ZettaCom Inc., one of the startups building chips related to network processors, has found safe haven in the arms of established chipmaker Integrated Device Technology Inc. (IDT) (Nasdaq: IDTI).

The $35 million cash deal, annnounced yesterday and due to close this month, brings IDT into the markets for Switch-Fabric Chipsets and Traffic Manager Chips, areas that have seen plenty of startups fail as business stalled (see PetaSwitch Kicks the Bucket). Switch fabrics forward packets from one linecard to another, while traffic managers prioritize the packet flows, making sure time-sensitive sessions such as voice calls don't get gridlocked.

ZettaCom CEO Daryn Lau will join IDT and spearhead a new "serial switching division," which will focus on devices conforming with the PCI Express and Advanced Switching interface standards (see Backplane Standard Gains Allies). ZettaCom's products will be the foundation of the division, and 29 of ZettaCom's 36 employees will join IDT, Lau says (see IDT to Acquire ZettaCom).

While $35 million doesn't seem bad for a chip startup, it's important to remember ZettaCom raised $77.7 million in its lifetime (see ZettaCom Lands $19M).

IDT is no stranger to the packet-processing area. The company leads the market in classification chips, also known as search engines, which use content addressable memory (CAM) to store information such as IP lookup tables. A move into switch fabrics could be rewarding.

"The whole fabric space doesn't have any dominant player," says Jag Bolaria, analyst with The Linley Group. "IBM, which used to be a big player, sold out to AMCC, which means AMCC has the challenge of folding [IBM's] French office into their operation." Moreover, IBM's fabric uses a different architecture than AMCC's previous efforts, complicating the question of how to integrate the products into one road map, Bolaria says. (See AMCC Switches On IBM's Fabric.)

Advanced Switching adds a new wrinkle as well, because even though interface standards exist, it can be tough getting different vendors' linecard chips to work together. "It's still proprietary," says Lau, "not at the physical layer but at a transactional layer."

ZettaCom had already steered its product plans towards Advanced Switching, and Lau expects most OEMs to start demanding standard interfaces. The trend means IDT may have found a good time to get into this market. "The whole fabric space is going to get disrupted with standards like Advanced Switching," Bolaria says. "Somebody can come along and establish a leading role."

Bolaria estimates ZettaCom is getting $5 million per year in revenues. From that base, IDT could become a substantial switch-fabric player by 2007, he says.

Both ZettaCom and Internet Machines (now called IMC Semiconductor Inc.) had tried to skirt the interface issue by offering groups of chips: a network processor, switch fabric, and traffic manager. The chips could be purchased individually, but the idea was that by buying all three from one vendor, an OEM could be assured the chips would interoperate.

As the market crumbled, so did the all-in-one strategy. ZettaCom gave up on the network processor, focusing instead on a switch fabric and traffic manager, and trimmed its U.S. staff to concentrate on Asian sales efforts. IMC dropped its product plans in favor of selling PCI Express bridge chips (see AMCC, ZettaCom Cut Staff and Internet Machines Starts Anew).

Remaining competitors in the switch-fabric market include Agere Systems Inc. (NYSE: AGR.A), Applied Micro Circuits Corp. (AMCC) (Nasdaq: AMCC), Broadcom Corp. (Nasdaq: BRCM), Dune Networks, Erlang Technology Inc., Marvell Technology Group Ltd. (Nasdaq: MRVL), Mindspeed Technologies Inc. (Nasdaq: MSPD), Sandburst Corp., Tau Networks Inc., TeraChip Inc., and Vitesse Semiconductor Corp. (Nasdaq: VTSS).

Some of those companies offer traffic managers, as do a few network processor vendors. Azanda Network Devices and Teradiant Networks Inc. remain the only companies offering a traffic manager alone.

— Craig Matsumoto, Senior Editor, Light Reading