost of revenues and Operating expenses
	(73		)	Cost of revenues
	(985		)	Research and development
	(106		)	Sales and marketing
	(115		)	General and administrative
	(1,279		)
Unrealized gains (losses) on Available-for-Sale Securities	(3		)	Other income, net
Total reclassifications for the period	$	(1,282	)	Total

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THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Policies)

3 Months Ended

Mar. 31, 2013

THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of presentation

Principles of presentation

The unaudited condensed consolidated financial statements include the Company’s accounts as well as those of its wholly owned subsidiaries after the elimination of all significant intercompany balances and transactions.

The unaudited condensed consolidated financial statements included in this quarterly report on Form 10-Q have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The year-end unaudited condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures contained in this quarterly report comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, for a quarterly report on Form 10-Q and are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements included herein reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed with the SEC on February 25, 2013. The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2013 or thereafter.

Risks and uncertainties

Risks and uncertainties

The Company is subject to all of the risks inherent in a company which operates in the dynamic and competitive semiconductor industry. Significant changes in any of the following areas could have a material adverse impact on the Company’s financial position and results of operations: unpredictable volume or timing of customer orders; ordered product mix; the sales outlook and purchasing patterns of the Company’s customers based on consumer demands and general economic conditions; loss of one or more of the Company’s customers; decreases in the average selling prices of products or increases in the average cost of finished goods; the availability, pricing and timeliness of delivery of components used in the Company’s products; reliance on a limited number of subcontractors to manufacture, assemble, package and production test the Company’s products; the Company’s ability to successfully develop, introduce and sell new or enhanced products in a timely manner; product obsolescence and the Company’s ability to manage product transitions; and the timing of announcements or introductions of new products by the Company’s competitors.

Additionally, the Company has a significant presence in Israel, including research and development activities, corporate facilities and sales support operations. Uncertainty surrounding the political, economic and military conditions in Israel may directly impact the Company’s financial results.

Use of estimates

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles in United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net revenues and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to revenue recognition, allowances for doubtful accounts, sales returns and allowances, warranty reserves, inventory reserves, share-based compensation expense, long-term asset valuations, investments, goodwill and purchased intangible asset valuation, deferred income tax asset valuation allowances, uncertain tax positions, litigation and other loss contingencies. These estimates and assumptions are based on current facts, historical experience and various other factors that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs and expenses that are not readily apparent from other sources. The actual results the Company experiences may differ materially and adversely from its original estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

Concentration of credit risk

Concentration of credit risk

The following table summarizes the revenues from customers (including original equipment manufacturers) in excess of 10% of the total revenues:

	Three Months EndedMarch 31,
	2013		2012
IBM	19	%	24	%
Hewlett Packard	16	%	18	%

The following table summarizes the accounts receivable balance in excess of 10% of the total accounts receivable:

	March 31, 2013		December 31, 2012
IBM	25	%	21	%
Hewlett Packard	14	%	*

* Less than 10%

At March 31, 2013 and December 31, 2012, based on information filed with the SEC or reported to us, Oracle held approximately 3.8 million ordinary shares of Mellanox. Sales to Oracle mainly through its contract manufacturers in the three months ended March 31, 2013 and March 31, 2012 were $6.9 million and $4.8 million, respectively, and were conducted at arm’s-length. At March 31, 2013 and December 31, 2012, accounts receivable from Oracle totaled $0.3 million and $0.2 million, respectively.

Product warranty

Product warranty

Changes in the Company’s liability for product warranty during the three months ended March 31, 2013 and 2012 are included in Accrued liabilities and are as follows:

	Three Months EndedMarch 31,
	2013			2012
	(in thousands)
Balance, beginning of the period	$	4,447		$	1,097
Warranties issued during the period	2,820			228
Reversal of warranty reserves	(489		)	(35		)
Settlements during the period	(3,259		)	(175		)
Balance, end of the period	$	3,519		$	1,115

Net income per share

Net income per share

The following table sets forth the computation of basic and diluted net income (loss) per share for the periods indicated:

