EZchip's Top Customer
The custom NP-3c, as EZchip calls it, gets built by Taiwan Semiconductor Manufacturing Co. (TSMC) (NYSE: TSM) and sold by Marvell into -- well, it's a customer EZchip declines to name, but it doesn't take Colossus to figure out the "c" stands for Cisco.
The royalty EZchip receives is less than it would get by selling the chips directly, but I'm guessing Cisco wouldn't have started using the chips without a safety net like Marvell.
The fun part, for EZchip, is that the profit is close to that of normal chip sales, since there's zero cost of goods and no sales overhead.
It wouldn't be surprising if it's a couple of quarters before the Cisco/Marvell business is big enough to get called out as a 10 percent customer in EZchip's earnings. It's possible, depending on Cisco's ramp-up, for Cisco to contribute more revenues to EZchip than Juniper Networks Inc. (NYSE: JNPR), the only customer accounting for more than 10 percent of EZchip's revenues last quarter.
"Even though the revenue is smaller per chip because we only get the royalty, the number of chips, because of the size of that customer compared to Juniper, could be higher," CEO Eli Fruchter said on EZchip's Nov. 6 earnings call, never mentioning Cisco by name.
Don't count on it happening right away. During the summer, Fruchter was dropping hints to me about the NP-3c, never mentioning the customer but noting that the demand was in the dozens, not the hundreds or the thousands. Obviously that's changed by now, but it still could be a while before the ASR 9000 business kicks into gear.
Reportedly, the 100-Gbit/s (really 50 Gbit/s in each direction) NP-4 chip will also go into the ASR 9000, eventually making possible the per-slot capacity of 400 Gbit/s that Cisco's been touting but still won't fully explain to us. The NP-4 is set to ship in the first half of 2009. (See EZchip Samples NP-3 and Chipping Away at 100-Gig.)
— Craig Matsumoto, West Coast Editor, Light Reading