EZchip’s 32% Collapse Luring Chardan on Earnings Pick Up

EZchip Semiconductor Ltd., the Israeli chipmaker posting its worst annual slump in eight years, is poised to rebound as earnings pick up, according to Chardan Capital Markets LLC.

The shares fell 1.3 percent to 77.72 shekels, or $22.20, at the close in Tel Aviv. The stock of the Yokneam, Israel-based company slid 4.5 percent last week to $22.45, extending its retreat this year to 36 percent.

First-quarter net income at EZchip will almost double to $6.64 million, according to the average of five estimates tracked by Bloomberg. The stock has tumbled 27 percent since Sept. 11, the day before Cisco Systems Inc., which represents about 40 percent of revenue, said it will start developing its own processor. The slide has sent EZchip’s valuation to 15.7 times estimated earnings, or 26 percent below the average of the last five years, data compiled by Bloomberg showed.

“It’s a ‘show-me’ story,” Jay Srivatsa, an analyst at Chardan, who has a buy rating on the stock, said by phone from New York Dec. 12. “We need to see the first quarter really shape up and the company start to post good numbers, then investors will realize there’s no reason to be negative on the stock.”

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. That would be the fastest annual revenue growth since 2010, the data show.

‘No Effect’

EZChip’s Chief Financial Officer Dror Israel said in an interview in September that San Jose, California-based Cisco’s decision to produce in-house will have “no effect on any existing design wins at Cisco.” The company also expects to generate new revenue by targeting data center processors, Israel said.

The stock also slid on concern competition from rivals including Broadcom Corp. and Marvell Technology Group Ltd. could erode EZchip’s market share, according to Jeffrey Schreiner at Feltl & Co. The decline drove EZchip’s valuation 14 percent below the average multiple for companies on the Nasdaq Composite Index, according to data compiled by Bloomberg.

The drop is unwarranted and “valuation is very cheap given EZchip’s leading market position,” Schreiner, a Minneapolis-based senior research analyst at Feltl, said by phone Dec. 12.

Kenny Green, a U.S.-based investor relations representative for EZchip, didn’t return calls for a comment when contacted on Dec. 13. Holly Zheng, a spokeswoman for Marvell in Santa Clara, California, and Jyotsna Grover, a spokeswoman for Irvine, California-based Broadcom, didn’t respond to a request for comment.

The Bloomberg Israel-US Index fell less than 0.1 percent to 107.68 last week. The measure has rallied 25 percent this year, compared with a 12 percent gain for Israel’s benchmark TA-25 Index.

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