Chipmakers Snack on Optical Designs
Companies that make semiconductor intellectual property -- chip design houses, essentially -- don't often become big names, but they've become awfully popular on the merger and acquisition circuit lately.
The buyers have mostly been field programmable gate array (FPGA) vendors -- companies who would often resell these startups' designs, or cores, to system vendors. Consider:
- Xilinx Inc. (Nasdaq: XLNX) has recently bought up three of its cores partners: Modelware, Omiino and Sarence.
- In December, Altera Corp. (Nasdaq: ALTR) acquired Avalon Microelectronics, based in "the Hawaii of the North Atlantic," picking up some 100Gbit/s expertise.
(See 100G Watch: Chips Get Merger Fever and Supercomm: Chips Look Toward 40/100-Gig.)
- Applied Micro Circuits Corp. (Nasdaq: AMCC), which isn't an FPGA vendor, got into the cores craze by acquiring TPack in August. (See AppliedMicro to Acquire TPack.)
This work can be done by just a handful of people. TPack was big enough for AMCC to report a purchase price -- $32 million -- but the others were blips, as are many cores companies.
Why the sudden interest in these little outfits? Some of it has to do with chip economics. In optical networking, there's a need for new devices at 40 and 100 Gbit/s; Sarence, for instance, is a leading provider for a key interface called Interlaken. But the volumes aren't large enough to amortize the high costs of developing these chips on cutting-edge semiconductor manufacturing technologies, says Bob Wheeler, an analyst with The Linley Group .
On top of that, line cards often end up outfitted with an FPGA anyway, to connect to a proprietary fabric interface. The combination has led FPGA vendors to suggest that their chip absorb other line-card functions. "Clearly in the optical transport space, there's been a shift from ASSPs [application-specific standard products] to FPGAs," Wheeler says.
Some of it also has to do with Xilinx specifically. The company's Communications Business Unit, formed last year, is trying to sell devices that are more like ASSPs -- devices closer to a line-card-on-a-chip, in a sense -- and that generated a need to own some of these cores, says Gilles Garcia, the division's director of marketing.
Finally, these companies are simply there, a byproduct of the telecom crash. As chunks of big companies fell off into the sea, some semiconductor teams staying intact as startups. Modelware's founders were from Bell Labs ; Omiino's came out of Nortel Networks Ltd.
This doesn't mean there's going to be a rush to create new cores startups. "The problem is, you pretty much have to be acquired, because these companies aren't going to go public. But you can run a profitable little company," Wheeler says.
Not every cores startup has been snatched up yet. Wheeler thinks German company MorethanIP , which makes cores including 100Gbit/s Ethernet media access controllers (MACs), could be a target for Altera as a response to Xilinx's pickups. "Xilinx may have forced Altera's hand," he says.
There's also Sembarc Ltd. , an Irish company with an Optical Transport Network (OTN) bent, and Xelic Inc. , a cores company that's been working the optical networking market for several years.
— Craig Matsumoto, West Coast Editor, Light Reading