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Optical/IP

Centillium Joins FTTP Party

There's a line around the block and they just keep coming. Chipmaker Centillium Communications Inc. (Nasdaq: CTLM) is the latest player to nudge into the fiber-to-the-premises (FTTP) party, branching out from the asymmetric digital subscriber line (ADSL) chips that have made its fortune so far.

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
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technonerd 12/5/2012 | 2:12:01 AM
re: Centillium Joins FTTP Party The only people who made money from Centillium are the executives who took ridiculously high wages and options, and the speculators (including the executives) who traded in the company's stock. Nothing of ongoing value was created by this company. Centillium is par for the course in Silicon Valley.
technonerd 12/5/2012 | 2:12:01 AM
re: Centillium Joins FTTP Party From the Light Reading article:

Chipmaker Centillium Communications Inc. (Nasdaq: CTLM - message board) is the latest player to nudge into the fiber-to-the-premises (FTTP) party, branching out from the asymmetric digital subscriber line (ADSL) chips that have made its fortune so far.

Let's take a look at Centillium's fortune. For each of the years 1998 through 2003, the company's reports to the SEC showed the following. The first number is Operating Cash Flow. The second number is spending for Property, Plant and Equipment. The third number is the combination of the first two numbers.

All figures are in millions of dollars. Any arithmetic errors are the result of rounding errors.

1998: - 7.8 -2.7 -10.5
1999: -12.3 -3.3 -15.5
2000: -22.2 -7.6 -29.8
2001: 25.8 -7.6 18.2
2002: - 7.1 -4.1 -11.2
2003: -21.6 -3.4 -25.0

Total: -45.1 -28.7 -73.8

Some "fortune," Light Reading. The real story to write is to examine how many companies whose press releases you dusted off and made into fawning articles actually made any money.
geof hollingsworth 12/5/2012 | 2:12:00 AM
re: Centillium Joins FTTP Party The only people who made money from Centillium are the executives who took ridiculously high wages and options, and the speculators (including the executives) who traded in the company's stock. Nothing of ongoing value was created by this company. Centillium is par for the course in Silicon Valley.

Harvey? Bobby? Welcome back! Things have been pretty dull around here without you.
technonerd 12/5/2012 | 2:11:59 AM
re: Centillium Joins FTTP Party Harvey? Bobby? Welcome back! Things have been pretty dull around here without you.
I am neither one of those people. How about addressing the issue of Centillium's $75 million in cash losses during its life as a company?
optoslob 12/5/2012 | 2:11:55 AM
re: Centillium Joins FTTP Party Technonerd,
The sad truth of FTTP is that ONT's will sell for $75 (Not this year but within the next 5 years). Now the problem for US installation is the cost of deploying fiber (around $1000 / line). So although the price for an ONT will drop from $1000 to under $100 the installed cost only drops from $2000 to $1100. At this price it is likely that deployment will be limited to Greenfield developments and maybe for aging copper replacement. The Greenfield market is about 1.5M units per year. From my understanding the copper replacement is about 500K units per year. The Total Available Market in 2006 for FTTP is 2M units. Assuming a $100 ONT there will be at most $20 to $30 semiconductor content, so the value of this market is $40M to $60M per year. Experience in the DSL and Cable Modem markets would suggest that 3 to 4 players will share this market. The main two will get 40% each and the other 2 will share 10%. If you win 40% of the TAM it is worth a little over $20M / year. It is interesting to note that the current US FTTP semiconductor market, is larger than my 2007 projections.

Fortunately there is a bright side to this story and predictably this is occurring in Asia. The challenge for the US based FTTP industry is to find / define a system which suits the Asian markets and is still deployable within the US infrastructure. If we can do this we will be addressing a semiconductor market of over 30M units that could be worth in excess of $600M / year. Unfortunately neither BPON nor EPON properly addresses the needs of the Asian markets.

Anyway, the point of my diatribe is to show that an attractive FTTP market exists but we need to loose the RBOC baggage if we are going to address this opportunity.

I hope this "back of the envelope" calculation gets some productive discussions started!

optoslob




truelight 12/5/2012 | 2:11:54 AM
re: Centillium Joins FTTP Party Centillium is trying to ride the FTTP hype. The company has no talent (alloptic pelease !) in this area and does not know the market. They only survived in the first place due to the Japan market whihc looks like it is drying up. Smoke and mirrors.



technonerd 12/5/2012 | 2:11:52 AM
re: Centillium Joins FTTP Party Anyway, the point of my diatribe is to show that an attractive FTTP market exists but we need to loose the RBOC baggage if we are going to address this opportunity.
We have a bunch of regular contributors to this board who seem to think that the RBOCs are going to replace their copper with FTTP, or that the government ought to step in and finance the whole thing. Frankly, at least insofar as the residential market goes, I think the RBOCs are going to have a hard time maintaining the economic viability of their copper over the next five or so years let alone find any way to justify installing fiber.

As for wiring China, a litle voice in the back of my head tells me two things. One is that wireless will play a much bigger role there than it does here. If you were going to do greenfield installations today from a blank slate, there's not much reason to run wires (be they metal or glass) to each user. You just run them to aggregation points and make wireless the last hop.

To the extent that big Chinese cities have people packed in like rats in huge apartment blocks, perhaps then you'd find it sensible to have direct connections to these buildings. I've been to China and seen lots of those buildings, so that probably constitute the market for direct connections.

The voice also tells me that the Chinese will use domestic suppliers.
wonderfull 12/5/2012 | 2:11:51 AM
re: Centillium Joins FTTP Party What is the FTTP installed cost/port including OLT?

ONT (5 years) = $100
ONT installation = $1,000
OLT cost/port ?
technonerd 12/5/2012 | 2:11:51 AM
re: Centillium Joins FTTP Party p.s.: Some of those suppliers remain to be created, but it would appear that China is well on the way to having the resources (financial, educational, technical) to start those companies. Who knows, if they're 10% less corrupt than Silicon Valley was, maybe the Chinese won't throw $1 trillion down the rat hole like we did.
optoslob 12/5/2012 | 2:11:43 AM
re: Centillium Joins FTTP Party Wounderfull,
I've lumped the OLT costs in with the line costs, In the past the total cost estimates for FTTP have been in the $1800 to $2000 per House range. I know that "bonnyman" has posted calculations for the cost of laying Fiber, but I've never seen a good breakdown of the OLT costs. I think the problem is that a BPON OLT is much more expensive if Analog Video is support vs Video over packet. So the OLT cost depends on exactly what is being offered.

optoslob

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