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Optical/IP

Silicon Access Nabs Huawei

This week, Silicon Access Networks Inc. plans to announce a contract win with Huawei Technologies Co. Ltd. spanning multiple systems, an important milestone for a network processor startup still striving for credibility in a tight market.

Silicon Access officials aren't releasing many details, but Huawei apparently was intrigued by the company's chips, which include a network processor, address processor, classifier, and accounting device, all geared for 10-Gbit/s port speeds (see Silicon Access Launches Billing Chip, Silicon Access Offers Co-processor, Silicon Access Unveils Classifier, Silicon Access Tries 20-Gig, and Silicon Access Goes With the iFlow).

Huawei will use some combination of these chips in a core switch or router still under development. The Chinese giant then plans to work down the ladder, applying Silicon Access's parts to increasingly lower-end switches and routers.

Silicon Access CEO Perry Constantine wouldn't specify which of its chips are going into that first Huawei core box. It's probably not all four, however, given that OEMs are still willing to pick line-card chips from multiple vendors. Constantine would only hint that it's "fair to say" his company's iPP network processor is "at the center of this exercise."

Huawei is the first major customer Silicon Access has announced, and officials expect to name a few more customers during the next 90 days.

It's important for the company to name names, because investors and potential customers have grown skeptical about the survival prospects of net processor startups. In other words, Silicon Access obviously could use the revenue from Huawei, but the deal could be more valuable as evidence to investors that Silicon Access actually has a chance.

"The real issue is whether this gives them enough to raise whatever moneys they need," says Linley Gwennap, principal analyst of consultancy The Linley Group. "I hate to say this is enough for them to survive, but this is definitely a good sign."

Silicon Access already has its fans among venture capitalists. Gwennap figures they've raised more money than any other network processing startup, having picked up at least $124 million, including a fourth venture round that closed in March 2002 (see Silicon Access Raises $39M). Should additional funding become necessary, investors will doubtless get to look under the hood at the Huawei deal and decide whether it's enough to keep Silicon Access going, Gwennap says.

Still, he notes that a Huawei deal doesn't necessarily mean big bucks. Gwennap points to the Cisco effect: Nearly every network processor vendor claims to have a design win at Cisco Systems Inc. (Nasdaq: CSCO), but it's assumed that many of those are early-stage designs that won't necessarily reach revenue shipments.

In the past, Agere Systems (NYSE: AGR/A) has announced design wins with Huawei, at least one of which includes network processors (see Huawei Is Dear to Agere and Agere Announces China Deal).

At the least, Silicon Access think the Huawei deal provides some street cred among other OEMs. "It'll lower the blood pressure," says Hing Wong, vice president of business development at Silicon Access. "To be able to pass Huawei, it means you jumped through all the hoops."

CEO Constantine says Cisco's patent-infringement suit against Huawei shouldn't affect Silicon Access's contract, nor is he concerned that Huawei might have trouble selling products into the U.S. (see Cisco/Huawei Brawl Begins and Cisco Wins Round 1 Against Huawei). "We see Huawei as a major player in Asia, and we believe Asia in the telecom space has significant promise," he says.

— Craig Matsumoto, Senior Editor, Light Reading

valleyguy 12/5/2012 | 12:40:36 AM
re: Silicon Access Nabs Huawei No way. But I'm starting to think that Cisco really needs a threat to get them off this "capital preservation first, customer needs last" mentality. What Cisco is doing right now, at the expense of their customers, is retarding the development of the communications industry. They aren't innovating, the only way they can deliver a new product is a spin in, and they are squeezing all of their suppliers (mostly the component guys) so hard that they are suffocating them. There's no R&D budget out there and the startups have nothing but slideware 9 times out of 10.

If you are developing any kind of network management/EMS, routing software, or developing a next generation fabric, processor, framer, whatever, Huawei could be a real opportunity.

History has shown that constructive engagement with the Chinese is the best approach. Cisco has a legitimate beef with them legally, and I personally think the place is run by criminals and bureaucrats (both companies--just kidding, I mean Huawei) but a lot of elements in the industry could use a solid competitor to Cisco in the low end of the market. So Huawei could be a very positive development, especially buying from a private Silicon Valley company.

