Why EZchip Semiconductor Shares Popped

Why EZchip Semiconductor Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of EZchip Semiconductor rose by more than 18% during intra-day trading Tuesday after a new product announcement from Cisco eased fears that EZchip's largest revenue stream was at risk.

So what: If you recall, shares of EZchip lost 19% two weeks ago following reports that Cisco, which accounts for nearly 40% of its business, had created a new nPower network processing unit which supposedly could have competed with the smaller company's own networking chips. In a press release this morning, Cisco introduced a product which uses the nPower X1 NPU, dubbed the Cisco Network Convergence System, or NCS.

After digging through Cisco's announcement, however, Feltl analyst Jeffrey Schreiner this morning reiterated his "Strong Buy" rating on EZchip, noting that while both Cisco's NCS and its CRS-X core router use the new nPower X1 NPU, "neither of these systems previously used, or were scheduled to use, EZCH's NPUs." Instead, Schreiner says, they believe the nPower X1 NPU "replaces prior internal CSCO design," so doesn't compete with current EZchip products.

Now what: Even though EZchip already issued a press release attempting to clarify the situation and ease concerns last week, today's affirmation understandably comes as welcome relief for nervous shareholders. As it stands, and with EZchip's growth story remaining intact, it's safe to say they'll be happy to get back to business as usual.

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The article Why EZchip Semiconductor Shares Popped originally appeared on Fool.com.

Fool contributor Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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