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Comms chips

Ikanos Joins GPON Arms Race

Ikanos Communications Inc. (Nasdaq: IKAN) yesterday became the latest chip company to throw itself into the crowded yet promising GPON arena, through a licensing deal with Terawave Communications Inc.

Ikanos is planning a chip that combines its Fusiv microprocessor with Terawave's GPON physical-layer technology. The deal is similar to one Terawave struck with Mindspeed Technologies Inc. (Nasdaq: MSPD) earlier this year. (See Ikanos, Terawave Team Up and Mindspeed Joins GPON Race.)

Ikanos acquired the Fusiv line from Analog Devices Inc. (NYSE: ADI) in 2006 to tap the residential gateway market, and it's hoping to use its VDSL muscle to get into the GPON piece of that market. Many PON deployments use some form of VDSL at the optical network terminal (ONT), most notably in multiple dwelling units (MDUs). (See Fiber-to-the-MDU: Verizon's Manhattan Project.)

But Ikanos's supposed strengths in VDSL haven't exactly translated into financial success recently. The company faced manufacturing issues with its Japanese customers that ultimately led to disappointing earnings late last year and a 30 percent hit to its stock. (See Ikanos Catches VDSL Blues and Ikanos Cuts Staff.) Ikanos shares have fallen nearly 70 percent from an all-time high of $24.55 in February 2006 to $7.39 at yesterday's close.

Perhaps the disappointing results with VDSL have led Ikanos to chase FTTH and GPON. "I think VDSL2 deployments haven't really shaped up the way Ikanos and others would have liked them to," says Jeff Heynen, an analyst with Infonetics Research Inc.

Ikanos will first target GPON in Asia and Europe, where it will heavily market its new product to Orange (NYSE: FTE). The French incumbent is one of two companies to announce large-scale GPON commitments, the other being Verizon Communications Inc. (NYSE: VZ).

"If you are going to be successful, you need to be engaged with one or both of these companies," says Dean Westman, general manager of Gateway Products for Ikanos. Westman says Ikanos will eventually turn its attention to North America and Verizon.

Ikanos already has previous working relationships with France Telecom and other European and Asian carriers that are exploring GPON deployments. But in North America, the market is much more crowded, and the only two big customers, Verizon and AT&T Inc. (NYSE: T), have already selected their GPON vendors. (See Alcatel Joins Verizon PON Party and AT&T Picks GPON Players.) So what are the odds of Ikanos sneaking its way in?

"I think what they're betting on is that Verizon and AT&T are pushing for interoperability, which means that, in theory, it would open up the market to the best in breed," Heynen says. "But I think it's way too early on to be betting on getting any of that business."

In the meantime, Ikanos is counting on its experience with VDSL and the technology's frequent use within fiber deployments as a way of differentiating itself from the competition.

— Raymond McConville, Reporter, Light Reading

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