EZChip Plunges as Huawei In-House Product May Cut Revenue

EZchip Semiconductor Ltd. sank to the lowest level in two years after saying that revenue may be reduced should one of its customers develop a product that will negate the need for the Israeli company’s technology.

EZchip, which makes chips for network routers, tumbled 21 percent to $25.50 by 12:53 p.m. in New York, set for the lowest close since December 2010 and the steepest one-day slide since August last year.

Huawei Technologies Co., a Chinese maker of telecommunications equipment, is developing an in-house processor and will use EZchip’s product only “when needed,” Eli Fruchter, chief executive officer of the Israeli company, said on a conference call today after the company reported 2012 earnings. He added that the development was still “mere speculation,” according to a call transcript.

“EZchip doesn’t trade on what they’re going to do tomorrow or a year from now, they trade mostly on their long-term growth prospects,” Dov Rozenberg, an analyst at Clal Finance Batucha Brokerage Ltd. in Tel Aviv who rates EZchip a buy, said by phone. Should Huawei be developing an in-house product that will erode EZchip’s share of the market and “lowers the long-term growth expectations” for the Yokneam, Israel-based company, Rozenberg said.

A phone message left for Jannie Luong, a North American spokeswoman for Shenzhen-based Huawei, wasn’t immediately returned.

To contact the reporter on this story: Victoria Stilwell in New York at vstilwell1@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net