Cisco decision pushed EZchip to look for potential buyers
8 November, 2015
EZchip: "History with Juniper suggests winning Cisco back will be very difficult due to its software investments around in-house ASIC"
EZchip: “History with Juniper suggests winning Cisco back will be very difficult due to its software investments around in-house ASIC”
Cisco decision earlier this year to develop its own network processor in house, was one of the main considerations that pushed EZchip to go to market and look for potential buyers. This fact came to light following a struggle to approve the $811 million merger agreement with Mellanox Technologies. During the Annual General Meeting of EZchip’s shareholders, this week, it will be decided weather the network communication chips firm from Yoqneam, Israel, will be sold to Mellanox Technologies or will continue to be independent chip maker.
The agreement between the 2 companies came as a surprise, and brought an opposition from some investors, mainly Raging Capital Management, one of the largest shareholders of EZchip Semiconductor owning approximately 6.7% of the ordinary shares. “EZchip is a great company with significant growth potential and Mellanox is poised to reap the significant upside of EZchip if the merger is approved,” the fund wrote to shareholders.
But the management’s answer to this challenge reveals the true nature of the the tough competition in this market, and why a successful chip maker such as EZchip, must sell itself to bigger companies: “EZchip has become the clear leader in network processors (NPU), but NPUs represent a small addressable market ($367 million market in 2014) in which the largest target routing customers are moving to develop NPUs in house:
“Juniper in 2009 (largest customer at that time), Huawei in 2012 and most recently Cisco in 2015 (~35% EZchip revenue in 1H 2015) decided to go in-house for NPU functionality. History with Juniper suggests winning Cisco back will be very difficult due to its software investments around in-house ASIC. With Alcatel-Lucent that always developed NPUs in house, these are the four largest routing vendors and EZchip’s largest potential customers.”
“EZchip’s next generation NPS leapfrogs the competition, but must win high volume white box router designs in data centers to offset the loss of the traditional routing vendors: With its NPS product line, EZchip has won three tier-1 data center customers; however, it is not clear what revenue these design wins will translate to or when.
“It is possible that by the time NPS-400 reaches volume production (projected in 2017) there will be other third party chips that are not NPUs, but will provide simpler and lower cost routing solutions for white boxes, which could significantly reduce the addressable market for the NPS-400.
“Tilera acquisition enabled EZchip to enter the multi-core space and expand its addressable market (~$1.3 billion estimate for 2017), but in contrast to the NPU market, where EZchip was able to create a niche for itself, the multi-core space is crowded with well-capitalized, large scale competitors (including Avago/Broadcom, Intel/Altera, NXP/Freescale), and EZchip’s next generation multi-core CPU is not expected to be in production until 2018.”