EZchip Achieves Record Revenues of $10.7 Million in Third Quarter 2009

http://www.businesswire.com/news/home/20091029005430/en

YOKNEAM, Israel--(Business Wire)--
EZchip Semiconductor Ltd. (NASDAQ:EZCH), a provider of network processors, today
announced its results for the third quarter ended September 30, 2009.

Third Quarter 2009 Summary:

* Third quarter revenues increased 18% year-over-year and 60% sequentially,
reaching $10.7 million
* Gross margin for the quarter reached 67.5% on GAAP basis and 72.6% on non-GAAP
basis
* Net income for the quarter of $1.8 million (17% of revenues) on GAAP basis
* Net income for the quarter of $3.9 million (36% of revenues) on non-GAAP basis

* Cash increased by $5.2 million during the quarter; Net cash position, as of
end September 2009, totaled $60.6 million

Third Quarter 2009 Results:

Total revenues in the third quarter of 2009 were $10.7 million, an increase of
18% compared to $9.0 million in the third quarter of 2008, and an increase of
60% compared to $6.7 million in the second quarter of 2009.

Net income, on a GAAPbasis, for the third quarter of 2009 was $1.8 million, or
$0.07 per share (diluted), compared to net income of $0.8 million, or $0.03 per
share (diluted), in the third quarter of 2008, and a net loss of $0.7 million,
or $0.03 loss per share, in the second quarter of 2009.

Net income, on a non-GAAP basis, for the third quarter of 2009 was $3.9 million,
or $0.15 per share (diluted), compared to non-GAAP net income of $2.4 million,
or $0.09 per share (diluted), in the third quarter of 2008, and non-GAAP net
income of $1.2 million, or $0.05 per share (diluted), in the second quarter of
2009.

Cash, cash equivalents and marketable securities as of September 30, 2009,
totaled $60.6 million, compared to $55.4 million as of June 30, 2009. Cash
generated from operations during the third quarter was $4.9 million, cash
provided by financing activities was $0.2 million and an additional $0.1 million
resulted from unrealized gains in marketable securities.

First Nine Months 2009 Results:

Total revenues for the nine months ended September 30, 2009 totaled $27.2
million, a year over year increase of 13% compared to $24.0 million for the nine
months ended September 30, 2008. Net income on a GAAP basis for the nine months
ended September 30, 2009 was $2.5 million or $0.09 per share (diluted), compared
to a net loss of $5.6 million, or $0.25 loss per share for the nine months ended
September 30, 2008. Net income on a non-GAAP basis for the nine months ended
September 30, 2009 was $8.5 million or $0.33 per share (diluted), compared with
non-GAAP net income of $4.2 million, or $0.16 per share (diluted), for the nine
months ended September 30, 2008.

Eli Fruchter, CEO of EZchip commented, "This was a very strong third quarter for
EZchip with record revenues, profits and cash generation. Revenues from our
principal customer grew significantly this quarter and reached record levels.
Revenues from our other leading CESR customer, which has the potential to become
our largest customer over time, are not yet material. We are extremely pleased
that we were able to achieve our growth this quarter even before this customer
has started to ramp.

"We are also very pleased with the significant revenue growth resulting from our
other networking customers. We expect this group of customers to become a
significant growth driver as their NP-2 based products have reached volume
production, their NP-3 based products are moving into production and they are
now selecting the NPA and the NP-4 for their next generation products. These
customers grow our presence in other Carrier Ethernet segments, beyond CESR, and
we believe that we will benefit from the growth in these segments in the coming
years, growth that will eventually lead to a more diversified customer base.

"This quarter we also made progress in the development of our next generation
network processor, the NP-4, and remain on track for sampling before the end of
2009. Our NPA family of products, targeting the access market, is also
progressing as planned. We are currently in advanced laboratory testing, and we
expect to move into production in the first quarter of 2010.

"We believe we are on track for long term growth. We expect continued revenue
growth in the fourth quarter, both sequentially and year over year, and, based
on our initial indications, we expect to continue generating year over year
revenue growth in 2010."

Conference Call

The Company will be hosting a conference call today, October 29, 2009, at
10:00am ET, 7:00am PT, 2:00pm UK time and 4:00pm 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.

US Dial-in Number: 1 888 668 9141 UK Dial-in Number: 0 800 917 5108
International Dial-in Number (Israel): +972 3 918 0609 Israel Dial-in Number: 03 918 0609

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
Semiconductor 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
SFAS 123R, amortization of intangible assets, in-process research and
development charge 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 100-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 30, 2009 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.