	Three Months EndedMarch 31,
	2013			2012
Net income (loss)	$	(8,457	)	$	12,446
Basic and diluted shares:
Weighted average ordinary shares outstanding used to compute basic net income (loss) per share	42,901			40,014
Dilutive effect of employee share option plans	—			2,413
Shares used to compute diluted net income (loss) per share	42,901			42,427
Net income (loss) per share — basic	$	(0.20	)	$	0.31
Net income (loss) per share — diluted	$	(0.20	)	$	0.29

The Company excluded 750,351 and 602,908 outstanding shares for the three months ended March 31, 2013 and March 31, 2012, respectively, from the computation of diluted net income (loss) per ordinary share, because including these outstanding shares would have had an anti-dilutive effect.

Recent accounting pronouncements

Recent accounting pronouncements

Effective January 1, 2013, the Company adopted the authoritative guidance, issued by the Financial Accounting Standards Board (“FASB”) in February, 2013, related to reclassifications out of accumulated other comprehensive income (“OCI”). Under this update, an entity is required to report, in one place, information about reclassifications out of accumulated OCI and to report changes in its accumulated OCI balances. For significant items reclassified out of accumulated OCI to net income in their entirety in the same reporting period, reporting is required about the effect of the reclassifications on the respective line items in the statement where net income is presented. For items that are not reclassified to net income in their entirety in the same reporting period, a cross reference to other disclosures currently required under GAAP is required in the notes to the financial statements. The Company elected to present the information in the notes to the Company’s unaudited condensed consolidated financial statements. The adoption of this guidance had no impact on the Company’s consolidated financial statements.

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DERIVATIVES AND HEDGING ACTIVITIES: (Details)			3 Months Ended
	Mar. 31, 2013 USD ($)	Dec. 31, 2012 USD ($)	Mar. 31, 2013 Foreign currency forward contract USD ($)	Mar. 31, 2012 Foreign currency forward contract USD ($)	Mar. 31, 2013 Foreign currency forward contract ILS	Dec. 31, 2012 Foreign currency forward contract USD ($)
Derivatives and Hedging Activities
Future operating expenses hedged			$ 58,200,000		212,300,000
Period over which operating expenses hedged will be expensed			12 months
Derivative Assets Reported in Other Current Assets
Foreign exchange contracts designated as cash flow hedges			3,375,000			2,942,000
Total derivatives designated as hedging instruments	3,375,000	2,942,000
Derivative Liabilities Reported in Other Current Liabilities
Foreign exchange contracts designated as cash flow hedges			0
Total derivatives designated as hedging instruments	0
Balance of designated derivative contracts as cash flow hedges and their impact on OCI
Balance at the beginning of the period			2,942,000
Amount of gain recognized in OCI (effective portion)			1,712,000
Amount of gain reclassified from OCI to income (effective portion)			(1,279,000)
Balance at the end of the period			3,375,000
Expected time to realize the accumulated OCI balance related to foreign exchange contracts			12 months
Impact of derivative contracts on total operating expense
Gain (loss) on foreign exchange contracts designated as cash flow hedges			$ 1,279,000	$ (137,000)

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GOODWILL AND INTANGIBLE ASSETS: (Tables)

3 Months Ended

Mar. 31, 2013

GOODWILL AND INTANGIBLE ASSETS:

Schedule of changes in the carrying amount of goodwill

The following table presents changes in the carrying amount of goodwill (in thousands):

Balance as of December 31, 2012	$	132,885
Adjustments	—
Balance as of March 31, 2013	$	132,885

Schedule of carrying amounts of intangible assets

The carrying amounts of intangible assets as of March 31, 2013 were as follows:

	GrossCarryingValue		AccumulatedAmortization			NetCarryingValue
	(in thousands)
Developed technology	$	29,459	$	(16,642	)	$	12,817
Customer relationships	10,956		(3,767		)	7,189
Customer contract	1,529		(1,529		)	—
Total intangible assets	$	41,944	$	(21,938	)	$	20,006

The carrying amounts of intangible assets as of December 31, 2012 are as follows:

	GrossCarryingValue		AccumulatedAmortization			NetCarryingValue
	(in thousands)
Licensed technology	$	946	$	(946	)	$	—
Developed technology	23,132		(14,695		)	8,437
Customer relationships	10,956		(3,328		)	7,628
Customer contract	1,529		(1,460		)	69
Total intangible assets	$	36,563	$	(20,429	)	$	16,134

