EZchip Jumps to 2-Week High as Avago’s LSI Buy Fuels M&A Bets

Israeli chipmaker EZchip Semiconductor Ltd. advanced to the highest level in two weeks on bets Avago Technologies Ltd.’s purchase of LSI Corp. will spur a wave of industry acquisitions.

EZchip rose 2.5 percent to 85.74 shekels ($24.46) at the close in Tel Aviv, taking a three-day rally to 10 percent after the Avago-LSI deal was announced Dec. 16. The U.S.-traded stock surged 6.8 percent yesterday, and added 0.1 percent to $24.70 as of 11:57 a.m. in New York.

Singapore-based Avago, a chip manufacturer that began as a unit of Hewlett-Packard Co., agreed to buy LSI for $6.6 billion, gaining semiconductors for disk drives and other electronics. The purchase is the year’s second-biggest in the industry, following the $9.4 billion acquisition of Tokyo Electron Ltd. by Applied Materials Inc. in September.

The deal “fuels speculation that the sector has reached a certain bottom, and within the small-to-medium semiconductor companies we may see merger and acquisition deals,” Dov Rozenberg, an equity analyst at Clal Finance Batucha Brokerage Ltd., said by phone from Tel Aviv. It could also signal reduced competition, he said.

Revenue at Yokneam, Israel-based EZchip dropped 14 percent last year, the most since 2000, to $54.71 million, as companies from Juniper Networks Inc. to Huawei Technologies Co. develop processors for their own devices. EZchip’s Chief Financial Officer Dror Israel said Nov. 6 Juniper accounted for 17 percent of sales last quarter, down from as much as 54 percent in 2009.

The stock has declined 30 percent in Tel Aviv this year, compared with a gain of 12 percent for the TA-25 Index.

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