Comms chips

Capex Crunch Hits EZchip

Network processor developer EZchip saw its stock value decline more than 10% in midday trading today, as it became the latest vendor to warn of lower revenue in its current quarter amid weaker spending by carriers. In EZchip's case, it's seeing the effect in softer orders from its direct customers -- the network equipment vendors serving the carriers.

With its third-quarter earnings report due Nov. 12, EZchip Technologies Ltd. (Nasdaq: EZCH) adjusted its revenue guidance for the quarter downward from $22 million to $19 million. "In the third quarter of 2014 we have seen weakness in orders as well as inventory adjustments across most of our key customers that are serving the carrier networking space," EZchip CEO Eli Fruchter said in a statement.

Yet EZchip, like other vendors that have reported similar warnings, believes the unexpected dip will be short-lived. "Looking further out, carrier spending is forecasted to resume growth, and with it our corresponding sales into this market," Fruchter added. (See Lower Revenue in Europe Alters Adtran's Q3.)

Many industry analysts have noted that the main culprit in the lower spending across the sector is AT&T Inc. (NYSE: T), and that is assumed to be the case here, too. One of EZchip's major customers is Ciena Corp. (NYSE: CIEN), which in turn counts AT&T as a big customer. In its most recent earnings report last month, Ciena issued a soft revenue outlook for its current fiscal fourth quarter, which CEO Gary Smith, in an interview with Light Reading, said was due to AT&T's changing spending patterns. (See Ciena Ramps in Q3, Dampens Q4 Expectations and Ciena's Smith: Revenue Dip Short-Term.)

Along with EZchip's stock decline, Ciena and other EZchip customers, such as Cisco Systems Inc. (Nasdaq: CSCO) and Juniper Networks Inc. (NYSE: JNPR), saw their own stock prices dip today.

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For EZchip, the adjusted outlook comes as the company is developing NFV-related data center chips due next year, and is in the midst of acquiring fellow chip firm Tilera Corp. . Fruchter said the Tilera deal is still slated to close in the fourth quarter, pending regulatory approval. EZchip itself has been observed to be a potential acquisition target for Intel, which has mounted an effort -- via acquisition, investment and new products -- to assume a greater role in the network processor market. (See EZchip Strikes $130M Deal to Buy Tilera, Intel Invests $1.5B to Boost Its Mobile Assets and Intel ARMs Itself for IoT, SDN Opportunities.)

— Dan O'Shea, Managing Editor, Light Reading

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