In his review in the “Gilder Report,” Burger analyzes in depth the potential of LanOptics’ subsidiary, EZchip Technologies over the next two years, and comes up with figures that look fantastic. He believes that the developments in the field of video, specifically home-wireless video, will propel forward the network processors made by both EZchip and its competitors, not just into telecommunications infrastructure (through the use of routers) but also home digital converters, which will have to handle phenomenal volumes of wireless video communications.
Burger adds up EZchip’s overall financial potential on all the markets and comes up with a fantastic earnings per share of $2.91 for 2008. He bases his estimate on profit multiple of 30 or a share price of $87 for LanOptics in 2008, having taken into account that it owns 60% of EZchip. With an aggressive target price like that for two years hence, it’s hardly any wonder that the stock has climbed to new annual highs. Burger reiterates the prediction, which I am also familiar with, that EZchip is about to make its entry to this massive market in close collaboration with Marvell Technology Group (Nasdaq: MRVL).
Burger expects that in the near future, LanOptics and EZchip will carry out a stock swap. Private investors and venture capital funds invested in EZchip will receive tradable shares in LanOptics, whose name will probably be changed to EZchip. This will enable the renamed company to make a second share offering, probably following several dramatic announcements of major customers such as Cisco Systems Inc. (Nasdaq: CSCO), and Juniper Networks (Nasdaq: JNPR).
LanOptics’ most recent offering, which raised $6 million will be peanuts compared with the major needs that EZchip will have on its way to becoming the large company that Charlie Burger predicts it will be.