A Tale of Two Networking Chips

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

It was the best of times; it was the worst of times. In this Dickensian tale, the good times are rolling for meganetworking experts in the enterprise sector while the poor and lonely belong in the consumer segment.

On Wednesday, hyperspeed network chip designer EZchip Semiconductor (Nasdaq: EZCH  ) released second-quarter earnings to standing ovations and an instant 16% share price jump. Sales increased by 16% year-over-year to $17 million and trickled down into 27% higher non-GAAP earnings. And if you thought that was good, management says that the real growth-boosting products are still two quarters away from full-scale production.

The company counts Cisco Systems (Nasdaq: CSCO  ) and Juniper Networks (NYSE: JNPR  ) among its largest customers. The networking giants may be out of favor and struggling in various ways, but that doesn't stop them from buying EZchip's ultrafast traffic-handler chips in record volumes.

After a tough July as EZchip's customers presented a parade of bad news, the stock has recovered and might start looking at fresh all-time highs again. At Thursday's opening bell, those record levels were just an 11% jump away.

By contrast, home networking specialist Entropic (Nasdaq: ENTR  ) is setting new 52-week lows every time I refresh the price quote. Last night's second-quarter report sent share prices down by 38% so far.

The maker of MoCA networking chips that let devices use your coaxial TV cables for high-quality networking purposes saw its share rise more than 300% in a single year before peaking. Since that fateful day in January, the drop back down has been just as steep as the upward climb.

Entropic's $61.5 million in revenue was a fair bit less than management guidance, mainly due to big-time customer Verizon (NYSE: VZ  ) seeing low demand for its MoCA-enabled FiOS service (what's the deal with that capitalization scheme?) and adjusting its inventories accordingly.

CEO Patrick Henry claims to like the MoCA market share he's grabbing, mostly from chief rival Broadcom (Nasdaq: BRCM  ) . And while sales and earnings missed projections, 51% revenue growth and double the earnings is nothing to sneeze at. But management concedes that, "visibility beyond the current quarter is pretty difficult" in this unpredictable economy.

So Entropic is doing objectively better on the consumer side than EZchip and its business-class products. But Entropic shares trade for about 2.3 times sales and 8 times EBITDA while EZchip commands 14 times sales and 35 times EBITDA.

Are investors reading too much into one company missing an arbitrary target while another hits it? Perhaps. But if management insists on playing the guidance game, they should also be able to back up their own projections.

Follow this dynamic chip duo from the comfort of your desk chair. Just click here to add Entropic to your Foolish watchlist, or here to keep an eye on EZchip.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. The Fool owns shares of and has created a bull call spread position on Cisco Systems. Motley Fool newsletter services have recommended buying shares of Cisco Systems. Motley Fool newsletter services have recommended shorting Juniper Networks. 

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. You can check out Anders' holdings and a concise bio, follow him on Twitter or Google+, or peruse our Foolish disclosure policy.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1533611, ~/Articles/ArticleHandler.aspx, 10/22/2016 5:00:41 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 7 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
ENTR.DL $0.00 Down +0.00 +0.00%
Entropic Communica… CAPS Rating: **
BRCM.DL $0.00 Down +0.00 +0.00%
Broadcom CAPS Rating: ****
CSCO $30.15 Down -0.01 -0.03%
Cisco Systems CAPS Rating: ****
EZCH.DL $0.00 Down +0.00 +0.00%
EZchip Semiconduct… CAPS Rating: ****
JNPR $23.13 Up +0.38 +1.67%
Juniper Networks CAPS Rating: **
VZ $48.20 Down -0.94 -1.91%
Verizon Communicat… CAPS Rating: ****