High Tech, High Compensation

by: Shlomi Cohen

Among the Israeli stocks which I hold in my portfolio tracked by “Globes”, several reported better than expected earnings, including Mellanox Technologies Ltd. (Nasdaq:MLNX; TASE:MLNX), Amdocs Ltd. (NYSE: DOX), and SanDisk Corporation (Nasdaq:SNDK). Sandisk’s share price is up 55% so far in 2010, five times the return of the Nasdaq 100 Index in which it is included.

Mellanox’s share price is up 42% this year. Founder and CEO Eyal Waldman saw $8 million added to the company’s coffers during the quarter from business activities, and the mountain of dollars that seeks an acquisition target grew to $221 million, about 25% of the company’s market cap.

Those among us who seek a justified executive compensation program should look to Mellanox. Waldman makes do with an annual salary of $375,000, but recently grabbed profits of millions of dollars by exercising options and selling the shares, just like investors and employees grabbed tremendous profits after the company’s success and the rise in the share price.

Other Israeli executives of companies with fast-rising shares which I hold, include EZchip Semiconductor Ltd.'s (Nasdaq: EZCH; TASE:EZCH) Eli Fruchter and Ceragon Networks Ltd.'s (Nasdaq: CRNT; TASE:CRNT) Ira Palti. These executives make do with a reasonable salary and since the beginning of the year have sold shares at tremendous profit, alongside their employees and investors.

Other Israeli companies which are in my portfolio and which will release earnings this week are AudioCodes Ltd. (Nasdaq: AUDC; TASE: AUDC), Radvision Ltd. (Nasdaq: RVSN; TASE: RVSN), and ClickSoftware Technologies Ltd. (Nasdaq: CKSW) on Wednesday, and Radware Ltd. (Nasdaq: RDWR) and Ceva Inc. (Nasdaq:CEVA); LSE:CVA) on Thursday. I expect VoIP company Audiocodes results to meet or beat expectations, and that is reflected by the share price which has jumped 58% since the beginning of the year to around $4, as less than two weeks ago Bank of America / Merrill Lynch analyst Vivek Arya raised his target price to $5.

Arya says that Audiocodes can earn $0.35 per share in 2011. That will justify a future share price of $6-7, in line with earnings multiples of 17-20 at which other firms in the sector trade. The company is expected to report first quarter revenue of over $33 million, and earnings per share of $0.04, and will apparently guide to a strong remainder of the year. Its growth engines are the general awakening in organizations’ telecommunications equipment investments, new solutions that it launched this year, and recently-announced collaborations with Microsoft (NASDAQ:MSFT) and Skype.

Finally an independent brand

Radvision will report a quarter with $20 million revenue and a loss per share of $0.04. Such a loss would not have come about at this time if Cisco (NASDAQ:CSCO), its biggest customer with 33% of sales, would not have closed its purchase of Norwegian firm Tandberg last week. Tandberg leads in the sector of video conference calls.

Cisco’s move, which first became known about a half a year ago, forced Radvision into a strategic change whose results we received in a notice sent out on the exact same day that Cisco closed the deal to acquire Tandberg. Radvision reported the launch of a HD video conferencing system, under its own name, as an independent brand. Until today, its name was only known as an OEM supplier. This is the first product that is based on the acquisition it made about two months ago in Italy. The system can transmit two video streams at high definition over the Internet. Its base price is $7,400, less than half the price of its rivals' similar systems.

Company executives told Reuters that they estimate a pace of sales of the system of up to $3-5 million per quarter in the second half of the year, and significant growth in 2011.

Over many years, the public companies of the Zisapel brothers have seen rises and falls, as the role of the biggest, ranked by market value, switches every few years among the three big ones - Ceragon, Radvision, and Radware Ltd. (Nasdaq: RDWR), with a combined market value of about $1 billion.

Since October, when Radvision suffered its big hit, its sister company Radware has leaped ahead, rocketing 100% to a market cap of $425 million, passing on the way that of bounding Ceragon.

Radware will report results on Thursday, and market expectations are for $32 million revenue and $0.17 earnings per share in the first quarter. Since Radware is holding an analysts' day in New York next Monday, something it has not done for many years, we can figure that the company will not disappoint, neither in results nor in guidance.

Furthermore, Radware is apparently hosting an analysts' day in order to transmit optimism about 2010 as a whole. Analyst Itai Kidron expects new product launches as well and announcements of new OEM agreements, which will be the base for continued strong growth of the company's business.

Disclosure: Author holds shares as part of his portfolio tracked by "Globes".

Published by Globes [online], Israel business news - www.globes-online.com - on November 17, 2009; Reprinted on Seeking Alpha with permission

© Copyright of Globes Publisher Itonut (1983) Ltd. 2009