Apple needs to find a way of using its cash mountain to restore investor confidence. Meanwhile, we can expect positive messages from SanDisk and EZchip.

11 February 13 17:40, Shlomi Cohen

Remember the fiscal cliff panic of late December? It turns out to have gone the way of the bug 2000 panic of December 1999. To date, our 'fall' from the cliff amounts to rises of 5.7% to 7.6% in the four leading indices, and the small cap stocks on the Russell 2000 index are giving the highest return. On Friday, this index hit an all-time high.

Apple (AAPL) was not invited to the party, and in the year to date it has yielded investors a negative return of 10%. It may be that the negative sentiment towards Apple turned around last week, thanks to David Einhorn, owner of the hedge fund that holds about a million Apple shares. Einhorn reminded everybody that Apple is sitting on a huge cash mountain of $137 billion, and proposed creative ways in which a substantial part of this mountain could be transferred to investors.

Einhorn explained seriously that under the leadership of Steve Jobs Apple's approach was that you could never have enough cash, and that you should accumulate more and more. He said that in his view this approach stemmed from the trauma of near bankruptcy that the company experienced several times in the distant past. At least in this respect, he hopes that Apple will finally part from the spirit of Jobs, and he says that CEO Tim Cook took an important independent step last year, when he began to pay a dividend, which currently gives an annual yield of 2.2%.

Tomorrow, Tim Cook will do something else small that Steve Jobs would certainly never have done, even when he was in good health: he will be the opening speaker at a large Goldman Sachs (GS) investor conference. This means that Apple's share price will continue to be very volatile this week too, because Cook will surely speak about sharing the cash mountain with the public. But there is no chance that he will disclose the two things that are critical for the Apple share as the year wears on: what they will launch, and when; and how bad the quarter to March, seasonally always the weakest, will really be.

About two hours after Cook, SanDisk Corporation (Nasdaq:SNDK) CEO Sanjay Mehrotra, who has managed to make Apple a large customer, will speak at the conference. He won't just talk about iPhones and iPads, but also about SSD drives for Mac computers, one of which was revealed recently on the MacRumors website.

SSD drives are an important growth engine for SanDisk in the coming years. In the March quarter, for example, in which sales will be seasonally low in comparison with the strong December quarter, there will be growth in SSD.

Further on investor conferences, Mellanox Technologies Ltd. (Nasdaq:MLNX; TASE:MLNX) CEO Eyal Waldman will be speaking today at the Barclays Big Data Conference, and at Pacific Crest's Emerging Technology Summit tomorrow. Last Thursday, at the Stifel Nicolaus Technology Conference, Waldman was asked whether Oracle (ORCL) would raise its stake in Mellanox beyond 10%, and revealed that he had a gentlemen's agreement with Oracle founder and CEO Larry Ellison whereby the stake will not be increased without Waldman's consent, and "up to now, he has abided by all his promises".

Waldman explained that Oracle's move in buying the shares in November 2010 stemmed from the fact that Mellanox's InfiniBand technology was a keystone of the Exa family of systems that Oracle was then designing. Today, he said, InfiniBand is a keystone for other giant companies. He reiterated his estimate that, despite the problematic start, 2013 too would be a year of growth, after sales shot up last year. On Wednesday, after the close, Cisco (CSCO) will report on its quarter to January, and, as usual, everyone will be attentive to what CEO John Chambers will have to say about global demand for telecommunications infrastructures, particularly in January, which came after the fiscal cliff alarm was over, and which has not been reported on by the other giants.

EZchip Semiconductor Ltd. (Nasdaq: EZCH; TASE:EZCH), which is very much dependent on Cisco as its biggest customer, will also report after the close on Wednesday. In my view, EZchip will meet the guidance it gave for the December quarter, of sales of at least $14 million, and there is room for cautious optimism about the guidance it will provide for the quarter to March. The strong momentum that started to build up at the end of last year in investment in fourth generation networks, LTE, should continue into the March quarter, and Cisco, as a major customer, should make more orders for EZchip processors via Marvell, mainly for its ASR 5500 platform for cellular network infrastructures.

Another EZchip customer, although much smaller, Ericsson (ERIC) has already reported a doubling of the number of contracts it has signed for its SSR 8000 platform, based on EZchip processors.

Published by Globes [online], Israel business news - www.globes-online.com - on February 11, 2013

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