EZchip Drops Most Since 2008 on Revenue Outlook: Tel Aviv Mover

EZchip Semiconductor Ltd. (EZCH) tumbled the most in almost four years after the Israeli maker of processors’ revenue outlook missed analysts’ estimates by about 50 percent.

The shares sank 22 percent, the most since October 2008, to 118 shekels at the 4:30 p.m. close in Tel Aviv. They tumbled 25 percent in New York yesterday to $29.31, or the equivalent of 117 shekels. Tower Semiconductor Ltd. (TSEM), which makes customized chips, lost 13 percent to 36.30 shekels after it reported a loss and said third-quarter sales will fall short of analyst estimates.

EZchip, based in Yokneam, Israel, forecast third-quarter sales of $8 million to $10 million, lower than the $17.9 million mean estimate of seven analysts surveyed by Bloomberg. The company’s executives said on a conference call with investors yesterday that the global economic slowdown reduced demand for equipment from its three largest customers, Cisco Systems Inc. (CSCO), ZTE Corp. (763), and Juniper Networks Inc. (JNPR) These developers contributed 74 percent of sales in the second quarter, it said.

“EZchip is being hit by a perfect storm,” Gary Mobley, an analyst at Benchmark Co., said by phone from St. Louis yesterday. “In the past, one customer weakness was offset by the other but this time all customers are going to be down. Each of these customers can be quite volatile and we are not in an ideal market.”

‘No Influence Whatsoever’

EZchip’s revenue outlook was driven by lower capital spending from telecommunication carriers, which in turn reduces demand for the developer’s biggest customers, Chief Executive Officer Eli Fruchter said in a phone interview yesterday.

ZTE, China’s second-biggest maker of telecommunications equipment, warned last month that first-half profit may have fallen as much as 80 percent due to reduced investment income, foreign exchange losses and delayed network contracts.

“We have no influence whatsoever on their results,” Fruchter said. “The company is very concentrated on that one segment and that is a risk that we have. The reward is that we have five of the seven biggest companies in that space as a customer of ours.”

EZchip reported second-quarter adjusted earnings of 29 cents per share, surpassing the 26-cent mean estimate of nine analysts surveyed by Bloomberg.

The company’s price estimate was lowered to $40 from $48 by Barclays Plc analyst Joseph Wolf, who cited a slowdown in the sector.

To contact the reporters on this story: Sridhar Natarajan in New York at snatarajan15@bloomberg.net; Gwen Ackerman in Jerusalem at gackerman@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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