Access Pays Off for Agere
This morning, Agere expects to announce a deal to supply Huawei Technologies Co. Ltd. with network processors for wireless infrastructure equipment. That continues a recent string of wins with notable access-gear vendors including Corecess Inc., Zhone Technologies Inc., (Nasdaq: ZHNE) and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763). (See Agere Launches Access Processor Chips, Zhone Selects Agere, and ZTE Selects Agere .)
It's possible Agere is just lucky. Chip makers claim that many big-name vendors don't like to disclose their use of network processors. Maybe Agere just has a high hit rate in asking its customers for testimonials.
But the size of the customers it's named suggests Agere might be on to something.
"They're very focused on this area, and they've also been good at extending the software that's available with their network processors," says Joe Byrne, an analyst with The Linley Group. "Particularly towards the high end of access, they're positioned well."
Like all network processor vendors from the pre-2000 glory days, Agere initially targeted high-end equipment. Earlier this year, Agere dropped that plan and shifted to the access realm with its Advanced PayloadPlus 300 (APP300) family, a 2.5-Gbit/s chip based on its high-end parts. (See Agere Dips Into Access).
"We made a very conscious decision to go here instead of going up to the 10-Gbit/s space," Agere chief architect Dave Sonnier told Light Reading at the recent Network Systems Design Conference. "We had a 10-Gbit/s chip in prototypes in the lab, and we put it on ice."
In doing so, Agere turned away some business. But investors shouldn't go storming Sonnier's office with pitchforks. The volumes involved were paltry, he says -- not enough to justify the R&D costs of the high-end chip.
Meanwhile, Agere officials were looking at DSLAMs and realizing their chips were used on the uplink cards -- not on the more voluminous line cards. And Agere believed its competitors' chips wouldn't handle the multiple gigabits per second that the line cards would soon require. So, the company steered its development towards access, eventually winning DSLAM contracts such as the one with ZTE.
In such cases, the APP300's multigigabit performance has been a key. "If you're doing a high-performance IP DSLAM where you have at least a Gigabit Ethernet going in, you need that," Byrne says.
Agere's quick foothold could prove crucial, as there's plenty of competition in access. Applied Micro Circuits Corp. (AMCC) (Nasdaq: AMCC), EZchip Technologies, and (Nasdaq: INTC) have all introduced network processors for that market. (See AMCC Intros Network Processors, EZchip Dials Back the Speed, and Intel Isn't Through With NPUs.) Wintegra Inc. has targeted access all along, but it's in a lower-end market than Agere, Byrne says. That's not necessarily bad; Wintegra's business has been good enough that the chip vendor is still considering an IPO, a plan that got stalled last year due to a tepid stock market. (See Chip IPOs Almost Ready.)
Of course, Agere isn't the only network processor vendor that can name customer names. EZchip scored its own Huawei deal, supplying the Huawei/3Com Corp. (Nasdaq: COMS) joint venture, and Xelerated Inc. recently announced a win with Atrica Inc. (See Huawei-3Com Picks EZchip and Ethernet Pays Off for Xelerated.)
— Craig Matsumoto, Senior Editor, Light Reading