EZchip Lands $13M and MoreEZchip Lands $13M and More

While many network-processor startups are flickering like faulty Christmas lights, it appears EZchip Technologies will shine on for at least another twelvemonth, as the company today announced it has landed enough funding to last through the coming year (see EZchip Snags $24.5M ).

The $24.5 million package includes $13.5 million up front, $8 million to come "later," and a $3 million line of credit. Only extant EZchip investors participated in the round: Goldman Sachs & Co., JK&B Capital, Star Ventures, Tamar Investments, and LanOptics Ltd. (Nasdaq: LNOP), which owns 66 percent of EZchip (see LanOptics Ups EZchip Stake).

"Under worst-case conditions, this is enough to get us to profitability," which should come "sometime in 2004, depending on how well the market recovers," says Eli Fruchter, EZchip's CEO.

The funding is key, given the shaky environment for startups -- particularly those related to network processors, who find themselves up against such established names as Intel Corp. (Nasdaq: INTC) and Applied Micro Circuits Corp. (AMCC) (Nasdaq: AMCC). Equipment makers are frequently more comfortable working with those names than with a startup whose future is uncertain.

"The few times we did not win were because customers wanted to take the safe choice," Fruchter says.

Customers are still in the tire-kicking stage with the company's NP-1 network processor, but they've at least started paying for it. EZchip has 14 paying customers -- giving the company "several hundred thousand dollars" in revenues for this year -- and "several of them" will bring systems to market in the first half of 2003, Fruchter says. None have been announced, save China's ZTE Corp. (see ZTE Picks EZchip).

Fourteen might seem like a low number, but EZchip is targeting 10-Gbit/s line speeds, a market that's faded as equipment makers emphasize speeds of 2.5 Gbit/s and below. Even so, EZchip continues to insist that 10-Gig is a viable market, albeit smaller than what the company envisioned.

Now in volume production, the NP-1 is among a handful of 10-Gbit/s network processors that began sampling early this year (see EZchip Sallies Fourth). A more compact version, the NP-1c, is approaching "tapeout" -- the stage at which the design is delivered to a foundry for manufacturing -- with sampling to customers slated for the first quarter of 2003. EZchip also is preparing the QX-1, an adjunct chip for handling traffic management (see Net Processors Aim for Access and Traffic Manager Chips).

The EZchip funding announcement came on the same day that LanOptics discovered it would remain on Nasdaq; the company had been threatened with delisting due to its low market value. By late Monday, the double boost had sent LanOptics' stock up $1.13, to $6.69.

— Craig Matsumoto, Senior Editor, Light Reading