EZchip shackled by Cisco concerns

Comment

EZchip reported sales, profit, cash, and guidance that are an all-time record, and still the stock is hovering at around half of its peak value, which it reached 18 months ago.

A nervous trading week ended on rises in the Dow Jones and S&P 500 Indices - the fifth successive week in which both have risen - while the Nasdaq index fell slightly. Nasdaq suffered from declines in major biotech stocks, in Qualcomm (QCOM), following tepid guidance, and in Facebook (FB), which was apparently abandoned by some large investors in favor of the new rising star, Twitter (TWTR). This last chose to be listed on the New York Stock Exchange rather than on Nasdaq, which fouled up with the Facebook IPO.

The Nasdaq index will face an important test on Wednesday, with the results of Cisco Systems Inc. (Nasdaq: CSCO), which will report on its quarter ending in October, the month in which some of the federal government was shut down, which probably harmed Cisco. Cisco invented the concept "Internet of Everything" (IoE), on the basis of which it built the strategy that will turn the company into the networked world's number one infrastructure supplier, which it believes by 2020 will connect 50 billion "things" to the Internet.

Cisco CEO John Chambers is and always will be very optimistic about the long term, but the investors, who operate in increments of seconds, not years, are less interested in this. They are concerned, on the eve of the results, because Chambers was a little pessimistic about the short term in public statements since the previous report in mid-August, which brought the stock down from $26 to $23.5 today, while indices are breaking records.

Until Cisco proves to us that it is succeeding in the world of IoE, I can see small companies flourishing in certain niches of this world. One of them is the Israeli company Telit Communications plc, which is traded in London (AIM:TCM). Telit, managed by Oozi Cats, is among the market leaders in the M2M niche - which refers to sales of machine to machine modules and communication services, such as remote readings of electric, water, and gas meters, or communication systems like those already in most new cars, and soon to be in a great many more, once self-driving cars reach market.

Telits stock rose 27% in the past week, and 160% since the beginning of 2013. In the beginning of October the company released initial figures for third quarter results, which may indicate a step up in the companys growth pace, a rise of 22%, to $62.5 million, compared with $51.4 million in the corresponding quarter of the previous year. Telit has more than 5,000 customers worldwide, with a market share nearing 25% of the M2M market. Recently, partly through acquisitions, the company is also expanding its operations as a provider of support services for its customers end-clients. In the long term, this will guarantee significant dependable income from monthly service fees.

M2M communication relies upon cellular networks, and Telit has partnerships with some of the giants in the field. For example, earlier this month Telefonica SA (BMAD; NYSE: TEF; LSE: TDE) announced that it authorized M2M modules from three companies, after conducting extensive research and tests, and Telit, who is partnered with Telefonica (primarily in Europe), was listed among them. Among the institutional investors that have benefited from Telits rising stock price is Yuval Cohens Fortissimo Capital Capital, which bought 13% of the companys shares.

EZchip: Impassioned appeal to investors

Back to Cisco: How is it that last week EZchip Semiconductor Ltd. (Nasdaq: EZCH; TASE:EZCH) reported sales, profit, cash, and guidance that are an all-time record, and still the stock is hovering at around half of its peak value, which it reached 18 months ago? It appears that Ciscos black clouds - as a customer that accounts for 44% of sales and could leave and produce its own processors - takes a heavy toll on EZchips stock price.

In a conversation with analysts, EZchip CEO Eli Fruchter went out of his way to explain just how strong EZchips standing is within Cisco. He was really pleading: We believe that investors must not see every new system or processor that Cisco announces as an automatic threat to EZchip.

For the time being, it doesnt seem to be helping. Because the ones who need to calm the investors are the analysts, some of whom (such as those from Barclays and Oppenheimer) remain unimpressed with the results - which were stronger than expected - and they continue to recommend sitting on the fence. It seems they value the future potential of the company, and particularly its NPS family of processors, at zero.

It seems clear to me that Fruchter and friends read the network market years before anyone else, and already this coming spring they will begin testing their new processor, the NPS, which began development at Kiryat Gat, and on which almost all the companys R&D is currently focused. This processor is meant to be the first ever to support all network layers, including the new SDN networks.

Published by Globes [online], Israel business news - www.globes-online.com - on November 11, 2013

Copyright of Globes Publisher Itonut (1983) Ltd. 2013

 
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