Cisco’s Own Chip Lifts EZchip Volumes: Israel Overnight

Trading volumes on EZchip Semiconductor Ltd. (EZCH), Israel’s second-largest chipmaker, jumped to more than 40 times its 90-day average after Cisco Systems Inc. (CSCO) became the fourth customer to announce development of in-house processors.

The Yokneam, Israel-based chipmaker sank 21 percent to $24.52 yesterday in New York, with trading volumes 42 times the daily average volume over the past three months. EZchip led declines in the Bloomberg Israel-US Equity Index of the most traded Israeli shares in New York. Protalix BioTherapeutics Inc. (PLX) dropped the most in two years after announcing it will raise $60 million through a private placement of convertible notes. SodaStream International Ltd. rose 4.1 percent.

Cisco, EZchip’s biggest customer with 40 percent of revenue, said yesterday that it developed its own nPower integrated network processor, reducing their need for the Israeli company’s technology. The shift follows Huawei Technologies Co.’s decision to produce its own chip as well as Juniper Network Inc. and Alcatel-Lucent SA’s switch.

“Four of the eight major router companies are looking to build chips in-house and the market for EZchip will eventually shrink,” Jay Srivatsa, an analyst at Chardan Capital Markets LLC, said by phone from New York yesterday. “The platform for Cisco’s next-generation solutions incorporate EZchip’s products. It could affect products down the line.”

EZchip fell 21 percent on Feb. 13 when another customer, Shenzhen, China-based Huawei, announced it was developing its own processors. Juniper Networks Inc. (JNPR) switched to their own chip in 2009.

Sales Growth

“We still see over 30 percent growth in the top-line in 2013,” said Jeffrey A Schreiner, analyst at Feltl & Co. The market’s reaction to the news is “exaggerated,” he said.

Sales will rise 29 percent in 2013, according to the average of seven analyst estimates compiled by Bloomberg. Net income will surge 35 percent, the data showed. Schreiner recommends buying EZchip and has a share-price estimate of $39, implying a 59 percent jump over the next 12 months.

“Near-term, there is very little risk to EZchip’s numbers,” said Srivatsa, who recommends investors buy the stock and predicts a 31 percent price gain. Cisco’s current product line, which uses EZchip’s products, will run for “at least the next eight to twelve months, if not longer,” he said.

SodaStream International Ltd. (SODA) advanced to a two-month high, with trading volume exceeding the 90-day average by 40 percent, according to data compiled by Bloomberg. Wal-Mart Stores Inc. debuted a fifteen second commercial featuring SodaStream’s product at a Goldman Sachs Group conference, Jim Chartier, an analyst at Monness Crespi Hardt & Co. in New York, said by phone yesterday.

Protalix, a drug developer based in Carmiel, Israel, sank 15 percent, the biggest plunge since February 2011. The company announced a $60 million offering of convertible notes due 2018 in a private placement on Sept. 11.

Teva Pharmaceutical Industries Ltd. rose 1 percent to a three-week high of $38.88. The Petach Tikva, Israel-based drug maker disclosed a new partnership with Baltimore-based Champions Oncology Inc. (CSBR) after U.S. markets closed.

To contact the reporter on this story: Matthew Kanterman in New York at mkanterman2@bloomberg.net

To contact the editor responsible for this story: Tal Barak Harif at tbarak@bloomberg.net

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