Schedule of estimated future amortization expense from amortizable intangible assets

The estimated future amortization expenses from amortizable intangible assets were as follows (in thousands):

Remainder of 2013	$	7,850
2014	4,843
2015	2,081
2016	1,482
2017 and thereafter	3,750
	$	20,006

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THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Details) (Consolidated revenue)	3 Months Ended					12 Months Ended	3 Months Ended
	Mar. 31, 2013 Revenues IBM	Mar. 31, 2012 Revenues IBM	Mar. 31, 2013 Revenues Hewlett-Packard	Mar. 31, 2012 Revenues Hewlett-Packard	Mar. 31, 2013 Accounts receivable IBM	Dec. 31, 2012 Accounts receivable IBM	Mar. 31, 2013 Accounts receivable Hewlett-Packard
Concentration of credit risk
Percentage of consolidated revenue by major customer	19.00%	24.00%	16.00%	18.00%	25.00%	21.00%	14.00%

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Reclassifications out of accumulated other comprehensive income
Cost of revenues	$ (28,948)	$ (28,888)
Research and development	(38,149)	(28,958)
Sales and marketing	(16,414)	(12,805)
General and administrative	(7,485)	(4,857)
Cost of revenues and Operating expenses	(7,916)	13,230
Other income, net	213	184
Net income (loss)	(8,457)	12,446
Amount Reclassified from Other Comprehensive Income
Reclassifications out of accumulated other comprehensive income
Net income (loss)	(1,282)
Gains (Losses) on Derivatives | Amount Reclassified from Other Comprehensive Income
Reclassifications out of accumulated other comprehensive income
Cost of revenues	(73)
Research and development	(985)
Sales and marketing	(106)
General and administrative	(115)
Cost of revenues and Operating expenses	(1,279)
Other income, net	(3)
Unrealized Gains (Losses) on Available-for-Sale Securities | Amount Reclassified from Other Comprehensive Income
Reclassifications out of accumulated other comprehensive income
Other income, net	$ (3)

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Cash flows from operating activities:
Net income (loss)	$ (8,457)	$ 12,446
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	7,350	5,288
Deferred income taxes	(1,051)	(363)
Share-based compensation	10,375	7,242
Gain on sale of investments	(223)	(173)
Excess tax benefits from share-based compensation	(932)	(957)
Changes in assets and liabilities, net of effect of acquisition:
Accounts receivable, net	(629)	1,106
Inventories	(2,866)	(7,735)
Prepaid expenses and other assets	(178)	434
Accounts payable	(6,898)	2,061
Accrued liabilities and other liabilities	(3,095)	4,246
Net cash (used in) provided by operating activities	(6,604)	23,595
Cash flows from investing activities:
Purchase of severance-related insurance policies	(186)	(194)
Purchases of short-term investments	(55,176)	(100,239)
Proceeds from sales of short-term investments	60,618	513
Proceeds from maturities of short-term investments	27,497	3,581
Decrease in restricted cash deposit		94
Purchase of property and equipment	(13,941)	(4,495)
Purchase of intangible assets	(6,327)
Purchase of equity investment in a private company	(3,000)
Net cash provided by (used in) investing activities	9,485	(100,740)
Cash flows from financing activities:
Principal payments on capital lease obligations	(279)	(79)
Proceeds from exercise of share awards	5,671	6,199
Excess tax benefit from share-based compensation	932	957
Net cash provided by financing activities	6,324	7,077
Net increase (decrease) in cash and cash equivalents	9,205	(70,068)
Cash and cash equivalents at beginning of period	117,054	181,258
Cash and cash equivalents at end of period	126,259	111,190
Non-cash investing and financing activities:
Unpaid property and equipment	(4,704)
Inventory capitalization	$ 512	$ 444

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GOODWILL AND INTANGIBLE ASSETS:

3 Months Ended

Mar. 31, 2013

GOODWILL AND INTANGIBLE ASSETS:

GOODWILL AND INTANGIBLE ASSETS:

