SAN JOSE, Calif. - Is EZchip Semiconductor Ltd. a takeover target?
EZchip is a supplier of network processors. ''We believe EZchip is a likely acquisition target for a handful of communication IC companies,'' said Gary Mobley, an analyst with The Benchmark Company, in a report. ''In particular, we believe EZchip is a logical fit with Marvell. Marvell is earning a very low interest rate on its $2.7 billion in cash. Given EZchip's profitability and the minimal amount of interest income Marvell would forgo, we believe Marvell could pay $43/share for EZchip and still drive accretion on a non-GAAP basis.''
Yokneam, Israel-based EZchip recently announced its results for the fourth quarter and full year ended Dec. 31, 2010. Total revenues in the fourth quarter of 2010 were $17.1 million, an increase of 33 percent compared to $12.9 million in the fourth quarter of 2009, and an increase of 5 percent compared to $16.4 million in the third quarter of 2010.
Net income, on a GAAP basis, for the fourth quarter of 2010 was $4.0 million, or $0.15 per share, compared to net income of $14.9 million, or $0.58 per share, in the fourth quarter of 2009, and net income of $4.5 million, or $0.17 per share, in the third quarter of 2010.
''The company's shares have corrected recently due to inventory rebalancing at key customers such as Cisco/Marvell and ZTE. In addition, the market has grown concerned about the rate at which EZchip's sales to Juniper will decline,'' said Mobley.
Marvell itself is seeing mixed results in the market. ''Due primarily to challenging PC build rates during January, we believe Marvell will report Q4 revenue toward the low end of management's guidance range ($900 million to $950 million, or down 1 percent to 6 percent q/q). Accordingly, we are tweaking down our revenue estimates for Q4 FY11 as well as FY12,'' he said.
''Marvell's shares have underperformed the broader chip group based on several investor concerns including: 1) the company's PC and HDD exposure, 2) the fact that RIMM is Marvell's largest communication processor customer and investors' belief that RIMM is falling behind in smart phones, and 3) the belief Marvell's Armada application processor family is falling behind competition (e.g. TI's OMAP and Nvidia's Tegra),'' he said. ''We, however, believe investors need to give Marvell more credit for HDD market share gains, key Armada design wins and growth potential for the company's PXA sales in China.''
An acquisition would be worth considering a year or two ago. And I think it would have been perhaps Intel, Qualcomm, or TI trying to buy Marvell given the low P/E ratio, healthy income stream, and no debt.
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