Why EZchip Shares Tanked

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 fabless semiconductor company EZchip Semiconductor (Nasdaq: EZCH  ) plummeted 25% on Wednesday after issuing particularly disappointing guidance.

So what: EZchip's second-quarter results managed to top estimates -- adjusted EPS of $0.29 versus the consensus of $0.26 -- but downbeat short-term guidance is forcing analysts to lower their price targets on the stock. Management said that carriers are likely to keep capital expenditures low in the second half of 2012 amid the weak global economy, giving short-term-oriented investors little reason to stick around.

Now what: For the full year, management expects revenues to decline significantly year over year from $63.5 million, versus Wall Street's view of $69.1 million. "We continue to believe in our long-term, strong growth potential and are now expecting the revenue ramp to start in 2013," CEO Eli Fruchter reassured investors. "It is a very disappointing short term guidance that delays our expected revenue ramp, but we believe it is just a delay that does not change our long term view." With the stock hitting a 52-week low today, now might be an opportune time for patient Fools to buy into that bullishness.  

Interested in more info on EZchip? Add it to your watchlist.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.

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