EZchip Slumps as Rival’s Product Sours Outlook: Israel Overnight

EZchip Semiconductor Ltd. slid the most in two years in New York on concern 2012 revenue will suffer after a competitor debuted a similar product.

Shares of the Yokneam, Israel-based chip developer sank 9.3 percent to $39.28 yesterday, the largest drop since May 2010, swelling its discount to Tel Aviv to the most on record. The drop pushed the Bloomberg Israel-US Equity Index of the largest Israeli companies listed in the U.S. down 1.1 percent to 89.86. Tower Semiconductor Ltd. advanced to the highest level since August on a report that the company may bid to construct a semiconductor plant in India.

Broadcom Corp., based in Irvine, California, will start selling processors that allow customers including telecommunications companies to facilitate faster transmission of voice, video and other data on their networks, according to a statement distributed by PR Newswire yesterday. The product will compete with EZchip’s own processors and may siphon revenue in the next couple of years, Jefferies & Co. said.

“This is an alert to investors,” Sundeep Bajikar, an analyst at Jefferies, said by phone from Los Angeles. “For a long time EZchip was pretty clear and people didn’t assume there would be any competition. The emergence of a legitimate competitor like Broadcom changes the landscape.”

Sales will probably drop in the second and third quarters, according to the median of seven analysts’ estimates compiled by Bloomberg.

EZchip has advanced 39 percent this year, sending valuations to 27 times estimated earnings, nearly twice the average multiple for companies on the Nasdaq Composite Index, according to data compiled by Bloomberg.

Beating Rivals

The stock is outperforming competitors. Cavium Inc., which also makes processors for communications networks, has dropped

4.5 percent, while Altera Corp., a maker of programmable semiconductors, has declined 8.3 percent this year.

“EZchip has been a big outperformer when compared with peers,” Daniel Berenbaum, the executive director of MKM Partners LLC, said by phone yesterday from Stamford, Connecticut. “Going into the quarter, people are being cautious. They’re taking profits ahead of earnings results.”

EZchip, whose biggest customers include Juniper Networks Inc. and Cisco Systems Inc., will probably report sales fell 11 percent to $15.3 million in the second quarter, according to the median estimate of seven analysts surveyed by Bloomberg.

The company may have to reduce its 2012 earnings forecast after Juniper, its second-largest customer, reported a drop in first-quarter sales yesterday, Jay Srivatsa at Chardan Capital Markets LLC, said in a phone interview from New York.

Juniper Sales

Sunnyvale, California-based Juniper said that revenue in the first three months of the year declined 6.3 percent to $1.03 billion. Revenue in the second quarter will rise to between $1.03 billion and $1.06 billion, the company said in a statement.

“If Juniper service provider numbers remain weak then I think that could potentially be a pullback for EZchip,” Srivatsa said yesterday. “EZchip may guide a flat quarter. The stock is almost priced for perfection so if anything goes wrong in the results the stock could pull back.”

Shares of EZchip fell 0.8 percent to 164.30 shekels, or the equivalent of $43.77, in Tel Aviv. The discount on the New York stock swelled to $4.49 below Tel Aviv. The TA-25 benchmark index gained 1.3 percent to 1,162.95 yesterday.

The Tel Aviv Stock Exchange is closed today and tomorrow for Israel’s Memorial and Independence days.

Tower in India

The country, whose population of 7.8 million is similar in size to Switzerland’s, has about 60 companies traded on the Nasdaq Stock Market, the most of any nation outside the U.S. after China. Israel is also home to more startup companies per capita than the U.S.

Tower, a maker of customized chips, rose 6.5 percent to 94 cents in New York yesterday, the highest level since August

2011. The company’s Tel Aviv shares gained 6.8 percent to 3.59 shekels, or the equivalent of 96 cents.

The Migdal Haemek, Israel-based chipmaker may partner with International Business Machines Corp. to bid for the construction of a semiconductor plant in India, The Hindu Business Line reported on April 22.

Tower said on Feb. 16 that it signed a binding initial agreement to build and operate a facility in India with two partners it didn’t name.

Cellcom Israel Ltd. advanced 1.4 percent to $12.08 after the Netanya-based company’s shares in Tel Aviv climbed 1.5 percent to 45.68 shekels, or $12.17. Partner Communications Co. added 1.1 percent to $7.34 after its Israeli stock rose 1.2 percent to 27.72 shekels, or the equivalent of $7.38.

Shares of Israel’s largest mobile-phone providers climbed after TheMarker reported that Hallo 015, a new competitor on the market, dismissed 15 of its 100 employees and failed to pay salaries last month.

A message left on the voicemail of the office of Hallo’s spokeswoman was not immediately returned.

“Disruptive new operators seem not to be as disruptive as feared,” said David Kaplan, a Tel Aviv-based analyst at Barclays Capital.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE