Globes, Tel Aviv, Israel, Shlomi Cohen column [Globes, Tel Aviv, Israel]
(Globes (Tel Aviv) Via Acquire Media NewsEdge) May 07--A week crowded with events in the technology sector lies ahead. On Wednesday, after the close, Cisco (CSCO) will open the reporting season for companies with quarters ending in April. A few hours before that, IBM will hold its annual analysts day, the first with new CEO Virginia Rometty. The following day, Thursday, a third gorilla, Intel (INTC), will also hold its annual analysts day. From all three we will hear a great deal about one subject they have in common: accelerated investment in storage centers for cloud computing.
In the Israeli context, I hold three companies in my portfolio here that are enjoying strong business momentum, each of which in its own field sells, or hopes to sell, to one of the abovementioned gorillas.
The first is EZchip Semiconductor Ltd. (Nasdaq: EZCH; TASE:EZCH), which will report on Wednesday, a few hours before Cisco, on results for the quarter to March that in my view will be a little better than expected. EZchip is likely to provide strong guidance, above the estimates, for the second quarter, on the basis of faster sales by Cisco of routers to fixed-line and mobile telecommunications providers, which are expanding their bandwidth in line with the massive growth in video transmissions on the networks.
Deepening ties with IBM
The second Israeli company is Radware Ltd. (Nasdaq: RDWR), which is deepening its ties with IBM. Eighteen months ago, Radware's share price soared to over $40, on the basis of a rumor that it was about to be bought, and IBM was spoken of as one of two companies that had made bids. Last week's announcement that Radware is providing solutions for IBM's "SmartCloud" platform is the first official indication that there are close ties between the two companies that go some way back, strengthening the credibility of the September 2010 rumor.
In my view, without an acquisition, the share price will shortly cross the $43 threshold, the peak it reached a year ago on the basis of the acquisition rumor. This assessment is based on the strong results and guidance that Radware published last week, in addition to the agreements it has with IBM and Juniper Networks, and also on its outstanding security solutions for preventing hacking. These solutions are starting to gain momentum on social networks and at payment platform providers.
Analysts and large investment institutions get excited about market leader F5 (FFIV), and pretty much ignore Radware, which, since it bought Alteon from Nortel in early 2009, has seen its share price rise by a factor of eight from a low of $5.
I think that there will shortly be a switch in the attitude to Radware on the capital market, because of the deepening ties with IBM, earnings and sales multiples that are considerably lower than F5's, and the fact that nearly 30 percent of the company's market cap is represented by cash, with no debt, which compares with an corresponding figure of only 10 percent for F5.
Still not selling to Intel
The third Israeli company is Nova Measuring Instruments Ltd. (Nasdaq:NVMI; TASE:NVMI), which produces inspection equipment for the semiconductor manufacturing industry. Unlike the two previous Israeli companies, Nova has yet to penetrate the gorilla of its sector, Intel, the world's largest investor in semiconductor manufacturing equipment. The strong results and guidance that Nova released last week show that it is prospering even without Intel, and, in particular, it is one of the big winners from this year's shortage of 28 nano production lines.
These are production lines for the most advanced processors in existence from the point of view of performance and energy saving, for smartphones and tablet computers, chiefly for Qualcomm (QCOM), on which the big manufacturers rely, Apple (AAPL) being chief among them.
When Apple said in its last financials that if it had had more iPads of the new generation it would have sold them all, what it meant to say was that there is a shortage of Qualcomm processors. There are those who believe that the shortage is causing a postponement of the launch of the new iPhone, ceding a big advantage to Samsung, which will start to sell its new Galaxy telephone at the end of this month.
Another, small example of the victims of the shortage is momentum stock InvenSense (INVN), which collapsed by nearly a quarter on Friday, after disappointing with its guidance. That didn't happen because of lack of demand for its gyroscope processors, which, among other places, are in the new Galaxy, but because the shortage of 28 nano production lines prevents the sale of many gadgets in which those processors are supposed to be.
Among the small equipment makers, Nova stands to gain from the shortage, because its customers, chiefly the world's largest chip manufacturing sub-contractor TSMC (TSM) of Taiwan, which among others sub-contracts for Qualcomm, are working around the clock to solve the shortage. They are doing so by beefing up the production lines, and these are lines that require metrology solutions beyond the regular ones. According to UBS, a few weeks ago, Nova received a $17 million order from TSMC, which enabled it to provide higher than expected guidance.
(c)2012 the Globes (Tel Aviv, Israel)
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