NEW YORK -- Bay Microsystems Inc. , a chip company specializing in high-end 10-Gbit/s and 40-Gbit/s network processing chips, is developing its own multiservice provisioning platform (MSPP), which it hopes to bring to market with OEM equipment partners, Light Reading has learned.

Bay CEO Chuck Gershman, disclosing the plans yesterday in the company’s presentation here at the Needham & Co. Growth Conference, said the new MSPP being developed by Bay will consume “one tenth the power" at "one twentieth the price of the current 20G/80G interworking system.”

The MSPP would be a small, two-rack-unit device that would combine the functionality of a Sonet MSPP, carrier-class Ethernet switch, and QOS (quality of service). In Gershman's words, "It's a packet-aware device in the transport space that's not a router." It will be able to handle ATM, MPLS, and packet over Sonet (POS), as well as additional protocols, according to Gershman’s presentation.

For the most part, Bay until this point has focused on selling chips to the federal government, where its high-end designs have been used to develop secured, high-speed communications networks. (See Chips Brace for 40-Gig, Bay Micro Acquires Parama, and Net Processors Reach the Mainstream.)

Gershman told an audience of institutional investors at the Needham conference that now is a natural time for Bay to take its high-end chips developed through the government work and diversify into the telecommunications industry, where there is now virtually “no competition.” ”We are the only company that has survived successfully,” Gershman said. “Competition is quite limited at this juncture.”

Agere Systems Inc. (NYSE: AGR.A), Applied Micro Circuits Corp. (Nasdaq: AMCC), and Intel Corp. (Nasdaq: INTC) were once more competitive in the market but have scaled back and are now focusing on lower-end 2.5-Gbit/s chips, said Gershman. “All three of those companies have ceased investment in higher-end products.” (See Can Traffic Managers Save the World? )

But there are a couple of startups still chipping away at high-end traffic processors -- including Israel-based EZchip Technologies Ltd. (Nasdaq: EZCH) and Xelerated Inc. , based in Sweden.

The idea behind Bay’s move is that its high-performance chips have been developed to handle “real-time” processing of secured communications at line rates in government applications, so they would be naturally suited for the triple-play and video markets, where high performance and low latency networking is crucial.

Gershman said Bay would not likely market the product itself, but rather would forge a reseller relationship similar to the one it has with Network Equipment Technologies Inc. (net.com) (NYSE: NWK) for its government contracts. (See Bay, Net.com Team Up .)

Some other tidbits came to light on Bay: Gershman told investors that the company did $16 million in sales in 2005 and hopes to hit $23 million in 2006. "We'll be profitable in 2006," he said.

It also looks as if Bay is gearing up for a round of funding -- most likely through private equity -- to help fuel its attack on the telecom market, based on chatter heard in the hallways of the Needham conference.

— R. Scott Raynovich, Editor in Chief, Light Reading