NOTE 5 — GOODWILL AND INTANGIBLE ASSETS:

The following table presents changes in the carrying amount of goodwill (in thousands):

Balance as of December 31, 2012	$	132,885
Adjustments	—
Balance as of March 31, 2013	$	132,885

The carrying amounts of intangible assets as of March 31, 2013 were as follows:

	GrossCarryingValue		AccumulatedAmortization			NetCarryingValue
	(in thousands)
Developed technology	$	29,459	$	(16,642	)	$	12,817
Customer relationships	10,956		(3,767		)	7,189
Customer contract	1,529		(1,529		)	—
Total intangible assets	$	41,944	$	(21,938	)	$	20,006

The carrying amounts of intangible assets as of December 31, 2012 are as follows:

	GrossCarryingValue		AccumulatedAmortization			NetCarryingValue
	(in thousands)
Licensed technology	$	946	$	(946	)	$	—
Developed technology	23,132		(14,695		)	8,437
Customer relationships	10,956		(3,328		)	7,628
Customer contract	1,529		(1,460		)	69
Total intangible assets	$	36,563	$	(20,429	)	$	16,134

Amortization expense of intangible assets was $2.4 million and $2.4 million for the three months ended March 31, 2013 and 2012, respectively.

The estimated future amortization expenses from amortizable intangible assets were as follows (in thousands):

Remainder of 2013	$	7,850
2014	4,843
2015	2,081
2016	1,482
2017 and thereafter	3,750
	$	20,006

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THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Details 2) (Oracle, USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Oracle
Transactions with Oracle
Number of shares held	3.8		3.8
Sales to Oracle through its contract manufacturers	$ 6.9	$ 4.8
Accounts receivable	$ 0.3		$ 0.2

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SHARE INCENTIVE PLANS: (Details 3)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Employee Share Options
Weighted average assumptions are used to value share options
Expected volatility (as a percent)		54.60%
Risk-free interest rate (as a percent)		1.38%
Expected life		6 years 3 months
Estimated forfeiture rate (as a percent)		7.80%
Share options granted	0
Employee Share Purchase Plan
Weighted average assumptions are used to value share options
Expected volatility (as a percent)	64.40%	49.20%
Risk-free interest rate (as a percent)	0.11%	0.10%
Expected life	6 months 11 days	6 months 11 days

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INVESTMENTS: (Tables)

3 Months Ended

Mar. 31, 2013

INVESTMENTS:

Schedule of cash, cash equivalents and short-term investments

	March 31, 2013
	AmortizedCost			NetUnrealizedGains (Losses)			EstimatedFair Value
	(in thousands)
Cash	$	120,069		$	—		$	120,069
Certificates of deposits	92,028			(14		)	92,014
U.S. Government and agency securities	67,575			(22		)	67,553
Commercial paper	24,469			18			24,487
Corporate bonds	92,143			(72		)	92,071
Total investments	$	396,284		$	(90	)	$	396,194
Less amounts classified as cash and cash equivalents	(126,259		)	—			(126,259		)
	$	270,025		$	(90	)	$	269,935

	December 31, 2012
	AmortizedCost			NetUnrealizedGains (Losses)			EstimatedFair Value
	(in thousands)
Cash	$	110,148		$	—		$	110,148
Certificates of deposit	90,437			(6		)	90,431
U.S. Government and agency securities	115,179			(50		)	115,129
Commercial paper	34,977			(30		)	34,947
Corporate bonds	61,543			(81		)	61,462
Foreign government bonds	7,511			19			7,530
Total investments in marketable securities	$	419,795		$	(148	)	$	419,647
Less amounts classified as cash and cash equivalents	(117,054		)	—			(117,054		)
	$	302,741		$	(148	)	$	302,593

Schedule of contractual maturities of available-for-sale securities

	March 31, 2013				December 31, 2012
	AmortizedCost		Estimated FairValue		AmortizedCost		Estimated FairValue
	(in thousands)
Due in less than one year	$	64,690	$	64,677	$	58,758	$	58,724
Due in one to three years	205,335		205,258		243,983		243,869
	$	270,025	$	269,935	$	302,741	$	302,593