EZchip Technologies Ltd. (Nasdaq: EZCH) has lowered its revenue expectations for the rest of the year, citing overstocked customer inventories and the overall downer economy.

The chip company said Wednesday morning that it now expects 2012 revenues to be lower than what it reported in 2011. The third quarter, in particular, will see a "significant" revenue drop compared with the second quarter, which ended in June, CEO Eli Frutchter said, in a statement.

Analysts polled by Thomson Reuters were expecting 2012 revenues of $68.6 million compared with 2011's $63.5 million.

For its second quarter, EZchip reported revenues of $15.8 million and net income of $5.6 million, or 19 cents per share. For its second quarter a year ago, EZchip had reported revenues of $17.3 million and net income of $4.8 million, or 17 cents per share.

Non-GAAP earnings of 29 cents per share beat the analysts' consensus of 26 cents.

EZchip shares were down $9.59 (25 percent) at $29.45 in midday trading.

Why this matters
EZchip's results usually hint at how certain Cisco Systems Inc. (Nasdaq: CSCO) and Juniper Networks Inc. (NYSE: JNPR) router lines are doing in terms of orders, since both companies use EZchip's network processors.

It's not a perfect indicator, but Wednesday's results suggest the router business is slow -- or, at the very least, that routers won't provide a quick pick-me-up in next quarter's results. (Cisco reports earnings next Wednesday, by the way.)

Lots of vendors have been giving tepid forecasts lately, citing cautious customer spending due to the uncertain economy. EZchip is just adding its voice to that chorus.

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— Craig Matsumoto, Managing Editor, Light Reading