Centillium Joins FTTP Party
The company today unveiled its optical division, which has been operating for 19 months under the command of Armando Pereira, founder and former CEO of Alloptic Inc. (see Centillium Goes Optical).
The existence of the optical division isn't surprising, as Centillium mentioned it repeatedly in its recent SEC filings. The unexpected factor is the size of the division: about 100 people, or roughly one third of the company, according to Pereira. Roughly 75 of them are in India and 25 in Fremont, Calif.
Centillium's FTTP play is the typical semiconductor strategy: Take the major elements of a system and squash them into chips, saving equipment providers space, power, and money. Pereira says the company's three-chip set brings FTTP costs below $100 per port, compared with $1,000 per port during his Alloptic days.
FTTP hasn't been a moneymaker for most players so far (see FTTP Bidders Slashing Prices?). But Pereira claims his group is well prepared for the price wars that appear likely to dog FTTP. "We started 19 months ago guessing the price per line [to subscribe to FTTP services] was going to be $75. We didn't start out thinking it was going to be $1,000 per line," he says.
Centillium has sold DSL chips for years, but its FTTP fascination is easy to understand. The company needs to diversify, as its ADSL dependence -- 97 percent of sales last quarter -- has produced some Space Mountain surprises in its earnings reports.
Most recently, a stall in NTT Group (NYSE: NTT) equipment purchases led to disappointing numbers for the December 2003 quarter. Centillium reported losses of $10.3 million, or 27 cents per share, on revenues of $25.7 million, coming in below analysts' estimates.
The shortfall was particularly bad because NTT is delaying purchases on both the central office and customer premises sides as it prepares for 50-Mbit/s DSL offerings. So, Centillium's pain got doubled as the company's equipment-vendor customers got socked on two fronts.
"Until the company can diversify its revenues base, uneven revenue growth rates, sometimes dramatically so, could continue," wrote Jeremy Bunting, analyst with Thomas Weisel Partners, in a February report.
Revenue stability aside, Centillium needs richer venues than ADSL. The company has never enjoyed a profit in seven years of existence, racking up $66.4 million in losses on $389 million in revenues during the last three years. Happy times aren't around the corner, either; Bunting forecasts losses through 2005. On the plus side, the company has no debt, and its cash and short-term investments total $90 million, down from $102 million at the end of 2002.
FTTP already had its share of competition among passive optical networking (PON) companies, and the field is growing as major carriers such as NTT and Verizon Communications Inc. (NYSE: VZ) continue to preach their FTTP plans. Pereira's interest is in using chips to help equipment vendors cope with the lower prices they're likely to face.
Centillium's three-chip set includes a transceiver chip and a protocol chip, with the latter integrating a host of functions such as serializer-deserializers (SerDes) and the analog parts required for sending and receiving signals. The third chip adds features such as routing, IPSec security, and voice processing. By contrast, PON-chip startups such as Passavé Technologies Inc. and Teknovus Inc. concentrate on the media access controller (MAC) chip alone, which Centillium gloms into its protocol chip.
Pereira says Centillium is ready to start shipping the chips in volume, although he admits his division has yet to generate any revenues. The company expects to announce customers in the second quarter, along with details such as chip pricing.
FTTP isn't the only buzzword Centillium is tapping. The company has also designed some chips for the VOIP market. These are selling now, but they account for less than 3 percent of Centillium's revenues.
— Craig Matsumoto, Senior Editor, Light Reading