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Fading Concerns And High Growth Should Take EZchip Higher
- Product rollouts offer predictable and high revenue growth for the next few years.
- Good play on “White Box” or SDN solutions with increasing market share, decent margins, high operating leverage and solid balance sheet.
- Stock offers 40-50% upside on improving earnings and visibility.
- EZchip reported increased revenues and operating margin in Q1’14.
- Stock price increased 10% since the drop in September 2013 driven by Cisco’s nPower announcement.
- Revenue mix is healthy and revenues increased from all customers except Juniper.
- NPU roadmap presents a smaller cadence between product launches and promising new NP-5 and NPS products.
The Bullish Long-Term Investment Case For EZchip Semi
LanOptics About to Assume Full Ownership of EZChipShlomi Cohen • May. 9, 2007
LanOptics Raising Stake In EZChip - A Bullish Sign
Charlie Burger Continues To Believe in LanOptics, EZChipShlomi Cohen • Oct. 25, 2006
Tue, Dec. 9, 1:52 PM
- Verizon CFO Fran Shammo has promised his company will continue growing wireless capex (albeit while cutting wireline capex) to keep up with data traffic growth. Small cells and smart antennas were mentioned as areas of interest.
- The remarks have been well-received by investors in telecom equipment and component/chip vendors, many of whom have been hit hard by soft North American and (to an extent) European spending. The Nasdaq is up 0.3%.
- Gainers: JDSU +3.6%. FNSR +3.1%. CYNI +10.1%. INFN +2.8%. CIEN +1.9%. AMCC +3.7%. PMCS +3.7%. ZHNE +3%. OCLR +5.4%. AFOP +2.8%. ADTN +2.5%. UBNT +2.2%. XXIA +1.7%. CALX +3.5%. EZCH +2.9%. SONS +2.4%. Sonus is also benefiting from a bullish Wedbush coverage launch.
- The group was pummeled in November after AT&T set a 2015 capex budget of $18B, down from 2014's $21B.
Wed, Nov. 26, 2:52 PM
- Chip stocks are outperforming after Analog Devices (ADI +5.2%) beat FQ4 estimates and offered in-line FQ1 guidance. The Philadelphia Semi Index (SOXX +1.9%) has made new highs.
- Notable gainers include many analog/mixed-signal and telecom IC firms: TXN +3%. LLTC +2.7%. SMTC +3.1%. ISIL +3.3%. SWKS +3.7%. AVGO +2.9%. OVTI +3.2%. FSL +3.1%. EZCH +2.5%. XLNX +2.3%. ALTR +2.1%. MX +4.3%. PMCS +2.7%. BRCM +2%.
- On its CC (transcript), ADI noted its telecom equipment chip sales are holding up well in spite of weak capex, aided by the fact its dollar content for 4G base stations is "at least 20% to 30% better" than for 3G base stations. The company also mentioned its lead times were stable in FQ4.
- Chip ETFs: SMH, XSD, PSI, SOXL, USD, SOXS, SSG
Wed, Nov. 12, 11:45 AM
- With weak carrier spending continuing to take a toll, EZchip (NASDAQ:EZCH) guided on its Q3 CC (webcast) for Q4 revenue of $22M-$24M, below a $25.3M consensus. The guidance includes nearly two quarters of revenue from Tilera; EZchip doesn't plan to separately break out Tilera's revenue going forward.
- Sales to top customer Cisco (43% of Q3 revenue) fell Q/Q, as the networking giant (reports after the bell) contends with soft carrier orders. Nonetheless, EZchip expects its full-year Cisco sales to be up Y/Y.
- EZchip expects Cisco to use its next-gen NP-5 processor for its existing edge router platforms, and says it could possibly do so for new platforms. Shares plunged a year ago after Cisco unveiled its nPower X1 processor.
- ZTE sales (8% of revenue) fell sharply Q/Q. EZchip expects sales to bounce as ZTE begins using the NP-5. Juniper sales (7% of revenue) are expected to continue declining. Revenue from all other customers (42% of revenue) rose 87% Y/Y, and reached a new record.
- The first design win has been obtained for EZchip's NPS processor line (features more programmability). EZchip claims strong NPS interest from both equipment vendors and data center owners.
- EZchip issued a Q3 warning back on Oct. 6.
Mon, Oct. 27, 11:46 AM
- Citing the implications of Juniper's Q4 guidance and industry commentary, Chardan Capital's Jay Srivasta has downgraded EZchip (EZCH -2.8%) to Neutral ahead of its Nov. 12 Q3 report, and cut his target by $8 to $22.
