Clal Finance Ltd. today initiated coverage of EZchip Semiconductor Ltd. (Nasdaq: EZCH; TASE:EZCH) with a "Buy" recommendation and target price of $44, a 27% premium on Friday's closing price on Nasdaq of $34.64, giving a market cap of $970 million.
Clal Finance Dov Rosenberg notes that EZchip develops and provides network processors (NPUs) for databases. Five of the world's top seven Ethernet equipment vendors use EZchip's products in their products.
Rosenberg points to rising demand for high-speed bandwidth, and says that EZchip is one of the trendsetters. "EZchip is expected to growth in tandem with the telecom equipment market in the coming years. We believe that EZchip's wins with equipment vendors, such as ZTE Corporation (SZSE: 000063; HKSE: 0763), Cisco Systems Inc. (Nasdaq: CSCO), and Huawei Technologies Co. Ltd. will boost its share of the target market and increase its revenue 4-5 fold over the next few years, while maintaining a net profit margin of over 40%," he says.
"It is important to note that EZchip's road map is not paved, and there may be more potholes on the way. Its position at the bottom of the Ethernet food chain results in low short-term visibility, which is liable to affect quarterly results, as happened during the past year," continues Rosenberg.
"We believe that as far as NPU products are concerned, EZchip's competition will not come from other companies offering rival products, but from its customers, which may develop processors in-house, like Juniper Networks Inc. (Nasdaq: JNPR) did several years ago. But it is important to remember that, technologically, EZchip enjoys a high entry barrier, and development of an in-house processor requires three years planning and preparations. We believe that EZchip is 2-3 years ahead of the market in terms of technology."
Published by Globes [online], Israel business news - www.globes-online.com - on December 24, 2012
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