Cavium Outlook Cut Sends EZchip to 8-Month Low: Israel Overnight

EZchip Semiconductor Ltd. (EZCH), the Israeli maker of network processors, dropped to the lowest level in eight months in New York after U.S. competitor Cavium Inc. (CAVM) reduced its sales forecast for the fourth quarter.

EZchip fell 4.3 percent to $28.42 on the Nasdaq Stock Market, paring its gains this year to 1.1 percent. The Bloomberg Israel-US 25 Index (ISRA25BN) of the largest Israeli companies traded in New York declined 1.9 percent, the most in a week, led by Teva Pharmaceutical Industries Ltd. (TEVA) EZchip shares in Tel Aviv declined 2.3 percent to 108.60 shekels or $28.51 at the 4:30 p.m. close in Tel Aviv. The benchmark TA-25 index dropped 2.5 percent to 1,085.59, bringing the decline this year to 18 percent.

Cavium, which makes chips for communication networks, on Dec. 27 lowered its revenue forecast to no more than $57 million from an earlier projection of at least $61 million. Two weeks earlier, Intel Corp. (INTC), the world’s largest chipmaker, cut its fourth-quarter forecast by about $1 billion.

“We come away incrementally more cautious about EZchip,” said Daniel Berenbaum, an analyst at MKM Partners LP in Stamford, Connecticut. “Service provider weakness will likely take its toll on everyone before this is done.”

The Bloomberg Israel-US 25 Index (ISRA25BN) dropped 1.9 percent yesterday to 84.53, following U.S. stocks lower as the European Central Bank’s balance sheet soared to a record after a surge in bank lending to stem the region’s debt crisis. The Standard & Poor’s 500 Index (SPX) dropped 1.3 percent and the Nasdaq Composite Index (CCMP) retreated 1.3 percent.

GDP Forecast

The shekel was little changed at percent to 3.8093 a dollar. The currency is down 7.5 percent this year, poised for the worst performance since 2001.

The economy (ISGSANNY) probably grew 4.8 percent this year, the Central Bureau of Statistics said today, below its 4.9 percent estimate on Oct. 11. Israeli growth has been slowing as the debt crisis in Europe, one of the nation’s biggest trading partners, crimps demand for exports such as electronic components. Exports of goods and services rose 4.5 percent in 2011, after gaining 13.4 percent in 2010, the bureau said.

The Bank of Israel left its benchmark interest rate (ISBRANN) unchanged on Dec. 26 after reducing it twice in three months, saying the economy was expanding and policy makers want to retain their ability to react to future developments.

“The Bank of Israel probably won’t keep its ammunition of rates in the cartridge for a much longer time,” Amir Kahanovich, the chief economist at Clal Finance Brokerage Ltd. in Tel Aviv, wrote in an e-mailed report. Policy makers will probably reduce the rate by a quarter percentage point to 2.5 percent in February, he wrote.

Israel, whose population of 7.7 million is similar in size to Switzerland’s, has about 60 companies traded on the Nasdaq, the most of any country outside the U.S. after China. It is also home to the largest number of startup companies per capita in the world.

Sales Forecast

Yokneam, Israel-based EZchip, whose customers include Juniper Networks Inc. (JNPR) and Cisco Systems Inc. (CSCO), had gained as much as 34 percent in the seven months until July 7 before slumping. The shares in New York fell to the lowest level since April 19 yesterday.

EZchip, whose products allow for quicker data delivery, will probably report a 20 percent drop in sales (EZCH) in the fourth quarter to $13.7 million, according to the median estimate of seven analysts surveyed by Bloomberg. The company on Nov. 2 said fourth-quarter revenue would be as much as 30 percent below the $18.7 million it reported for the third quarter.

“There is no change in the forecasts we have given regarding the fourth quarter,” EZchip Chief Executive Officer Eli Fruchter said today by telephone.

Cavium lowered its revenue estimates after sales to enterprise, service providers and consumer markets were “weak,” the company said in a statement on Dec. 27.

Teva, the world’s largest maker of generic drugs, dropped 2.1 percent to $40.79 in New York. The Tel Aviv shares declined 3 percent to 153.40 shekels, or the equivalent of $40.24 today.

Perrigo Co. (PRGO), the largest U.S. maker of generic over-the- counter drugs, dropped 1.8 percent to $98.90 in New York yesterday. The Israeli shares declined 2.3 percent to 374 shekels, or the equivalent of $98.10 today.

To contact the reporters on this story: Tal Barak Harif in New York at tbarak@bloomberg.net; Shoshanna Solomon in Tel Aviv at ssolomon22@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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