EZchip (EZCH) Slumps Following Negative Article (BRCM) (MRVL)
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EZchip Semiconductor (Nasdaq: EZCH) is bouncing off of intra-session lows Monday following a negative article put out by Ferrisdale Capital earlier.
Ferrisdale thinks EZchip's P/E multiple of 32.5 times is "surprising" given the company's lack of ability to grow. Before 2012, the firm argues, EZchip had little competition in its core Network Processing Unit (NPU) business. However, entrants like Marvell Technologies (MRVL), which entered the NPU segment following the January 2012 acquisition of Xelerated.
The largest competitive risk comes in the form of Broadcom (Nasdaq: BRCM), Ferrisdale noted. The firm stated, "through its acquisition of NetLogic in 2011, high-end semiconductors have become a strategic priority for BRCM. In April 2012, Broadcom introduced a full-duplex 100Gb (i.e. 200Gb/s) NPU, pitting EZchip’s upcoming NP-5 in direct competition with an industry leader. While EZchip touts its 200Gb/s headline figure for the NP-5, the chip is merely a full-duplex (two-way) 100Gb/s device, giving it the exact same bandwidth as Broadcom’s chip. Another critique of BRCM’s NPU is that it lacks an integrated traffic management system (“TCAM”). This argument overlooks the fact that Broadcom can add traffic management and other functionality into the Ethernet switch component, a product line that Broadcom alsomanufactures. But most troublingly for EZCH’s investors, Broadcom now produces each of the individual components of the line card (TCAM, NPU, multi-core processor, etc.), allowing them to write software that transcends across individual components."
Ferrisdale also sees the Street overvaluing EZchip with an average price target of $35. The firm thinks a 35 percent to 40 percent EBITDA margin coupled with a multiple of six times to eight times produces a valuation range of $14 to $17.
Given the above statements and more, Ferrisdale said it was short EZchip, but didn't specify how many shares or the total dollar amount.
To read more form Ferrisdale's blog, click here.
Shares of EZchip are down 2.5 percent after being about 8.4 percent lower early.
Ferrisdale thinks EZchip's P/E multiple of 32.5 times is "surprising" given the company's lack of ability to grow. Before 2012, the firm argues, EZchip had little competition in its core Network Processing Unit (NPU) business. However, entrants like Marvell Technologies (MRVL), which entered the NPU segment following the January 2012 acquisition of Xelerated.
The largest competitive risk comes in the form of Broadcom (Nasdaq: BRCM), Ferrisdale noted. The firm stated, "through its acquisition of NetLogic in 2011, high-end semiconductors have become a strategic priority for BRCM. In April 2012, Broadcom introduced a full-duplex 100Gb (i.e. 200Gb/s) NPU, pitting EZchip’s upcoming NP-5 in direct competition with an industry leader. While EZchip touts its 200Gb/s headline figure for the NP-5, the chip is merely a full-duplex (two-way) 100Gb/s device, giving it the exact same bandwidth as Broadcom’s chip. Another critique of BRCM’s NPU is that it lacks an integrated traffic management system (“TCAM”). This argument overlooks the fact that Broadcom can add traffic management and other functionality into the Ethernet switch component, a product line that Broadcom alsomanufactures. But most troublingly for EZCH’s investors, Broadcom now produces each of the individual components of the line card (TCAM, NPU, multi-core processor, etc.), allowing them to write software that transcends across individual components."
Ferrisdale also sees the Street overvaluing EZchip with an average price target of $35. The firm thinks a 35 percent to 40 percent EBITDA margin coupled with a multiple of six times to eight times produces a valuation range of $14 to $17.
Given the above statements and more, Ferrisdale said it was short EZchip, but didn't specify how many shares or the total dollar amount.
To read more form Ferrisdale's blog, click here.
Shares of EZchip are down 2.5 percent after being about 8.4 percent lower early.
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