EZchip Announces Record Second Quarter Revenues of $8 Million and Significant Growth in non-GAAP Profitability

Corporate Name Changed to EZchip Semiconductor Ltd.

YOKNEAM, Israel, August 4 /PRNewswire-FirstCall/ -- EZchip Semiconductor Ltd. (NASDAQ: EZCH) (formerly LanOptics Ltd.), a provider of network processors, today announced its results for the quarter ended June 30, 2008.

    Second Quarter 2008 Highlights:
    - Second quarter revenues increased 74% year-over-year and 15%
      sequentially
    - Gross margin for the quarter improved to 58.6% on a GAAP basis and
      66.3% on non-GAAP basis
    - Net loss for the quarter totaled $0.1 million on a GAAP basis
    - Non-GAAP net income for the quarter of $1.3 million
    - Delivered samples of the NP-3 Network Processor to customers
    - Changed company name from LanOptics Ltd. to EZchip Semiconductor Ltd.

Total revenues in the second quarter of 2008 were $8.0 million, an increase of 74% compared to $4.6 million in the second quarter of 2007, and an increase of 15% compared to $7.0 million in the first quarter of 2008.

Net results. On a GAAP basis, net loss for the second quarter of 2008 narrowed to $0.1 million, or $0.01 per share, compared to a net loss of $1.6 million, or $0.10 per share, in the second quarter of 2007, and a net loss of $6.3 million, or $0.28 per share, in the first quarter of 2008. Net income on a non-GAAP basis for the second quarter of 2008 grew to $1.3 million, or $0.05 per share (diluted), compared with a non-GAAP net loss of $0.1 million, or $0.01 per share, in the second quarter of 2007, and non-GAAP net income of $0.5 million, or $0.02 per share (diluted), in the first quarter of 2008.

Cash, cash equivalents and marketable securities as of June 30, 2008 totaled $44.1 million compared to $44.7 million as of March 31,2008. Cash was used in the quarter for general working capital requirements; mainly non recurring engineering (NRE) payments associated with the sampling of the NP-3 network processor and the continued progress of the NPA network processor.

"I am very pleased with our performance in the second quarter of 2008, which was another record quarter for the company," commented Eli Fruchter, CEO of EZchip. "We experienced a strong year-over-year and sequential ramp in revenues, primarily driven by demand for our NP-2 network processor. We also experienced a strong improvement in our gross margins, due to a favorable product and customer mix in the quarter, as well as initial royalty-related revenues. During the quarter, we also began shipping samples of our mainstream NP-3 network processor to customers. Based on our current test results, we expect to commence production of the chip in the near future. In addition, the recent change of our corporate name from LanOptics to EZchip Semiconductor is a milestone in our corporate history and concludes a long process of simplifying our corporate structure under the unified EZchip brand name."

Conference Call

The Company will be hosting a conference call today, August 4, 2008, at 10:00am ET, 07:00am PT, 03:00pm UK time and 05:00pm Israel time. On the call, management will review and discuss the results, and will be available to answer investor questions.

To participate through live webcast, please access our website: http://www.ezchip.com, at least 5 minutes before the conference call commences.

To participate through the dial-in, please call one of the following teleconferencing numbers. Please begin placing your call at least 10 minutes before the conference call commences. If you are unable to connect using the toll-free numbers, please try the international dial-in number.

    US Dial-in Number: 1-888-935-4577;
    International Dial-in Number : +1-718-354-1389;
    Israel Dial-in Number: 1-809-246-002

For those unable to listen to the live call, a replay of the call will be available the day after the call under the 'Investor Relations' section of the website.

Use of Non-GAAP Financial Information

In addition to disclosing financial results calculated in accordance with United States generally accepted accounting principles (GAAP), this release of operating results also contains non-GAAP financial measures, which we believes are the principal indicators of the operating and financial performance of its business. The non-GAAP financial measures exclude the effects of stock-based compensation charges recorded in accordance with SFAS 123R, amortization of purchased tangible and intangible assets, in-process research and development charge, amortization of discount on long-term loan and minority interest in loss of EZchip Technologies. Management believes the non-GAAP financial measures provided are useful to investors' understanding and assessment of our on-going core operations and prospects for the future, as the charges eliminated are not part of the day-to-day business or reflective of the core operational activities of the Company. Management uses these non-GAAP financial measures as a basis for strategic decisions, forecasting future results and evaluating the Company's current performance. However, such measures should not be considered in isolation or as substitutes for results prepared in accordance with GAAP. Reconciliation of the non-GAAP measures to the most comparable GAAP measures are provided in the schedules attached to this release.

