Significant sequential revenue decline expected in the third quarter with 2012 revenues likely to decline year-over-year

EZchip Semiconductor Ltd. (NASDAQ: EZCH), a leader in Ethernet network processors, today announced its results for the second quarter ended June 30, 2012.

Second Quarter 2012 Highlights:

• Second quarter revenues of $15.8 million
• Gross margin reached 81.7% on a GAAP basis and 82.2% on a non-GAAP basis
• Net income was $5.6 million on a GAAP basis, 35% of revenues
• Net income was $8.4 million on a non-GAAP basis, 53% of revenues
• Operating cash flow of $9.1 million
• End of quarter net cash was $153.8 million

Second Quarter 2012 Results:

Total revenues in the second quarter of 2012 were $15.8 million, a decrease of 9% compared to $17.3 million in the second quarter of 2011, and an increase of 10% compared to $14.4 million in the first quarter of 2012.

Net income, on a GAAPbasis, for the second quarter of 2012 was $5.6 million, or $0.19 per share (diluted), compared to net income of $4.8 million, or $0.17 per share (diluted), in the second quarter of 2011, and net income of $5.1 million, or $0.18 per share (diluted), in the first quarter of 2012.

Net income, on a non-GAAP basis, for the second quarter of 2012 was $8.4 million, or $0.29 per share (diluted), compared to non-GAAP net income of $9.4 million, or $0.33 per share (diluted), in the second quarter of 2011, and non-GAAP net income of $7.8 million, or $0.27 per share (diluted), in the first quarter of 2012.

Cash, cash equivalents, marketable securities and deposits as of June 30, 2012, totaled $153.8 million, compared to $145.2 million as of March 31, 2012. Cash generated from operations during the second quarter was $9.1 million, cash used in investing activities was $0.8 million and cash provided by financing activities (resulting from the exercise of options) was $0.3 million.

First Six Months 2012 Results

Total revenues for the six months ended June 30, 2012 were $30.2 million, a year-over-year decrease of 1% compared to $30.5 million for the six months ended June 30, 2011. Net income on a GAAP basis for the six months ended June 30, 2012 was $10.7 million, or $0.37 per share (diluted), compared to net income of $6.2 million, or $0.22 per share (diluted), for the six months ended June 30, 2011. Net income on a non-GAAP basis for the six months ended June 30, 2012 was $16.2 million or $0.55 per share (diluted), compared with non-GAAP net income of $14.8 million, or $0.52 per share (diluted), for the six months ended June 30, 2011.

Eli Fruchter, CEO of EZchip, commented, "In the second quarter of 2012 we continued to make progress in the marketplace. Cisco moved a second NP-4 based platform to production and ZTE became our second largest customer with strong NP-3 based purchases and a significant increase in initial production shipments of NP-4 based systems, and has started NP-5 designs. Our other NP-4 customers are still at the design phase with NP-4 and are still using the large amounts of samples they purchased last year to complete their systems testing and move to production. We believe that it might take these customers a longer time to go to production than we originally anticipated, partially because they are new to our technology and need more time for software development but also due to the global economy worries that slow up carriers CAPEX and which are likely to remain low during the second half of 2012. We believe this environment allows our new NP-4 based customers not to rush their next generation systems and continue to sell their older systems.

Revenues in the second half of 2012, as a result, are expected to be lower than initially anticipated with a significant sequential decline in the third quarter and with 2012 revenues likely to decline year-over-year.  However, we continue to believe in our long-term, strong growth potential and are now expecting the revenue ramp to start in 2013.

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.  We continue to believe that all our NP-4 customers will move to production until the end of the year, carriers to increase spending, the growth in edge routing to resume, and our leadership in high speed network processors to advance."

Conference Call

The Company will be hosting a conference call later today, August 8, 2012, 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 the live webcast, please access the investor relations section of the Company's web site at: http://www.ezchip.com/investor_relations.htm, at least 10 minutes before the conference call commences. If you would like to ask a question on the call, please contact the investor relations team for the telephone dial in numbers.

For those unable to listen to the live webcast, a replay of the webcast 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 FASB ASC 718, amortization of intangible assets and taxes on income.  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 .