Despite reporting record revenue and beating analysts' estimates for the first quarter of 2015, EZchip Semiconductor Ltd. (Nasdaq: EZCH; TASE:EZCH) saw its share price plunge on Nasdaq last night after CEO Eli Fruchter expressed concerns about the Israeli chipmaker's future sales to its largest customer, Cisco Systems Inc. (Nasdaq: CSCO).
Fruchter said, "As we estimate it may be three years before an NP-5 successor becomes available at our largest customer through internally developed silicon."
He added, "There is ample time for EZchip to complete our development of the NPS-400 successor, the NPS-1000, a 1-Terabit throughput NPU (2.5x faster than the NPS 400). The NPS-1000 is currently under development, and we believe it may be possible to sample within our current largest customer's expected product development cycle and exceed the required throughput for its next generation line cards. NPS-1000 could then potentially lead to an opportunity to reengage our current largest customer regarding its choice to use internally developed silicon."
Fruchter's reassurances did not soothe investors' fears that Cisco, which accounts for 35% of EZchip's revenue, would be retained as a customer after 2018, and the Yokne'am based company's share price fell 24.17% to $14.84, giving a market cap of $440.73 million. Earlier yesterday the share price had slid 26% on the TASE.
"Bloomberg" reported, "Cisco plans to develop its own chip for the next generation of a component used in its routing platform, which recently began shipping with EZchip’s NP-5 network processor. Revenue will probably start being affected after three years, the time needed to bring a newly developed chip into production."
Chardan Capital Markets LLC director of equity research Jay Srivatsa told "Bloomberg," “When a big client like Cisco is switching to making its own chips and thus becoming not a customer but a competitor, this is a really big deal. EZchip will probably have a hard time offsetting the revenue loss.”
EZchip's first quarter results beat the analysts' predictions. The company reported revenue of $26.9 million, up 33% from $20.3 million in the corresponding quarter of 2014, and up 20% from $22.4 million in the preceding quarter. Non-GAAP net profit for the first quarter of 2015 was $7.5 million ($0.24 per share) down from $10 million $0.33 per share) in the first quarter of 2014. The company also reported a GAAP loss of $8.3 million due to the early repayment of a $9.6 million grant to the Office of the Chief Scientist.
Published by Globes [online], Israel business news - www.globes-online.com - on May 14, 2015
© Copyright of Globes Publisher Itonut (1983) Ltd. 2015