EZchip Concludes Record Year With 2010 Revenues Increasing 55% Year-Over-Year to $62 Million

YOKNEAM, Israel, Feb. 10, 2011 /PRNewswire/ -- EZchip Semiconductor Ltd. (Nasdaq: EZCH), a leader in Ethernet network processors, today announced its results for the fourth quarter and full year ended December 31, 2010.

Fourth Quarter and Full Year 2010 Highlights:

• Annual revenues for 2010 of $62.0 million, an increase of 55% year-over-year
• Fourth quarter revenues of $17.1 million, an increase of 33% year-over-year and 5% sequentially
• Fourth quarter gross margin reached 71.3% on a GAAP basis and 74.7% on a non-GAAP basis
• Net income, on a GAAP basis, was $4.0 million for the fourth quarter (which included utilization of a deferred tax asset of $2.3 million) and $13.6 million for 2010 (which included utilization of a deferred tax asset of $8.2 million)
• Net income, on a non-GAAP basis, was $8.6 million  for the fourth quarter (50% of revenues) and $30.4 million for 2010 (49% of revenues), a year-over-year increase of 55% and 117%, respectively
• Operating cash flow was $5.5 million for the quarter and $25.6 million for 2010
• End of 2010 net cash was $101.3 million  

Fourth Quarter 2010 Results:

Total revenues in the fourth quarter of 2010 were $17.1 million, an increase of 33% compared to $12.9 million in the fourth quarter of 2009, and an increase of 5% compared to $16.4 million in the third quarter of 2010.

Net income, on a GAAP basis, for the fourth quarter of 2010 was $4.0 million (which included utilization of a deferred tax asset of $2.3 million), or $0.15 per share (diluted), compared to net income of $14.9 million (which included a tax benefit of $11.7 million), or $0.58 per share (diluted), in the fourth quarter of 2009, and net income of $4.5 million (which included utilization of a deferred tax asset of $2.0 million), or $0.17 per share (diluted), in the third quarter of 2010.

Net income, on a non-GAAP basis, for the fourth quarter of 2010 was $8.6 million, or $0.31 per share (diluted), compared to non-GAAP net income of $5.5 million, or $0.22 per share (diluted), in the fourth quarter of 2009, and non-GAAP net income of $8.7 million, or $0.32 per share (diluted), in the third quarter of 2010.

Cash, cash equivalents and marketable securities as of December 31, 2010, totaled $101.3 million, compared to $93.1 million as of September 30, 2010. Cash generated from operations during the fourth quarter was $5.5 million, cash used in investing activities was $0.1 million, cash provided by financing activities (resulting from the exercise of options) was $2.9 million and a decrease of $0.1 million resulted from unrealized loss on marketable securities.

Full Year 2010 Results:

Total revenues for the year ended December 31, 2010 were $62.0 million, a 55% increase compared to $40.0 million in 2009.

Net income on a GAAP basis for 2010 was $13.6 million (which included utilization of a deferred tax asset of $8.2 million), or $0.52 per share (diluted), compared to net income of $17.4 million (which included a tax benefit of $11.7 million), or $0.66 per share (diluted), in 2009.  

Net income on a non-GAAP basis for 2010 was $30.4 million, or $1.14 per share (diluted),   compared with non-GAAP net income of $14.0 million, or $0.54 per share (diluted), in 2009.

Eli Fruchter, CEO of EZchip, commented, "2010 was a year of progress and achievement for EZchip both on the financial and business fronts. On the financial front revenues grew 55% year-over-year to $62 million and our non-GAAP net income grew 111% to over $30 million. Consequently, in 2010 we generated net cash of $34 million with approximately $26 million generated from operations, ending 2010 with over $101 million in cash and cash equivalents, and no debt."

"On the business front, during 2010 we continued to make substantial progress with our next generation network processors. NP-4 has already garnered design wins from the vast majority of high volume CESR platforms that use high speed merchant NPUs, and we believe NP-4 represents a revenue opportunity that is four times the size of our NP-2 and NP-3 opportunity combined. Our NPA access network processors moved to production and we began shipping production parts during the fourth quarter. Our NP-5 has won its first design wins with tier-1 OEMs and our goal is to develop NP-5 to be as successful as the NP-4 and to ensure continued growth for several more years."  

"Looking ahead, we believe we have the products, customers and leading market position to continue to grow our business in 2011 and beyond.  In the short term, we expect to see a single-digit decline in revenues in the first quarter of 2011 compared to the first quarter of 2010, as we see inventory adjustments from several customers. We believe that growth will resume in the second quarter of 2011, and increase significantly in the second half of 2011 when the NP-3 based systems continue to ramp and the NP-4 based systems enter production."

Conference Call

The Company will be hosting a conference call later today, February 10, 2011, at 10:00am ET, 7:00am PT, 3:00pm UK time and 5:00pm 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 the corporate website, http://www.ezchip.com, at least 10 minutes before the conference call commences.

To participate through dial-in, please call one of the following teleconferencing numbers. Please begin placing your calls at least 15 minutes before the conference call commences. If you are unable to connect using the toll-free numbers, please try the international dial-in number.

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 EZchip 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 expenses recorded in accordance with ASC 718 (originally issued as SFAS 123R), amortization of intangible assets, benefit from (provision for) taxes on income, and net loss (income) attributable to noncontrolling interest.  Management believes the non-GAAP financial measures provided are useful to investors' understanding and assessment of the Company's 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 200-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 general economic conditions, 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 25, 2010 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.

SOURCE EZchip Semiconductor Ltd.