EZchip Semiconductor (NASDAQ: EZCH) reported Q1 EPS of $0.24, $0.01 better than the analyst estimate of $0.23. Revenue for the quarter came in at $26.9 million versus the consensus estimate of $26.5 million.

Status of NPS Adoption by Major Customers

With respect to EZchip’s largest customer and that customer’s plans for next generation line cards used in its routing platform, we are updating that EZchip’s NPS-400 is currently not the plan of record for that customer’s next generation line cards. This customer’s routing platform has recently begun production shipments with EZchip’s NP-5 network processor, and based upon our current information, we do not believe a next generation successor for the NP-5 is likely to ship for approximately three years.

We believe our customer’s next generation line cards will require the NP-5 successor to provide higher throughput than the NPS-400 and that the customer is currently developing such a solution in-house. In parallel EZchip is also developing its successor to the NPS-400 with higher throughput that is expected to be available at the same time frame.

Based on our experience in prior NPU generations, each NPU generation serves a customer’s platform for approximately three years before the next generation NPU arrives, and then over time, begins to take the leading position in customer shipments. Accordingly, if our largest customer does not change its current plan to use an in-house solution for the NP-5 successor, EZchip’s revenues from sales to that customer are expected to start being affected only after this three year period elapses, which is the timeframe estimated to develop a new chip, bring it to production, and start gradual replacement of the NP-5. We believe the NP-5 will continue generating revenues at this customer for several more years beyond this three year period.

It should be noted that the NPS-400 is being considered for other substantial platforms at this same customer. Further, the NPS-400 is currently under consideration across a broad base of customers, including multiple Tier-1 customers, who are awaiting NPS samples during the second half of 2015 in order to become confirmed design wins for a variety of platforms and applications, in carrier networks, large data centers and networking appliances.

Eli Fruchter, CEO of EZchip, commented,

“The first quarter of 2015 was a record quarter for revenues for EZchip with yet another strong quarter ahead of us. We view this as a significant achievement considering the soft carrier spending environment”, said Eli Fruchter, CEO of EZchip. “EZchip’s revenues remain poised to see further growth in the coming years in light of the significant adoption of NP-5 by customers, including at our largest routing customer, combined with the higher ASP for NP-5, as well as the revenues from NPS expected to begin in 2016.

“As we estimate it may be three years before an NP-5 successor becomes available at our largest customer through internally developed silicon, there is ample time for EZchip to complete our development of the NPS-400 successor, the NPS-1000, a 1-Terabit throughput NPU (2.5x faster than the NPS-400). The NPS-1000 is currently under development, and we believe it may be possible to sample within our current largest customer’s expected product development cycle and exceed the required throughput for its next generation line cards. NPS-1000 could then potentially lead to an opportunity to reengage our current largest customer regarding its choice to use internally developed silicon.

“As for the NPS-400, it is important to note that several Tier-1 service providers and data center operators, as well as Tier-1 networking vendors, have already selected the NPS-400 and at this time are waiting for the NPS-400 to sample in order to start their product designs, transitioning towards confirmed design wins. We hope to be able to report future design win traction shortly after the NPS-400 tapes out during the third quarter, with samples during the fourth quarter.

“In addition, our upcoming TILE-Mx multicore CPU furthers our push into new and expanding multicore opportunities. We believe that both the NPS-400 and the TILE-Mx favorably position EZchip to become a key processor supplier to address the new SDN/NFV market dynamics, selling not only to equipment vendors, but also directly to the large service providers and data center operators, and expanding our TAM six fold to an estimated $2.2B by 2017”, added Mr. Fruchter.

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