In a gloomy year, Agere Systems (NYSE: AGR) has found a reason to smile, in the form of a significant contract to supply Chinese telecom equipment giant Huawei Technologies Co. Ltd. with components (see Agere Ships Chips to Huawei).

The companies aren't revealing the amount of the "multimillion-dollar" deal nor the specific components involved, other than to say it embraces seven devices, including the MARS 2.5G and MARS 10G framer chips introduced earlier this month (see Agere Intros Transport Chips).

For now, the announcement means Agere will provide nearly all the line-card components for Huawei's Optix 2.5G, Optix 10G, and Optix Metro systems. But Agere also has a design win in an unspecified next-generation box, and Huawei will be invited to help define the chips being developed for that job.

"We will give them access to our next-generation devices, and, where it makes sense, they're going to have input into what they want to see," says Samir Samhouri, director of marketing for Agere's access and transport division.

The deal follows last year's announcement that Huawei would use Agere's network processors and switch fabrics (see Agere Announces China Deal). Agere has become Huawei's top semiconductor supplier in terms of revenues, Samhouri said.

The deal reflects a shift in the sales plans of broad-based suppliers such as Agere. Rather than chase down single-socket wins, Agere is trying to develop "platform-based wins" that span entire line cards or subsystems, Samhouri says. "This is going to be the norm for us."

This was always a good idea, since it means more sales for the component vendor. But thanks to the sagging economy, it's become more of an imperative for the remaining suppliers, and the strategy is being pursued by "everybody who as the ability to do it," says Arnab Chanda, analyst with Lehman Brothers.

Obviously, the deal is also significant because of Huawei's status, Chanda said. Huawei is certainly a big deal in China but increasingly is being taken seriously as a global competitor (see Has Huawei Got Cisco's Number? ). "It's obviously one of the few companies in the systems business doing well," he says.

Just as systems vendors worry about their chip suppliers going under, the chip companies worry about the viability of their customers.

Even startups such as Azanda Network Devices are beginning to limit their roster of customers to the established Tier 1 companies. Azanda was forced to scale back its traffic management chip, offering a 2.5-Gbit/s device instead of its hoped-for 10-Gbit/s chip (see Azanda Flips Its Chips). In the process, the company also chose to limit its business to large vendors, or at least those with product already shipping, says Greg Wolfson, its vice president of marketing.

— Craig Matsumoto, Senior Editor, Light Reading
www.lightreading.com