EZchip Technologies Ltd. (Nasdaq: EZCH) is readying its latest network processor as the company hopes to turn a profit, while rival Xelerated Inc. intends to use a new round of funding to strike at EZchip's big-name design wins.

EZChip's NP-4 chip, announced today, gets described with the phrase "100 Gbit/s," but that's meant to imply 10 lines of 10-Gbit/s Ethernet or 100 lines of Gigabit Ethernet -- not straight 100-Gbit/s Ethernet. The chip won't start shipping until next year. (See EZchip Announces the NP-4.)

The chip boosts density, with a particular eye on 40-Gbit/s linecards. Each of EZchip's current devices can support only 10 ports, so that a card for 40-Gigabit Ethernet lines requires four of the chips. To save that space and expense, the new chips got ratcheted up to 100-Gigabit Ethernet ports.

Gigabit Ethernet continues to be the driver for EZchip, CEO Eli Fruchter says. In fact, the company has begun openly describing its chips as carrier Ethernet devices, considering that's where its most important design wins have been. (See Ethernet Spurs Net Processors.)

Among network processor vendors, it's EZchip that's gotten the good buzz lately. Officials won't confirm it, but multiple industry rumors say the company has had design wins at Cisco Systems Inc. (Nasdaq: CSCO) and Juniper Networks Inc. (NYSE: JNPR), the big kahunas of the switch/router world. And the company has caught the eye of crystal-ball gazer George Gilder, who's become a cheerleader for LanOptics, EZchip's parent company. (See Juniper Makes Its Ethernet Move and That Gilder Touch.)

CEO Eli Fruchter is willing to say that EZchip has a couple of major OEMs signed up, adding that certain other big names aren't viable customers yet, because they develop their processors in-house -- a description that would seem to fit Alcatel-Lucent (NYSE: ALU).

Competitors aren't going to just roll over and give up, though. Other chipmakers targeting carrier Ethernet and 10-Gbit/s transport include Bay Microsystems Inc. , Broadcom Corp. (Nasdaq: BRCM) (through its acquisition of Sandburst), and Xelerated.

Xelerated, in particular, is gearing up for a fight. The startup raised $23 million in funding earlier this month, bringing its total to $71 million. The round, led by the Sixth Swedish National Pension Fund, is "a continuation of the other rounds" and didn't require any recapitalization, Xelerated CEO Johan Börje says. (See Xelerated Raises $23M.)

"In a relatively short time, we were able to put two term sheets on the table that were competing," he says. (The Swedish pension fund, by the way, is divided into different strands, the sixth being the risk-oriented one.)

Xelerated has announced some design wins during the past year, and some of those systems are beginning to ship in production volumes, Börje says. But most of the wins are coming from outside the United States. (See ZTE Picks Xelerated, Huawei Picks Xelerated, and Fujitsu Picks Xelerated.)

By beefing up its U.S. presence, Xelerated hopes to win more business in North America and will take its shot at displacing EZchip from some wins. "We have taken business in other platforms from EZchip when customers wanted to do cost reduction," Börje says.

EZchip isn't particularly scared. Fruchter points out that OEMs add their own software into designs that use a particular vendor's network processor -- and they'd have to redo that work if they switched vendors. "So, I think the chances are good they will continue to work with us," he says.

The problem facing both EZchip and Xelerated is that neither is profitable. EZchip -- whose earnings get divulged publicly through parent Lanoptics -- reported $3.9 million revenues for its most recent quarter, coupled with losses of $1.1 million. (See LanOptics Reports Q1.)

"They have some very significant design wins," says Bob Wheeler, an analyst with The Linley Group . "I have no doubt those will drive EZchip to profitability. It's just a question of when. The painful part for them is that it's taken so long for revenue to ramp."

Compared with EZchip, Xelerated is "about a year behind" in its sales progress, Wheeler says.

In a sense, Bay has both beat. The startup found a profitable niche in government sales, supplying high-end research equipment for the likes of the U.S. Naval Research Laboratory (NRL) . But Bay has spent a couple of years trying to translate that success into the commercial world. "They're making money, but they're very small," Wheeler says.

EZchip, by the way, is en route to becoming public. LanOptics, which owns 78 percent of the company, intends to eventually buy out EZchip's two remaining venture investors, Fruchter says. Then, LanOptics -- which doesn't have any businesses beyond owning EZchip stock -- would merge with EZchip to turn EZchip into a public company.

— Craig Matsumoto, West Coast Editor, Light Reading