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Comms chips

Galazar Garners $15.4M

Chip startup Galazar Networks Inc. announced a CDN$22.7 million (US$15.4 million) round of funding, money that will help the company branch out beyond its first multiservice framer chip (see Galazar Secures $15.4M).

It's the company's second round of funding, bringing its total haul up to CDN$33 million (US$22.4 million). Participants in the latest round included initial investors Katsura Investments, Skypoint Capital Corp., and VenGrowth Capital Partners (see Galazar Networks Opens With $11.2M ), along with new investors Desjardins Venture Capital Group, Goldman Sachs & Co., and RBC Capital Partners.

The money should carry Galazar through volume shipments of its flagship product, the MSF250. "We need about half of [the new funding] to become cash-flow-positive, and the other half is buffer," says CEO Richard Deboer.

The money won't be used for staff expansion, however. "We're sitting at 35 right now, and by the end of the year we're hoping to be at about 40," he says.

The MSF250 is a multiservice framer for the Sonet/SDH market, mapping plesiochronous [Gesundheit!] digital hierarchy (PDH) services such as DS1s and DS3s into Sonet pipes (see Galazar Unveils Multiservice Framer). The chip is due to start sampling this quarter, with volume production slated for the fall.

It's a long way from Galazar's initial ambitions to build a core switch -- all of it, not just the chips. About one year ago, the company changed plans on two levels, focusing on the edge and becoming a chip vendor.

Neither change was that traumatic, Deboer says. Galazar was populated with ASIC experts, many of whom had worked in telecom for 15 years or more. The staff did have to give up the glory of working on high-numbered OC interfaces, but the promise of real design wins eased that transition.

"It's really the more traditional technologies that have all the volume," Deboer says.

The strategy isn't lost on others. Agere Systems (NYSE: AGR/A), having just sold its optical business (see TriQuint to Acquire Agere's Optics), used the recent OFC Conference to showcase its MARS (Multi-Application and Rate Solutions) framers and other chips directed at lower-speed telecom applications.

The slower legacy interfaces are "probably the least understood today," says Chris Hamilton, MARS marketing director. In previous jobs, Hamilton worked for Williams and WorldCom Inc. (OTC: WCOEQ), helping equipment makers understand the carriers' needs, and he says the access protocols are peppered with subtleties that aren't always handled properly.

"If you're talking about sex appeal, then it's problably easier to talk about the Sonet stuff. But people are still installing T1 lines," says Hugh Wright, director of marketing for Exar Corp. (Nasdaq: EXAR). "The Sonet stuff needs to come from somewhere."

The next step for Galazar -- and for others in this space -- is to beef up emphasis on Ethernet over Sonet. Part of Galazar's funding will go towards successors to the MSF250 that will offer different permutations of Ethernet and access interfaces.

Galazar's primary competitors include Applied Micro Circuits Corp. (Nasdaq: AMCC) and PMC-Sierra Inc. (Nasdaq: PMCS). Another competitor is TranSwitch Corp. (Nasdaq: TXCC), which has filed a patent-infringement suit against Galazar (see TranSwitch Sues Galazar). Deboer says the charges have "no merit" and that his company intends to fight the suit.

— Craig Matsumoto, Senior Editor, Light Reading

sevenbrooks 12/5/2012 | 12:15:59 AM
re: Galazar Garners $15.4M
Transwitch's products are notoriously bad. Anybody remember trying to use their DS3 chips when they first came out? How about Cubit?

seven
TheNet 12/5/2012 | 12:16:00 AM
re: Galazar Garners $15.4M Obviously, some of you guys haven't worked with Transwitch products often...
OSXman 12/5/2012 | 12:16:00 AM
re: Galazar Garners $15.4M Your message is ambiguous. Are you saying that Transwitch's products are good or bad.
andiji 12/5/2012 | 12:16:07 AM
re: Galazar Garners $15.4M That's a fair point, but with Transwitch Q4 revenues of $3.6 million and a Q4 loss of $17 million (with only $1.6M in special charges) (if I'm reading their web site correctly), I could make the case that there might not be enough business to sustain Transwitch.

Indeed, the fact that the liquidation value of Transwitch is higher than the market value suggests that the market doesn't rate their business plan too highly.

Anyway, it's always nice to have some competition in the marketplace...
OSXman 12/5/2012 | 12:16:19 AM
re: Galazar Garners $15.4M that Galazar could raise money at all.

Does anyone know on what terms Galazar raised money?

Consider Galazar: it is a private, startup company. It has no revenues and is burning cash. It is cash strapped, which is why they are raising money. It has one product, which seems like a nice product, but they are being sued by Transwitch for patent infringement. They have targeted the Ethernet over Sonet market and hope to introduce two new chip designs this year.

Consider, now, Transwitch: it is public, so a market value is well established. The market cap is $45 million dollars as of today. After adjusting for debt, it has $90 million in net cash. They have the Ethermap-3 and Ethermap-48 chips, which compete in the same space as Galazar's MFS-250 product. They also have a wide range of other products, both new and established. They have recorded over 200 design wins in the past year. Like Galazar, they are targeting the Ethernet over Sonet market. Also like Galazar, they have very little in the way of revenues and very much in the was of negative cash flow.

The interesting question in my mind is why anyone would invest in Galazar when they could invest in Transwitch on far better terms.
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