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Cisco drops cash on networking chip start-up

SandCraft completes its third round of financing, which includes a large chunk of funding from giant Cisco Systems.

    Networking chip start-up SandCraft announced the completion of a third round of financing Tuesday, which included a large chunk of funding from giant Cisco Systems.

    The maker of chips for Internet and network equipment said it raised $35.5 million in its series C financing round led by San Bruno, Calif.-based Vantage Point Venture Partners and New York-based Wasserstein Ventures.

    Networking equipment maker Cisco made the largest contribution.

    SandCraft started out as a company that licensed its chip technology to semiconductor makers such as NEC and LSI Logic to produce chips for consumer products like digital TV set-top boxes and laser printers.

    The Santa Clara, Calif.-based company plans to use the new funding in its transition to a so-called fabless semiconductor company that makes chips for Internet and network infrastructure equipment, but does not own the factories that produce them.

    SandCraft's chips are based on designs it licenses from MIPS Technologies. The company recently named Taiwan-based chipmaker United Microelectronics as its primary chip foundry.

    Michael Barar, SandCraft's vice president of sales and marketing, said the company wants to shift away from making chips for consumer products because economic realities have squeezed the average selling price of such goods, which also lowers gross margins.

    The Internet equipment market is less price sensitive according to Barar, and companies that buy the chips--such as Cisco--depend more on the quality of the technology. "Performance is more important than the price of the silicon," he said.

    The sales volume is lower in the network equipment sector, but the price of the end product, like a $5,000 router, is much higher than a consumer product.

    Barar says SandCraft's main competition will come from Quantum Effect Devices, which was recently acquired by PMC-Sierra for about $2.3 billion and from SiByte, which Broadcom recently scooped up for as much as $2.07 billion.

    Gartner Dataquest analyst Joseph Byrne says that the 70-employee company has a lot of work ahead, but also shows some advantages.

    QED "has more of a track record," Byrne said. "They have a history of supplying parts and they have a marketing presence," he said, saying that PMC's marketing force can only add to QED's weight in the industry.

    However, Byrne is also optimistic about upcoming products from the start-up and expects that SandCraft's chips will be a little faster than the competition.