- Srivasta notes Juniper stated U.S. carrier spending remains weak, and that demand from enterprises and European carriers is also softening. Juniper also said its "planning assumption" is for growth to resume in 2H15.
- Though admitting Juniper only accounts for 6% of EZchip's revenue, Srivasta thinks Cisco (39% of revenue) and ZTE (20%) could be dealing with similar issues, something that puts EZchip's Q4 consensus estimates at risk.
- Cisco's service provider orders were down 11% Y/Y in the July quarter. Sales of its ASR 9000 edge routers (feature EZchip's network processors) still rose at a double-digit clip.
Mon, Oct. 6, 11:30 AM
- EZchip (EZCH -12.5%), a top supplier of network processors for edge/access routers, now expects Q3 revenue of $19M, below prior guidance of $22M and a $22.6M consensus.
- CEO Eli Fruchter: "We have seen weakness in orders as well as inventory adjustments across most of our key customers that are serving the carrier networking equipment space. We believe this is a temporary slowdown, caused primarily by a weaker carrier spending environment that the market is currently going through." Like others, he's optimistic growth will soon pick up.
- Fruchter's remarks echo those from Cisco (EZchip's top customer), Juniper, Ciena, Finisar, JDS Uniphase, and several other firms. Soft North American wireline capex (led by AT&T) has especially been taking a toll on the industry.
- Several telecom equipment and component/chip suppliers are following EZchip lower. CIEN -2.8%. CAVM -2.8%. OCLR -2.7%. ZHNE -2.7%. CYNI -3.1%. AFOP -2.1%. NPTN -2.4%. OPLK -1.7%.
Thu, Aug. 28, 11:33 AM
- EZchip (NASDAQ:EZCH) has soared over the last 30 minutes of trading. Volume is already over 2x the daily average.
- A rumor that the network processor vendor has cancelled a Roth conference presentation (set for Sep. 3) could be playing a role. Shares have rallied on M&A hopes in the past - a long list of chipmakers have been acquired over the last 9 months.
Thu, Aug. 14, 12:40 PM
- Six firms have hiked their Cisco (CSCO -2.8%) targets after the company beat FQ4 estimates, issued mixed FQ1 guidance, and announced plans to cut another 6K jobs. But that isn't stopping shares from selling off due to worries about weak demand from carriers (orders -11% Y/Y) and emerging markets (orders -9%).
- "Notwithstanding the fact that capex will be fairly weak in [2H14], Cisco's [carrier] order performance in the first calendar half of 2014 demonstrates meaningful share loss in addition to soft carrier spending," says MKM (Neutral).
- Nonetheless, the firm thinks Cisco's total orders will rise at or near a low double-digit % in FQ1 (favorable comps will help). "We still believe it is profitable to own Cisco when orders and revenue growth are accelerating."
- Bulls are focusing on healthy enterprise orders and strong early uptake for the Nexus 9000/ACI SDN and networking virtualization platform. John Chambers mentioned on the CC (transcript) the platform's customer count more than tripled in FQ4 to 580+, and that there are over 60 customers for the related APIC software controller (just launched).
- Several peers and suppliers with strong carrier exposure are selling off. Cisco's numbers follow a soft outlook from JDS Uniphase, and coincide with light guidance from Oclaro. ALU -1.6%. JNPR -1.8%. FN -7.4%. ZHNE -2.1%. EZCH -3.8%.
- Prior Cisco earnings coverage
Wed, Jul. 23, 12:25 PM
- Among the year's best tech performers, chip stocks are selling off (SOXX -1.8%) on an up day for the Nasdaq following weak numbers from FPGA giant Xilinx (XLNX -14.5%).
- Xilinx missed FQ1 revenue estimates by over $18M, and also guided for FQ2 revenue to be well below consensus. The company blamed the FQ1 shortfall on soft defense and wireless sales. BMO and BofA/Merrill have downgraded Xilinx; the former thinks Xilinx's 28nm share might be peaking.
- Xilinx stated on its CC (transcript) the wireless weakness was mostly due to soft 28nm chip sales to Chinese 4G base station vendors; Chinese 4G rollouts have long been viewed as a catalyst for both Xilinx and Altera (ALTR -4.7%). Aerospace/defense sales were hurt by program timing issues.
- Meanwhile, switch/router vendor Juniper offered light Q3 guidance to go with a Q2 beat. The company noted on its CC (transcript) "market dynamics" for U.S. carriers, including M&A activity, are affecting project rollouts.
