Comms chips

Net Processors Bloom at 10-Gig

The 10-Gbit/s network processor generation is arriving, and while sales won't be enormous, the devices' high prices should create a good market, even for startups.

That's good news for the vendors that put time and money into 10-Gbit/s chips only to see the slower-speed access market become the industry's hot ticket. Wintegra Inc. expects to go public on the strength of that market, and Agere Systems Inc. (NYSE: AGR.A) recently announced chips in that sector (see Chip IPOs Almost Ready and Agere Dips Into Access).

But 10-Gbit/s parts are coming into vogue, thanks in part to increased use of 10-Gbit/s Ethernet. And the prices will be better than those in access, says Bob Wheeler, analyst with The Linley Group.

"It's going to grow to be a significant part of the market. Everybody's talking about access, but the ASPs [average selling prices] there are vicious, particularly in DSLAM designs," Wheeler says.

Revenues for 10-Gbit/s network processors made up 10 percent of the market during the second half of 2004, Wheeler estimates. Not that that's a huge sum -- Wheeler measures the total 2004 market at $145 million, while a recent Heavy Reading report pegged it at $150 million.

"Ten percent of 145 is still not a very large number, but we think 10-Gbit/s will grow to be about one third of the market in three years, thanks to the high ASPs," Wheeler says.

Entrants in the 10-Gbit/s space include Applied Micro Circuits Corp. (AMCC) (Nasdaq: AMCC), Bay Microsystems Inc., EZchip Technologies, Intel Corp. (Nasdaq: INTC), and Sandburst Corp. Joining them will be Xelerated Inc., which doesn't have a part shipping in volume but now has the cash to get there, thanks to a $17 million round announced earlier this week, bringing its funding total to $52 million (see Xelerated Lands $17M).

Xelerated is one of several startups that chased the 10-Gbit/s market circa 2000, trying to leapfrog other players. Xelerated did one better, conjoining four 10-Gbit/s processing lanes to create what it called a 40-Gbit/s part (see Xelerated Packet Devices AB).

The company has shifted to the 10-Gbit/s Ethernet market with its latest chip, the X11 (see Net Processors Sport New Look). The chip has a decent shot at the market, says Heavy Reading analyst Simon Stanley. "At less than $200 [per 10-Gbit/s port] with integrated MACs, this product is worth considering even for cost-sensitive Ethernet applications," he wrote in a recent Heavy Reading report, "Network Processors: A Heavy Reading Competitive Analysis."

Because it helps boost customer confidence in addition to boosting X11 shipments, the new funding "represents two significant steps forward for Xelerated," Stanley says.

At least Xelerated is still in the race. Other 10-Gbit/s startups closed up shop or ducked into various escape hatches. ZettaCom, which dropped its network processor but continued work on related parts, got acquired by Integrated Device Technology Inc. (IDT) (Nasdaq: IDTI), while IMC Semiconductor Inc. ditched into the PCI-chip market. Others simply closed up shop. (See ZettaCom Finds a Home, IMC Intros PCI Express Chips, and Cogni-Gone?.)

Startups that have survived have some good prospects, because 10-Gbit/s, like the low-end access market, is "underserved by the large vendors," Wheeler says. "It is a place where startups can get a foothold."

Looking at the total network processor market, AMCC and Intel continue to rule. Intel ships more units but has a heavy concentration on the access market, giving AMCC the edge in market share by revenues:

Table 1: Network Processor Market Share, by Revenues
Company 2004 2003
AMCC 31% 37%
Intel 21 15
Hifn 11 13*
Vitesse 10 10
Agere 10 6
Wintegra 7 5
Freescale 6 11**
Other 6 4
* As IBM Corp.
** As Motorola Corp.
Source: The Linley Group

It's worth noting that every vendor's revenues increased except for Freescale Semiconductor Inc. (NYSE: FSL), which has curtailed new network-processor development. Then again, so did Vitesse Semiconductor Corp. (Nasdaq: VTSS), and that company saw revenues continue to grow; this should stop as Vitesse's devices age, Wheeler notes. (See Freescale Halts Net Processor Line.)

Wheeler expects the network processor market to be $175 million in 2005.

— Craig Matsumoto, Senior Editor, Light Reading

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