Saifun and Terayon: Analysts Are Leaping Before They Look

On Monday, Citigroup analyst Craig Ellis published his latest coverage on Saifun Semiconductors Ltd. (SFUN) in which he rated it “Hold” with a target price of $23, considerably higher than its current market price. Ellis believes Saifun has no chance of signing any more licensing contracts this year with major manufacturers. What he actually means, as I see it, is that Saifun does not stand much chance of signing a deal with the likes of Samsung Electronics Co. Ltd. or Hynix Semiconductor, but may be able to sign an agreement with a smaller manufacturer. Ellis does not expect the market to take an interest until the end of the year in the new NAND flash technologies that will eventually replace the MLC-based flash products .

Another case of an analyst downgrading his rating before he heard what the company had to say happened last Friday with Terayon Communication Systems Inc. (TERN.PK). Jefferies & Co. sent the stock crashing 16% after its analysts downgraded it to “Neutral” from “Buy” on Thursday evening, saying they did not expect the company would be sold quickly because of its lukewarm results up to September 2006.

Terayon then held its first conference call for some time on Friday evening and had a few surprises in store. Its Q4 sales guidance of $18.6 million was 20% higher than Jeffries’ estimate. As Q4 has been and gone, Jeffries will now have to take this figure as final and update their forecasts accordingly.

For me, the big surprise was that this gap was due in its entirety to preliminary sales of around $3 million in the sexy field of television broadcasts over telephony networks -- better known by the acronym IPTV. Asked to name the telephone companies that would be providing IPTV broadcasts on Terayon’s platform, the company’s managers replied, “The only name we can give you is that of our customer, Motorola Inc. (MOT), and we can’t tell you who its customers are.”

The word on the market is that the IPTV customer in question is AT&T Inc. (T). Judging from the tone of Terayon’s managers at the conference call, I would not be surprised if the company decides to hold off on a possible sale, since 2007 could be the year of the big breakthrough in home digital video broadcasts. As I understand it, Terayon will have something to offer if that comes to pass.

SFUN 1-year chart:

TERN.PK 1-year chart:

Published originally by Globes [online], Israel business news - www.globes.co.il
© Copyright of Globes Publisher Itonut (1983) Ltd. 2007. Republished on Seeking Alpha with full permission.