EZchip Semiconductor : No Near Term Threat from Cisco - Chardan Capital
Chardan Capital analyst Jay Srivatsa reiterated a Buy rating and $32 price target on EZchip Semiconductor after Thursday's massive sell-off after Cisco announced its first generation of NPU - the nPower X1 integrated network processor.
"While major details of the chip are still sketchy, it appears that with 400 Gbps throughput, programming control and improved performance, CSCO may be taking aim at EZCH's portfolio of NPU products, specifically the upcoming NPS. If this is the case, we believe this could be a negative for EZCH over the long term, given that Cisco is the largest customer for EZCH making up ~40% of its revenues in the most recent quarter. However, several questions remain to be answered. Two important questions that could impact EZCH are:
1. When is the nPower X1 available for sampling and when does CSCO expect to go into production?
2. What markets are they targeting with this product? Edge Routers? Data Centers? Both?
"While we could get answers to these questions from Cisco on the webcast scheduled for Sep 24th at 8am pst, it is our opinion that the earliest nPower X1 will be available in production quantities could be late 2014 or early 2015."
"It is our view that this product poses no near term threat to EZCH's NP4 and NP5 products and we expect Cisco to continue to place orders for its NP4 even as it transitions to the NP5 in its next generation of edge routers."
Longer term the investment thesis on the stock remains unclear, the analyst said. "With four (Cisco, Juniper Networks Huawei, Alcatel Lucent of the ~7-8 router companies adopting internal solutions, the total available market for EZCH in edge routing appears to be shrinking. While the company has targeted the NPS to expand its market beyond edge routing, we note that NPS is still in very early stages of development and is unlikely to be meaningful till 2015. With its edge routing opportunity shrinking every time one of its customers adopts an internal solution, the ability of EZCH to succeed with its NPS in penetrating new markets is more important than ever for the long term sustainability of the company."