Bloomberg News

Cavium Outlook Cut Sends EZchip to 8-Month Low: Israel Overnight

December 30, 2011

Dec. 29 (Bloomberg) -- EZchip Semiconductor Ltd., the Israeli maker of network processors, dropped to the lowest level in eight months in New York after U.S. competitor Cavium Inc. reduced its sales forecast for the fourth quarter.

EZchip fell 4.3 percent to $28.42 on the Nasdaq Stock Market, paring its gains this year to 1.1 percent. The Bloomberg Israel-US 25 Index of the largest Israeli companies traded in New York declined 1.9 percent, the most in a week, led by Teva Pharmaceutical Industries Ltd.

Cavium, which makes chips for communication networks, lowered on Dec. 27 its revenue forecast to no more than $57 million from an earlier projection of at least $61 million. Two weeks earlier, Intel Corp., the world’s largest chipmaker, cut its fourth-quarter forecast by about $1 billion.

“We come away incrementally more cautious about EZchip,” said Daniel Berenbaum, an analyst at MKM Partners LP in Stamford, Connecticut. “Service provider weakness will likely take its toll on everyone before this is done.”

The Bloomberg Israel-US 25 Index dropped 1.9 percent yesterday to 84.53, following U.S. stocks lower as the European Central Bank’s balance sheet soared to a record after a surge in bank lending to stem the region’s debt crisis. The Standard & Poor’s 500 Index dropped 1.3 percent and the Nasdaq Composite Index retreated 1.3 percent.

GDP Forecast

The shekel weakened for the first time in four days, retreating 0.9 percent to 3.8098 per dollar. The currency is down 7.5 percent this year, headed for the worst performance since 2001.

The Central Bureau of Statistics will release its estimates for 2011 gross domestic product growth today after forecasting expansion of 4.9 percent on Oct. 11.

The Bank of Israel left its benchmark interest rate unchanged on Dec. 26 after reducing it twice in three months, saying the economy was expanding and policy makers want to retain their ability to react to future developments.

“The Bank of Israel probably won’t keep its ammunition of rates in the cartridge for a much longer time,” Amir Kahanovich, the chief economist at Clal Finance Brokerage Ltd. in Tel Aviv, wrote in an e-mailed report. Policy makers will probably reduce the rate by a quarter percentage point to 2.5 percent in February, he wrote.

Israel, whose population of 7.7 million is similar in size to Switzerland’s, has about 60 companies traded on the Nasdaq, the most of any country outside the U.S. after China. It is also home to the largest number of startup companies per capita in the world.

Sales Forecast

Yokneam, Israel-based EZchip, whose customers include Juniper Networks Inc. and Cisco Systems Inc., had gained as much as 34 percent in the seven months until July 7 before slumping. The shares fell to the lowest level since April 19.

EZchip, whose products allow for quicker data delivery, will probably report a 20 percent drop in sales in the fourth quarter to $13.7 million, according to the median estimate of seven analysts surveyed by Bloomberg.

The Tel Aviv shares retreated 2 percent to 111.20 shekels, or the equivalent of $29.21. The New York shares traded at a discount of 77 cents, the second-biggest among the dually-traded companies.

Cavium lowered its revenue estimates after sales to enterprise, service providers and consumer markets were “weak,” the company said in a statement on Dec. 27.

Teva, the world’s largest maker of generic drugs, dropped 2.1 percent to $40.79 after the Tel Aviv shares rose 0.1 percent to 158.20 shekels, or the equivalent of $41.56.

Perrigo Co., the largest U.S. maker of generic over-the- counter drugs, dropped 1.8 percent to $98.90. The Israeli stock slipped 0.4 percent to 382.80 shekels, or the equivalent of $100.56. The discount was the biggest among dually traded companies in Tel Aviv and New York.

--Editors: Marie-France Han, David Papadopoulos

To contact the reporter on this story: Tal Barak Harif in New York at tbarak@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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