Bloomberg News

EZchip Premium Widens as Cisco Concern Abates: Israel Overnight

September 28, 2013

EZchip Semiconductor Ltd. (EZCH), Israel’s second-largest chipmaker, capped its biggest gain since May last week as concern eased that Cisco (CSCO:US) Systems Inc.’s new processor will compete with its products.

Shares of the Yokneam, Israel-based chipmaker rose 11 percent last week to $24.83 in New York, the biggest advance since May 10. The U.S.-traded share’s premium over the Israel stock surged to 10 percent, the widest gap in 13 months. The Bloomberg Israel-US Equity Index of the most-traded Israeli companies in New York added 1.8 percent and specialty chemicals maker Enzymotec Ltd. (ENZY:US) rallied 30 percent in its first day of trading in New York.

EZchip plunged 21 percent on Sept. 12 when Cisco, which represents 40 percent of its revenue (EZCH:US), said it will start using an internally developed processor. EZchip jumped the most in 10 months Sept. 24 as San Jose, California-based Cisco said that the in-home processor will be part of systems that neither previously used, nor were slated to use EZchip’s product, according to Feltl & Co.

“EZchip will rebound back to the levels where it was before the Cisco fears,” Jay Srivatsa, an analyst at Chardan Capital Markets LLC in New York, said by phone on Sept. 26. “The news this week confirmed that the move lower was overdone and that the stock is undervalued.”

The shekel strengthened 0.2 percent against the dollar on Sept. 27 as Standard & Poor’s affirmed Israel’s A+ ratings.

Cloudy Outlook

“The product cycle for these types of chips is three to four years so it is unlikely that Cisco will start to switch to its own internal processors for a few years” said Srivatsa. “In 2015 you could start to see a hit to revenue for EZchip related to Cisco. Investors could start to look ahead in the middle of 2014 and become worried.”

Sales growth slowed in the past two years for the chipmaker as key customers such as Juniper Networks Inc. and Huawei Technologies Co. started to use in-home alternatives to EZchip products. Sales will increase 29 percent in 2013, rebounding from a drop of 14 percent in 2012, according to the mean of seven analyst estimates compiled by Bloomberg. The stock will rise 37 percent over the next year based on the average prediction of seven analysts (EZCH:US).

EZchip led gains on the Bloomberg Israel-US gauge, which rose to a two-year high last week. Caesarstone Sdot Yam Ltd. (CSTE:US), the Israeli maker of granite countertops, rose 9 percent in the week, reaching a record high of $46.16 on Sept. 25. Elbit Systems Ltd., a Haifa-based defense developer, added 7.2 percent to $53.63, the highest since May 2011. It increased its premium to the shares traded in Israel to 4.2 percent, the widest in 12 years.

Enzymotec Surges

Enzymotec, based in Migdal Ha’Emek, Israel, jumped to $18.16 after selling 4.4 million shares in an initial public offering. The company is the second Israeli health care company to list its IPO in the U.S. this year. In May, Alcobra Ltd., the developer of an oral medicine to treat attention deficit hyperactivity disorder, debuted on the Nasdaq.

“The IPO is important because there haven’t been many big health-care IPOs out of Israel in a while,” Rudy Balseiro, managing director of equity capital markets at Needham & Co. in New York, said by phone on Sept. 27. “In the past, you had companies go public on expectations, but this is a real company with real performance.”

Given Imaging Ltd. (GIVN:US), the Israeli maker of cameras that can be swallowed, climbed 4.2 percent last week to $19.21, the highest (GIVN:US) since May 2012. The latest version of the company’s PillCam SB, aimed at detecting and monitoring Crohn’s disease and other conditions of the small bowel, received approval by Japanese medical authorities on Sept. 23. The stock closed at a 2.2 percent premium to Israeli shares.

AudioCodes Ltd. (AUDC), the Israeli company which makes Internet voice call products, traded at the largest premium among dual-listed companies. The stock rose 14 percent last week in New York to trade at a 13 percent premium to Tel Aviv shares.

To contact the reporter on this story: Matthew Kanterman in New York at mkanterman2@bloomberg.net

To contact the editor responsible for this story: Tal Barak Harif at tbarak@bloomberg.net


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Companies Mentioned

  • CSCO
    (Cisco Systems Inc)
    • $25.44 USD
    • 0.00
    • 0.0%
  • ENZY
    (Enzymotec Ltd)
    • $15.03 USD
    • 0.15
    • 1.0%
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