- Also: Analog/mixed-signal IC vendor Linear (LLTC -4.1%) is selling off in spite of beating FQ4 estimates and guiding in-line (8%-11% Y/Y FQ1 rev. growth vs. 9.1% consensus).
- Notable decliners: FSL -5.3%. IDTI -6.4%. EZCH -3.3%. PMCS -4.3%. LSCC -6.8%. CAVM -4.7%. SMTC -4.1%. ATML -3.2%. TQNT -3.1%. RFMD -2.9%. IRF -2.9%.
- Qualcomm, NXP, TriQuint, and Cirrus Logic report after the bell.
- Chip ETFs: SMH, XSD, PSI, SOXL, USD, SOXS, SSG
Tue, Jun. 17, 9:55 AM
- Feltl has upgraded EZchip (EZCH +3.1%) to Strong Buy, and set a $31 PT.
- The network processor vendor's shares popped last month following a Q1 beat that was fueled by a 31% Y/Y increase in sales to top customer Cisco (boosted by strong ASR 9000 edge router demand), and a 172% increase in sales to #2 customer ZTE.
- SA author Darspal S. Mann recently argued Street estimates for 25% 2014 revenue growth may be conservative, given the potential for EZchip's next-gen NP5 processor (can handle 240Gbps) to start contributing in 2H. Mann notes the NP-5 has an ASP that's 60% higher than that of the prior-gen NP-4.
Wed, Feb. 26, 4:12 PM
- Up moderately for much of the day as part of a broader rally in chip stocks, EZchip (EZCH +16%) blasted off in the final 30 minutes of trading on strong volume.
- No news has hit the wires to explain the move. EZchip has occasionally been a party to M&A speculation in the past; shares rallied in December after the Avago/LSI deal fueled hopes of further consolidation among networking chipmakers.
- Short-covering could be a factor: 13% of the float was shorted as of Jan. 31.
Dec. 17, 2013, 2:57 PM
- Avago (AVGO +7.6%) is now up 18% (good for a $2.1B increase in market cap) since announcing a $6.6B deal to acquire LSI yesterday morning. Many of its chip industry peers have also rallied; the Philadelphia Semiconductor Index (SOXX +1.2%) is up 2.5% over the last two days.
- The sharply contrasting nature of Avago and LSI's product lines - Avago depends heavily on RF and optical component sales, while LSI depends on storage controllers/adapters and network processors - could be fueling hopes other chipmakers will use M&A to expand their product lines and achieve greater scale.
- Today's notable gainers include EZchip (EZCH +6.7%), OmniVision (OVTI +3.6%), Skyworks (SWKS +3%), Cavium (CAVM +3%), Audience (ADNC +5.8%), Cirrus Logic (CRUS +3.4%), and Semtech (SMTC +3%). Cirrus and OmniVision, which both depend heavily on Apple orders, might also be getting a boost from a positive Q4 pre-announcement from Germany's Dialog Semi (gets ~70% of its sales from Apple).
- Several firms have hiked their Avago PTs in response to the LSI deal, which is set to be financed with $4.6B in debt and a $1B convertible note investment from Silver Lake (conversion price of just $48.04). Nomura expects the deal to lift Avago's 2015 EPS by $1.00-$1.50; Avago is promising $200M/year in synergies by the end of FY15 (ends Nov. '15). RBC thinks FY15 EPS of ~$5 is possible; the consensus is at $3.89.
- Chip ETFs: SMH, XSD, PSI, SOXL, USD, SOXS, SSG
Nov. 14, 2013, 10:13 AM
- The list of enterprise hardware/software, telecom equipment, and component/chip suppliers selling off (previous) due to Cisco's poor guidance and order data now includes Oracle (ORCL -2.4%), EZchip (EZCH -6.1%), Riverbed (RVBD -6%, shot higher yesterday on M&A hopes), NeoPhotonics (NPTN -6.6%), Ixia (XXIA -4.7%), Oclaro (OCLR -4%), Procera (PKT -2.3%), and Alliance Fiber (AFOP -3.8%).
- Cisco's weak service provider (-13% Y/Y) and emerging markets (-12%) orders are worrying investors in peers/suppliers, particularly given some peers (I, II) have also reported of soft carrier and/or EM demand. John Chambers' admission the NSA spying scandal has affected sales in China (orders -18%) also isn't going over well.
- However, many on the sell-side argue a big portion of Cisco's problems are tied to company-specific product issues.
- H-P (HPQ -5.6%), which has plenty of Chinese exposure, has added considerably to yesterday's AH losses, and so have Ciena (CIEN -5.3%) and Finisar (FNSR -10%). H-P's FQ4 report is due on Nov. 26, and Ciena's FQ4 report arrives on Dec. 12.