About EZchip

EZchip is a fabless semiconductor company that provides Ethernet network processors for networking equipment. EZchip provides its customers with solutions that scale from 1-Gigabit to 100-Gigabits per second with a common architecture and software across all products. EZchip's network processors provide the flexibility and integration that enable triple-play data, voice and video services in systems that make up the new Carrier Ethernet networks. Flexibility and integration make EZchip's solutions ideal for building systems for a wide range of applications in telecom networks, enterprise backbones and data centers. For more information on our company, visit the web site at http://www.ezchip.com.

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements that are not historical facts and may include financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future operations, products and services, and statements regarding future performance. These statements are only predictions based on EZchip's current expectations and projections about future events. There are important factors that could cause EZchip's actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. Those factors include, but are not limited to, the impact of competitive products, product demand and market acceptance risks, customer order cancellations, reliance on key strategic alliances, fluctuations in operating results, delays in development of highly-complex products and other factors indicated in EZchip's filings with the Securities and Exchange Commission (SEC). For more details, refer to EZchip's SEC filings and the amendments thereto, including its Annual Report on Form 20-F filed on March 27, 2008 and its Current Reports on Form 6-K. EZchip undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or to changes in our expectations, except as may be required by law.

                               EZchip Semiconductor Ltd.

                    Condensed Consolidated Statements of Operations
                 (U.S. Dollars in thousands, except per share amounts)
                                      (Unaudited)

                                  Three Months Ended
                                        June  30,        March  31,          June  30,
                                                                2008                  2008                  2007

        Revenues                                  $  8,008            $  6,950            $  4,608
        Cost  of  revenues                      2,835                3,141                1,918
        Amortization
        of  purchased
        technology                                      479                    611                    258
        Gross  profit                              4,694                3,198                2,432

        Operating  expenses:
        Research  and
        development,  net                      3,341                2,958                2,630
        In-process  research
        and  development
        charge                                                --                5,125                      --
        Selling,  general
        and  administrative                  1,812                1,715                1,865
        Total  operating
        expenses                                      5,153                9,798                4,495

        Operating  loss                          (459)            (6,600)            (2,063)
        Financial  and
        other  income,  net                        318                    291                      35
        Loss  before
        minority  interest                    (141)            (6,309)            (2,028)
        Minority  interest
        in  loss  of  EZchip
        Technologies                                      8                      13                    391
        Net  loss                                    $(133)          $(6,296)          $(1,637)

        Net  loss  per  share              $(0.01)            $(0.28)            $(0.10)

        Weighted  average
        number  of  shares
        used  in  per  share
        calculation                      23,336,718      22,112,432      15,780,583






                                                                  EZchip  Semiconductor  Ltd.
                                                  Reconciliation  of  GAAP  to  Non-GAAP  Measures
                                      (U.S.  Dollars  in  thousands,  except  per  share  amounts)
                                                                              (Unaudited)

                                                                      Three  Months  Ended
                                                          June  30,      March  31,          June  30,
                                                                2008                2008                  2007

        GAAP  gross  profit                $  4,694          $  3,198            $  2,432
        Stock-based
        compensation                                    32                    20                      10
        Amortization  of
        purchased  tangible
        &  intangible
        assets                                              586                  963                    275

        Non-GAAP  gross
        profit                                      $  5,312          $  4,181            $  2,717

        GAAP  gross  profit
        as  percentage  of
        revenues                                      58.6%              46.0%                52.8%
        Non-GAAP  gross
        profit  as  percentage
        of  revenues                                66.3%              60.2%                59.0%

        GAAP  operating
        expenses                                  $  5,153          $  9,798            $  4,495
        Stock-based
        compensation:
        Research  and
        development                                (430)              (306)                (862)
        Selling,  general
        and  administration                  (299)              (234)                (683)
        Amortization  of
        purchased  intangible
        assets:
        In-process  research
        and  development  charge              --            (5,125)                      --
        Selling,  general
        and  administration                (120)                (118)                    (8)

        Non-GAAP  operating
        expenses                                $  4,304            $  4,015            $  2,942

        GAAP  operating  loss          $  (459)            (6,600)        $  (2,063)
        Non-GAAP  operating
        income/  (loss)                    $  1,008                $  166            $  (225)

        GAAP  net  loss                      $  (133)        $  (6,296)        $  (1,637)
        Stock-based
        compensation                                761                    560                1,556
        Amortization  of
        purchased  assets
        and  discount  on
        long-term  loan                            706                1,081                    345
        In-process  research
        and  development
        charge                                                                  5,125
        Minority  interest
        in  loss  of  EZchip
        Technologies                                (8)                  (13)                (391)

        Non-GAAP  net
        income/(loss)                      $  1,326                $  457            $  (127)

        Non-GAAP  net
        income/(loss)
        per  share  -
        Diluted                                    $  0.05              $  0.02          $  (0.01)
        Non-GAAP  weighted
        average  shares  -
        Diluted  *                        23,459,692      22,169,404      15,780,583

 


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