Video is a rapidly heating-up field of technology, and in coming years it will provide us with small and middle-sized niche companies with rapid growth in sales and profit. One such example is Sigma Designs Inc. (Nasdaq: SIGM), which specializes in Internet protocol television (IPTV) alongside Cisco Systems Inc. (Nasdaq: CSCO), which returned to double digit growth of at least 20% after several years of stagnation following the collapse of the bubble. After having climbed 40% since the beginning of August, Cisco will probably rise further this week on the back of a complimentary article in “Barron’s”, which claims that web-based video will be one of Cisco’s main growth engines in coming years.
“Barron’s” also mentions in its article several small and medium sized video technology companies such as Polycom Inc. (Nasdaq: PLCM), which has a market cap of $2.3 billion, and which acquired the Israeli company Accord Networks several years ago. It also mentions Polycom’s Israeli competitor, Radvision (Nasdaq: RVSN; TASE: RVSN), which has a market cap of $400 million, and which is likely to receive added momentum as a result, after rising 8.2% last week.
Radvision will not issue a warning, and it will publish its latest financial report on October 26. It will, I believe, have a lot to say about the wave of activity sweeping through all the video niches, from video conference calls between desk tops that can be found at any enterprise, to 3G technology applications on mobile handsets. I stress again that at $18, Radvision is still cheap, given that it has around $6 per share in cash, no debts, annual sales that are expected to be in excess of $105 million, and earnings per share of more than $1, both in 2007.
In an interview with “Barron’s” yesterday, Radvision CEO Boaz Raviv talked about an application that his company has developed for home use, which will enable video calls to be made via the television screen. He also told of the joint mega contract win with the US Department of Defense, for Cisco, Northrop Grumman (NYSE: NOC) and Radvision, which are building the world’s largest video conference network with 1,500 points.
I recall a personal interview given by Radvision chairman Zohar Zisapel, a serial entrepreneur with holdings in many companies and fields, during the collapse of the bubble. Asked which application he thought would be a hot item in a few years time, he named video conferencing calls. ‘What on earth is he talking about and who really cares,’ I said to myself back then. Zisapel’s dream is now apparently becoming reality in a big way. Sensing the impending boom, he also substantially increased his holdings, buying millions of dollars worth of shares. These probably included stock previously owned by hedge fund Saranac Capital Management, which had to sell all its assets, including its substantial holdings in Radvision.
As telecommunications guru George Gilder (GG) says, all this video, including video-sharing websites such as You Tube, which Google announced it was acquiring earlier today, needs to be transported over networks, and for that you need strong engines - high speed network processors. This is the field of expertise of LanOptics (Nasdaq: LNOP) subsidiary EZchip Technologies. Last Friday, EZchip president and CEO Eli Fruchter made a presentation at the Gilder/Forbes Telecosm 2006 conference, and anyone interested in reading the main points of the presentation can view them on the company’s website.
Overall, it’s clear that this could be a tremendous opportunity for EZchip, but it also carries all the risks that any start-up has to contend with. What’s more, investors have been waiting for a breakthrough for some years and so far, this has not been forthcoming. It will be interesting to see what the company’s third quarter financial report will reveal. EZchip is set to announce that commercial deliveries of its second generation processor have already begun. Last Friday’s presentation named a number of giant companies as ‘target customers’ and the more optimistic among investors believe that customers of the likes of Cisco, Juniper Networks (Nasdaq: JNPR), Alcatel (NYSE: ALA; Paris: CGEP), and others are already in the bag.
In addition to naming a number of telecommunications equipment companies as potential companies, the presentation also referred to the telecommunications card market as a by-product of the metro Ethernet router and switch market, and which has already been targeted by big chip manufacturers such as Broadcom Corp. (Nasdaq: BRCM) and Marvell Technology Group (Nasdaq: MRVL). According to EZchip’s presentation, a single Ethernet chassis can potentially host 10-12 line cards with between one to four network processors each, thus EZchip could win substantial business from Marvell, since Broadcom has already acquired a company in this field.
EZchip and Marvell Technology Israel, which are next door to each other in Yokneam, are known to be working in close collaboration, probably opposite potential customers for both companies such as Cisco and Juniper. Perhaps this will come in the form of the supply of applications by both EZchip and Marvell, based on EZchip’s future generations of processors in 2007 and 2008. All that now remains is to watch and see whether the new momentum in LanOptics’ stock, in the wake of its subsidiary's presentation at last Friday’s conference, will last longer than just a few days.
Published by Globes [online], Israel business news - www.globes.co.il - on October 10, 2006
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