Dell, come on, make your move!
skeptic 12/5/2012 | 12:40:35 AM
re: Silicon Access Nabs Huawei
If you think "saving" the industry means a
price war that drives margins down to a point
where no R&D is done anymore at all, the question
becomes what exactly are you saving?

And having heard stories about dealing with
Huawei, their primary interest in north america
is technology transfer as quickly as possible
for as little money as possible. Thats one of
the many things that has landed them in trouble.
I dont see much chance of working with them in
a productive way given their attitude. They could
change, but right now presenting ideas to them
is about as safe going to microsoft with them.
(i.e. in both cases your attempt at partnership
may end with your idea borrowed or a new
competitor.)
whyiswhy 12/5/2012 | 12:40:35 AM
re: Silicon Access Nabs Huawei In light of the recent patent litigation events, can anyone comment whether this is Huawei's bid for legitimacy? If so, it could be awhile before the products become qualified and available, giving Cisco some breathing room.

I agree its time for another competitor, but the flip side of high margins is room for price wars, which is usually harder on the entrant.

Dell/Huawei partnership...now that would be interesting. Together, they could eat the cost of the war, and get huge tax benefits in China to boot.

-Why
skeptic 12/5/2012 | 12:40:34 AM
re: Silicon Access Nabs Huawei In light of the recent patent litigation events, can anyone comment whether this is Huawei's bid for legitimacy?
------------
Nobody seems to know what their thinking is.
They can clear up the uncertainty about patent
licencing by cleaning up the product, but they
can't really dispose of the cisco case that
way. Cisco's complaint uses the patent violations
as evidence of a pattern of behavior. You don't
get rid of the pattern by ceasing to violate
the patents.

Cisco is using the patents and the documentation
as the basis for broader claims against Huawei.
Those broader claims would not stand up without
the patent issues, but no matter what Huawei
does they have delivered and marketed a product
that for some length of time violated the
patents.

Fixing the product may also keep cisco from
filing new cases in other countries.

Also, whatever Huawei does, the lawsuit will go
forward and they will have to open up their
source code, internal company documents and
everything else in that process. Nobody knows
whats going to come out of that.
ohub 12/5/2012 | 12:40:33 AM
re: Silicon Access Nabs Huawei Of course, Huawei cannot become a savior of this industry. But low price competition could be a good "medicine" to bring the industry back to its common track. More companies with lower competing capability will die faster, market share will be re-organized, and comes to be stable, and then prices will goes up again.

Cisco needs to wake up now. Without innovation, you can never always be the best. After Juniper and Avici, now Huawei comes.

Optical Hub
http://www.ohub.net
xoip 12/5/2012 | 12:40:30 AM
re: Silicon Access Nabs Huawei Good - somebody is actually developing new products with chip solutions from startups. At the same time just make sure no IP is moving over as part of the deal.

XoIP
silenceofthelambdas 12/5/2012 | 12:39:42 AM
re: Silicon Access Nabs Huawei Though news of design wins are best regarded with caution, it is good to see a report of ANY win for an NP chip or chipset. Silicon Access have been quiet for some time, so when news did appear it was refreshing to see something positive as opposed to a paragraph in G«ˇHeadcountG«÷. To SA G«Ű congrats, lets hope Huawei buys lots of chips, development systems and software. Lets hope your IP is safe, or commanding a fair negotiated price. Lets hope your deal with the giant will lay the foundation for a prosperous future (heck any future is better than most in this industry).

The telecom boom and bust in the past decade has made it very hard to greet good news without some degree of cynicism, so the relationship between Silicon Access and Huawei can look like that of a starving animal being invited to the tigerG«÷s den G«ˇfor dinnerG«÷. It hopes it is the guest, not the meal.

Like any startup selling to a heavyweight, SA depends upon Huawei more than Huawei needs SA. Lets hope that the agreement ends in fair business for both. Lets hope that the small player doesnG«÷t get squeezed to death on low margins on a low product volume, while the large player eventually produces G«ˇsimilarG«÷ technology that they can use their economies of scale to produce cheaper than SA can.

Of course business and idealism donG«÷t always live in harmony.

- SOL
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