Nov. 13, 2013, 8:34 PM
- Cisco's (CSCO) dispiriting Jan. quarter guidance and Oct. quarter order data has produced an AH selloff in enterprise IT and telecom equipment names, as well as a couple of the companies supplying them. NetApp's below-consensus guidance might not be helping either.
- HPQ -2.1% AH. IBM -1.1%. ALU -2%. FFIV -1.9%. CIEN -0.9%. CAVM -3%. BRCM -1.3%.
- Cisco's slumping FQ1 service provider (-13% Y/Y) and emerging markets (-12%) orders are bound to fuel concerns about carrier capex and macro trends. At the same time, it's worth noting Juniper and Alcatel-Lucent have been seeing better router sales to carriers (though not to Asia), and that Huawei has been doing better in emerging markets.
- The rest of Cisco's order data for major regions and customer groups was relatively better, but not exactly encouraging. Americas orders -2%, EMEA -4%, Asia-Pac (hurt by emerging markets weakness) -9%. Enterprise orders +2%, commercial (SMBs) +1%, public sector -1%.
- Switch sales (31% of revenue) rose 3% Y/Y, while routers (17% of revenue) fell 1%. Collaboration rose 1%, and service provider video fell 14% due to set-top weakness. Cisco's ASR 9000 edge router line, which EZchip (EZCH) supplies network processors for, grew 20% in FQ1 vs. 43% in FQ4.
- Data center (UCS servers) had another strong quarter, growing 44%, but still only accounts for 5% of revenue. Wireless (dominated by Wi-Fi gear) grew only 8% after growing 32% in FQ4 (could be a negative for ARUN and RKUS).
- John Chambers was asked on the CC (transcript) if the NSA spying uproar was affecting Cisco. He admitted it's a problem in China, but denied it was a major issue elsewhere.
Sep. 24, 2013, 12:45 PM
Sep. 24, 2013, 12:24 PM
- At a launch event for its new NCS core router line, Cisco (CSCO -0.5%) states its recently-announced nPower X1 network processor (NPU) won't displace EZchip's (EZCH +17.1%) NPUs.
- EZchip shares, which tumbled when the X1 was originally announced, have shot higher. Oppenheimer had estimated the nPower X1 could hurt EZchip's top line by 20%-25% if used in future Cisco edge routers; the chipmaker issued a statement attempting to soothe investor fears.
- Cisco states the X1, which (per John Chambers) cost $250M to develop, will power the NCS line, as well as its mainstay CRS-X core routers.
- As previously reported, the NCS line is meant to provide better support for diverse traffic loads than the CRS-X line. Cisco touts the programmability of its new hardware, as well as its advanced management tools (both physical and virtual resources can be provisioned across systems) and support for the company's ONE SDN platform (will eventually cover Cisco's entire switch/router lineup).
- The high-end NCS 6000 supports line cards with densities up to 1Tbps; that exceeds the 400Gbps supported by the CRS-X and supports arguments the former will be viewed as a replacement for the latter, even if it isn't officially marketed as such.
- The NCS 6000 is already shipping, as is a complementary 100G optical transport system known as the NCS 2000. Japan's KDDI and Australia's Telstra are among the first clients. A less powerful router known as the NCS 4000 will ship in 1H14.
- Juniper (JNPR -1.2%), whose successful PTX Series routers are being targeted by the NCS line, is ticking lower.
Sep. 17, 2013, 9:32 AM
- "To the best of EZchip's (EZCH +7.5%) knowledge Cisco intends to use EZchip's NP-5 in all key platforms that use the NP-4 today, and Cisco has not yet made a decision on any NPU beyond NP-5 in those platforms." Those comments are in-line with a remark CEO Eli Fruchter made to Benchmark in the wake of Cisco's nPower X1 announcement. (PR)
- EZchip also once more talks up the potential of its NPS-400 processor (previous), declaring it will offer "the highest integration and greatest power efficiency," of any NPU, as well as the most advanced traffic manager and the ability to "support the greatest number of flows and subscribers." The NPS-400 is expected to start generating revenue in 2015.
- Regarding ZTE, the company doesn't specifically deny Maxim's report of a Broadcom design win, but does state ZTE plans to use the NP-5 "as a follow on" in platforms using the NP-3 and NP-4 to the best of its knowledge, and that the NP-5 "is also in consideration for other [ZTE] platforms as are other NPUs from other vendors."
- Shares still -23% from where they traded before Cisco's announcement.
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