-- FINANCIAL TABLES FOLLOW --

EZchip Semiconductor Ltd.
Condensed Consolidated Statements of Operations

(U.S. Dollars in thousands, except per share amounts)

(Unaudited)

Three Months Ended Nine Months Ended
Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
2009 2009 2008 2009 2008

Revenues $ 10,651 $ 6,673 $ 9,023 $ 27,172 $ 23,981
Cost of revenues 2,970 1,860 2,958 7,636 8,934
Amortization of purchased technology 496 497 496 1,489 1,586
Gross profit 7,185 4,316 5,569 18,047 13,461

Operating expenses:
Research and development, net 3,361 3,237 3,216 9,882 9,515
In-process research and development charge -- -- -- -- 5,125
Selling, general and administrative 2,150 2,028 1,973 6,316 5,500
Total operating expenses 5,511 5,265 5,189 16,198 20,140

Operating income (loss) 1,674 (949) 380 1,849 (6,679)
Financial income, net 232 213 396 721 1,005
Income (loss) before noncontrolling interest 1,906 (736) 776 2,570 (5,674)
Less: Net (income) loss attributable to noncontrolling interest (85) 25 16 (51) 37
Net income (loss) $ 1,821 $ (711) $ 792 $ 2,519 $ (5,637)

Net income (loss) per share:
Basic $ 0.08 $ (0.03) $ 0.03 $ 0.11 $ (0.25)
Diluted $ 0.07 $ (0.03) $ 0.03 $ 0.09 $ (0.25)
Weighted average shares used in per share calculation:
Basic 23,357,356 23,350,668 23,337,336 23,350,765 22,934,305
Diluted 23,363,095 23,350,668 23,400,877 23,364,395 22,934,305

EZchip Semiconductor Ltd.
Reconciliation of GAAP to Non-GAAP Measures

(U.S. Dollars in thousands, except per share amounts)

(Unaudited)

Three Months Ended Nine Months Ended
Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
2009 2009 2008 2009 2008

GAAP gross profit $ 7,185 $ 4,316 $ 5,569 $ 18,047 $ 13,461
Stock-based compensation 51 51 32 144 84
Amortization of purchased tangible & intangible assets 496 522 612 1,539 2,161

Non-GAAP gross profit $ 7,732 $ 4,889 $ 6,213 $ 19,730 $ 15,706

GAAP gross profit as percentage of revenues 67.5% 64.7% 61.7% 66.4% 56.1%
Non-GAAP gross profit as percentage of revenues 72.6% 73.3% 68.9% 72.6% 65.5%

GAAP operating expenses $ 5,511 $ 5,265 $ 5,189 $ 16,198 $ 20,140
Stock-based compensation:
Research and development (676) (674) (430) (2,042) (1,166)
Selling, general and administrative (543) (525) (431) (1,551) (964)
Amortization of purchased intangible assets:
In-process research and development charge -- -- -- -- (5,125)
Selling, general and administrative (210) (210) (118) (630) (356)

Non-GAAP operating expense $ 4,082 $ 3,856 $ 4,210 $ 11,975 $ 12,529

GAAP operating income/(loss) $ 1,674 $ (949) $ 380 $ 1,849 $ (6,679)

Non-GAAP operating income $ 3,650 $ 1,033 $ 2,003 $ 7,755 $ 3,177

GAAP net income/(loss) $ 1,821 $ (711) $ 792 $ 2,519 $ (5,637)
Stock-based compensation 1,270 1,250 893 3,737 2,214
Amortization of purchased assets 706 732 730 2,169 2,517
In-process research and development charge -- -- -- -- 5,125
Net income (loss) attributable to noncontrolling interest 85 (25) (16) 51 (37)

Non-GAAP net income $ 3,882 $ 1,246 $ 2,399 $ 8,476 $ 4,182

Non-GAAP net income per share - Diluted $ 0.15 $ 0.05 $ 0.09 $ 0.33 $ 0.16
Non-GAAP weighted average shares - Diluted* 23,467,558 23,477,245 23,547,840 23,452,991 23,022,404

* In calculating diluted non-GAAP net income per share, the diluted weighted average number of shares outstanding excludes the effects of stock-based compensation expenses in accordance with SFAS 123R.

EZchip Semiconductor Ltd.
Condensed Consolidated Balance Sheet

(U.S. Dollars in thousands)

September 30, December 31,
2009 2008
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:

Cash, cash equivalents and marketable securities $ 60,557 $ 48,115
Trade receivables, net 5,252 5,040
Other receivables 1,130 623
Inventories 2,159 3,884
Total current assets 69,098 57,662

LONG-TERM INVESTMENTS:
Prepaid development and production costs, net -- 50
Severance pay fund 3,944 3,148
Total long-term investments 3,944 3,198

PROPERTY AND EQUIPMENT, NET 214 273

Goodwill 96,276 96,276
Intangible assets, net 4,575 6,694

TOTAL ASSETS $ 174,107 $ 164,103

LIABILITIES AND EQUITY
CURRENT LIABILITIES:

Trade payables $ 406 $ 888
Other payables and accrued expenses 6,125 4,220
Total current liabilities 6,531 5,108

LONG TERM LIABILITIES:
Accrued severance pay 4,624 4,081

EQUITY:
Share capital 134 134
Additional paid-in capital 250,787 247,356
Accumulated other comprehensive income (loss) 746 (705)
Accumulated deficit (92,125) (94,644)
Noncontrolling interest * 3,410 2,773
Total equity 162,952 154,914

TOTAL LIABILITIES AND EQUITY $ 174,107 $ 164,103

* Due to initial application of SFAS 160 "Noncontrolling interests in Consolidated Financial Statements, an amendment of ARB No. 51".

CGK Investor Relations for EZchip
Ehud Helft / Fiona Darmon
Tel: (US) 1 646 797 2868 / 1 646 201 9246
info@gkir.com

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