After checking the box for Mellanox Technologies Ltd. (Nasdaq:MLNX; TASE:MLNX) not long ago, because it passed the billion dollar market cap mark, I think we will be able to do the same for EZchip Semiconductor Ltd. (Nasdaq: EZCH; TASE:EZCH), Mellanox's neighbor across the road in Yokne'am.
The company is very close to the goal, after closing at over $35 on Friday, which gives it a market cap of $925 million. This is an all-time high, even though the share price in the company's previous incarnation as Lanoptics was higher at the peak of the bubble in 2000, because the market cap was them much lower, as there were fewer shares.
At the beginning of the year, Radware Ltd. (Nasdaq: RDWR) and Protalix Biotherapeutics Inc. (AMEX:PLX; TASE: PLX) were also on my list of candidates for the billion dollar club, and in my opinion Radware will get there by the end of the year. It will happen after it announces, as seems likely, a new OEM agreement with one of the giants that was among the candidates to acquire it last year, according to "Globes". The agreement should yield substantial revenue starting from the second half of the year. It involves integrating Radware's technology in the OEM's platform.
A delay of about a year in obtaining US Food and Drug Administration (FDA) approval for its first drug will mean that Protalix will wait another year before reaching a value of $1 billion. It will be joined next year, I believe, by yet another company from Yokne'am, Given Imaging Ltd. (Nasdaq: GIVN; TASE: GIVN). Given Imaging's share price reached a new peak for the year of nearly $23 on Friday, after the company announced FDA approval for its PillCam ESO 3 video capsule for visualizing esophageal mucosa earlier in the week, but in my view, that is not what has put life into the share in the past few days.
It seems that the rise in the share price is connected to progress with the revolutionary pill for visualizing the large intestine, which has a huge potential market. FDA approval for that device will restore Given Imaging to peaks it last saw at the end of 2004, of over $40, and a market cap over $1 billion. At that time, we were sure that Given Imaging would take the world by storm, even though it only had a camera-in-a-pill for the small intestine, which by now we know is a fairly small market.
In a presentation in New York last Wednesday, at the ThinkEquity Annual Healthcare Conference, Given Imaging CEO Homi Shamir estimated that the company would receive the go ahead from the FDA very soon to start the last, decisive, clinical trial for the second generation pill for the large intestine. This will be a blind trial in 17 clinical centers and medical institutes around the world that specialize in the large intestine, with 800 patients who will be examined using the camera-in-a-pill and also by the invasive method. The trial will last about a year, so that FDA approval, assuming that the trial has a successful outcome, can be expected at the end of 2012 at the earliest.
EZchip reached its new peak last week after revealing details of its fifth generation network processor (NP-5), which will be presented to a professional audience at an important technology conference in California next week. In addition, EZchip founder and CEO Eli Fruchter presented the company at the Barclays investor conference in New York last week.
With the unveiling of the NP-5, and with the NP-4 processor due to start taking off only in the second half of the year, and its predecessor, the NP-3, due to reach a sales peak in 2012 or 2013, EZchip investors have a clear roadmap for growth over a decade or more, the like of which no other processor company, not even Intel (INTC), can provide.
EZchip's roadmap is backed by design wins at most of the world's leading equipment makers, including the two fast-growing Chinese manufacturers. Something else that distinguishes EZchip from processor designers of different kinds is that each generation of processors is substantially more expensive to the customer than its predecessor, because its performance and functionality are much better.
I estimate that if the NP-3 costs the customer around $300, the fourth generation processor will cost twice that, and there will also be double the number of processors on every platform. This is why Fruchter states in the presentation that the sales potential for the NP-4 is four times that for the previous two generations put together.
Certainly there will be bumps in the EZchip share's journey northward, and not just because its sales multiple is very high. EZchip will always be reliant on a small number of customers, and it will be enough for one or two of them to carry out stock adjustments to put EZchip's sales into a temporary air pocket, as happened in the last quarter. It can also happen, though it is very rare, that a large customer leaves, as Juniper Networks (JNPR) did, when it decided not to continue with EZchip to the third generation.
On the other hand, EZchip's other major customer, Cisco (CSCO), via Marvell (MRVL), has considerably expanded the number of its communications platforms, which are driven and will be driven in the future by EZchip processors, which renders highly unlikely the scenario that one day Cisco, like Juniper, will abandon EZchip for internal development.
This year, EZchip investors gained another dream, in the shape of processors that the company is developing under a cloak of secrecy at its new development center in Kiryat Gat, sales of which will commence only in a few years' time. These are processors for a new market that will substantially expand EZchip's general target market. There are those who are prepared to bet that the processors in question are for a future cloud computing platform.
Published by Globes [online], Israel business news - www.globes-online.com - on May 31, 2011
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