Sept. 16--The same tune is being played again. While it is hard for Mellanox Technologies Ltd. (Nasdaq:MLNX) investors to take on board that the threatened competition from Intel (INTC) in Infiniband is at least eighteen months to two years away, the semiconductor company across the road from Mellanox in Yokne'am, EZchip Semiconductor Ltd. (Nasdaq: EZCH; TASE:EZCH), has shed about a quarter of its value in the last two sessions, because of threats of competition from another gorilla, Cisco (CSCO).
Before we get down to the substance of the threat from Cisco, I want to remind readers that there have always been threats from American gorillas to all outstanding Israeli niche companies that have developed unique technologies. It usually takes many years of growth and technological innovation before investors realize that the threat is chimerical. Giant companies, spread over many specialties, know that it's not so simple to beat an elite corps Israeli company focused on a goal in a specific niche.
Who doesn't remember the threats to Check Point Software Technologies Ltd. (Nasdaq: CHKP) from its first day as a public company, threats that grew and grew with every billion dollars the company added to its market cap, and at a certain point fell silent? In the spring of 1988, I attended a lecture by Steve Ballmer, then deputy to Microsoft (MSFT) CEO Bill Gates, who offered Check Point something like "cooperation or war", in response to which Check Point's share price plunged for a few days. Ballmer will soon be retiring, and Check Point is stronger than ever.
Last Thursday, Cisco announced that, on Tuesday, it would unveil the first generation of a new, powerful network processor of its own devising, intended to deal in the coming years with the trillions of network events that will be generated by the explosion of traffic in the Internet of Everything (IoE). Cisco estimates that, by 2020, there will be around 50 billion things of all kinds connected to the web, from smartphones and tablets, through cars and electricity, gas and water meters, to food and drink vending points, or for example tankers at sea identified by means of a wireless chip.
Cisco has not revealed for what platforms, existing or future, these new network processors are designed, nor for when, but it fairly spooked EZchip investors. This is because Cisco is EZchip's biggest customer, by a long way. If, for example, these processors are intended for Cisco's terminal routers, that is an immediate threat to EZchip's NPU processors. If they are intended for data storage centers, then they are potential rivals to the new processor that EZchip is developing in Kiryat Gat, the NPS.