The markets crashed on Friday because of the weak US employment figures for May, but beyond all the macro statistics indicating a slowdown, from China and India in the East through to Europe and the US in the West, the yield on the ten-year US Treasury note, which fell to an all-time low, positively cried out. This low yield, 1.44% during Friday's session, indicates much more than the risk of a recession, "perhaps even existential fear" said an investment manager who checked historical yields going back decades.
It turns out that, last week, the floor that the Treasury note yield reached at the time of the Japanese attack on Pearl Harbor in December 1941, which brought the US into World War II, was breached. This fact was revealed by an investment manager who appeared on CNBC, and who wondered what the yield portends that we don't know. After all, even if we are on the eve of a second global recession, doesn't it make more sense to invest in Intel (INTC) or in Coca Cola (KO), with dividend yields double that and more? Does someone see the world in the next decade without Intel processors or bottles of Coke?
Before the riddle of the Treasury note yield is solved, several managers of Israeli companies I hold in my portfolio will bring the level of investor anxiety down, at least in the short and medium term. This is because they will radiate optimism at the investors conference that RBC will hold in Boston tomorrow. Radware Ltd. (Nasdaq: RDWR), Mellanox Technologies Ltd. (Nasdaq:MLNX; TASE:MLNX), EZchip Semiconductor Ltd. (Nasdaq: EZCH; TASE:EZCH), Ceva Inc. (Nasdaq:CEVA); LSE:CVA), and Orbotech Ltd. (Nasdaq: ORBK) will all be there. Orbotech will also present at the Credit Suisse conference on Thursday, again in Boston.
Ceva's share price, which hit an annual low of $15 in May, was among the few to rise last week, and it managed to close above $17 at the end of Friday's tough session. This happened because it emerged that Samsung is using Ceva's DSP technology in most models of the Galaxy 3, which is already known to be a big hit. This assures Ceva of a substantial flow of royalties from the fourth quarter, a flow that, in my view, was not included in the lowered guidance that caused the share price to collapse after the last financials.
Today, Samsung sprung a surprise when it announced that the Galaxy 3 would be launched in the US as well this month, with five carriers, including the four largest. Last week, it was launched in 28 countries in Europe and the Middle East, apparently the biggest ever launch of an electronic device. This blitz by Samsung was intended to leverage to the utmost the fact that Apple (AAPL) will not have the iPhone 5 on the market at least until October, and among the small gainers from this move will be Ceva.
Fo0llowing the launch, investment house Cantor Fitzgerald reiterated its "Buy" recommendation for Ceva, with a price target of $35, which is more than double the current market price. Among other things, they mention the huge Chinese market, where local semiconductor company Spreadtrum Communications (SPRD), which relies on Ceva for DSP, reported early in May that its processors would be used in 200 different smartphones aimed at the Chinese market. According to the report, many of these devices will be launched by the end of this year.
If telephones giant Nokia (NOK), which indirectly caused the lowering of Ceva's guidance a month ago, manages to make a significant comeback in the emerging markets with cheap Edge handsets that will have the touch screens and Facebook access that they have so far lacked, then Ceva will return to substantial growth as early as the beginning of next year. This will also happen because its largest customer, Intel, is expected by then to become a significant player in the tablet computer and smartphone processor market.
EZchip's potential is unharmed
To end with, the management of EZchip, which in the current correction has returned to a market cap below $1 billion, will again explain at the RBC conference tomorrow, and also at further meetings this week with investment institutions in Chicago and Milwaukee that RBC has arranged for them, that the fall in the share price does not signify any reduction in the company's growth potential for the rest of the year. EZchip's market is mainly infrastructure for advanced networks, including LTE, through the major communications equipment suppliers, and customers such as Cisco (CSCO), Ericsson (ERIC) and Ciena (CIEN) have recently reported big contract wins.
Founder and CEO Eli Fruchter promised that, by the end of this year, he would unveil the new product line being developed in great secrecy in Kiryat Gat. According to Fruchter, this line will double the company's target market, and when it is unveiled there will already be design wins at customers. There are those who believe that the unveiling will take place at the Linley Tech Processor Conference in October. I think that there is a good chance that, by then, the share price will at least return to the $46 peak where it was not long ago.
Published by Globes [online], Israel business news - www.globes-online.com - on June 4, 2012
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