EZchip Jumps Most in Year as Cisco Concern Abates

EZchip Semiconductor Ltd., Israel’s second-largest chipmaker, climbed the most in 16 months in Tel Aviv as concern eased that Cisco Systems Inc.’s new processor will compete with its products.

Shares of the Yokneam, Israel-based chipmaker rose 10 percent, the biggest advance since May 2012, to 88.13 shekels, or $24.80, at the close in Tel Aviv. The New York shares gained 11 percent last week to $24.83. That brought the U.S.-traded shares’ premium over the Israel stock to 10 percent, the widest in 13 months.

EZchip plunged 21 percent on Sept. 12 when Cisco, which represents 40 percent of its revenue, said it will start using an internally developed processor. EZchip jumped the most in 10 months Sept. 24 in New York as San Jose, California-based Cisco said that the in-home processor will be part of systems that neither previously used, nor were slated to use EZchip’s product, according to Feltl & Co.

“EZchip will rebound back to the levels where it was before the Cisco fears,” Jay Srivatsa, an analyst at Chardan Capital Markets LLC in New York, said by phone on Sept. 26. “The news this week confirmed that the move lower was overdone and that the stock is undervalued.”

The shekel strengthened 0.2 percent against the dollar on Sept. 27 as Standard & Poor’s affirmed Israel’s A+ ratings.

“The product cycle for these types of chips is three to four years so it is unlikely that Cisco will start to switch to its own internal processors for a few years” said Srivatsa. “In 2015 you could start to see a hit to revenue for EZchip related to Cisco. Investors could start to look ahead in the middle of 2014 and become worried.”

Sales growth slowed in the past two years for the chipmaker as key customers such as Juniper Networks Inc. and Huawei Technologies Co. started to use in-home alternatives to EZchip products. Sales will increase 29 percent in 2013, rebounding from a drop of 14 percent in 2012, according to the mean of seven analyst estimates compiled by Bloomberg. The stock will rise 37 percent over the next year based on the average prediction of seven analysts.

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