Cisco Systems, Inc. (CSCO): Is EZchip Semiconductor Ltd. (EZCH) Destined for Greatness?

Cisco Systems, Inc. (NASDAQ:CSCO) has previously developed its own internal processor called “QuantumFlow,” which could provide a rough roadmap to EZChip’s future — this processor hasn’t been utilized alongside the products provided by EZChip. However, EZChip has been making significant improvements in its chip designs, which should be be capable of handling higher levels of throughput than first-gen nPower processors. It will also serve different layers than the nPower, according to Feltl analyst Jeffrey Schreiner.

However, Cisco Systems, Inc. (NASDAQ:CSCO) isn’t the only major networking equipment providers to fabricate its own chips. Companie such as Huawei Technologies and Alcatel Lucent SA (ADR) (NYSE:ALU) have switched to in-house production of network processors. According to Eli Research, Huawei is planning to offer a low-end networking processor compared to EZChip’s NP-4 NPU, which may seize some of EZChip’s market share. Alcatel Lucent SA (ADR) (NYSE:ALU) has already been competing with EZChip for years, as the two companies each rolled out high-end network processors two years ago. If Cisco makes the switch, EZChip will have few remaining customers. Juniper Networks, Inc. (NYSE:JNPR) was the earliest in the group of powerful networking hardware companies that are now producing in-house chips, as it began the shift back in 2009. These four are the ruling body of the routers-and-switches market — Cisco alone comprises roughly 40% of that segment by revenue, and Alcatel Lucent SA (ADR) (NYSE:ALU), Huawei, and Juniper Networks, Inc. (NYSE:JNPR) add up to over 40% more, leaving roughly 20% for EZChip — at best. That’s not much of a market to grow in.

Putting the pieces together
Today, EZchip Semiconductor Ltd. (NASDAQ:EZCH) has few of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy — or to stay away from a stock that’s going nowhere.

The article Is EZChip Semiconductor Destined for Greatness? originally appeared on Fool.com and is written by Alex Planes.

Fool contributor Alex Planes has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems.

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