PMC-Sierra chips away at metro networks

The chipmaker introduces a new set of networking chips for the metropolitan communications market, an area of expected growth for the company and the industry.

PMC-Sierra introduced Monday a new set of networking chips for the metropolitan communications market, an area of expected growth for the company and the industry.

The British Columbia-based maker of chips for communications equipment unveiled a family of chips for future optical equipment designed for metropolitan networks as opposed to long-distance networks, which transmit data between cities.

The announcement is part of the company's effort to become a dominant player in the metro market, an area predicted to explode in a time of overall spending cuts by carriers.

The chips, collectively known as Xenon, will help phone service carriers build up their networks to run at higher speeds and keep up with the growing demand for bandwidth.

These new metro networking chips also represent some of the first significant new products for the company in some time. In its January earnings conference call, PMC disclosed that only about 10 percent of its revenue came from products that were introduced within the last two years, which some analysts took to mean that a large majority of the company's products are older and used in equipment that will be replaced.

"Some people have perceived that PMC has lagged behind in introducing products to the (10Gbps) market, even though that wasn't their main focus at the time," said Sandy Harrison, an analyst at Pacific Growth Equities.

PMC made the chips to work in equipment for future high-speed networks that operate at speeds of 10Gbps. Most networks today operate at slower speeds, and Harrison interprets the announcement as a message to Wall Street that PMC is preparing for the future.

Steve Perna, vice president and general manager of PMC's optical networking division, believes that PMC's product mix is healthy and will "have a long lifetime."

Perna says that PMC aims to offer a broad array of advanced products that help carriers offer new services, which generate more revenue. PMC spent $179 million on research and development in 2000 compared to $84 million in 1999, he said.

Most analysts say that PMC will not see any meaningful revenue until 2002 from the new chips, partially because it takes time for equipment makers to test them. The slowdown in carrier spending also complicates matters.

PMC-Sierra competes with Applied Micro Circuits, Vitesse Semiconductor and Agere Systems, among others.

In other news Monday, senior executives at PMC-Sierra received bigger bonuses last year as it reached performance goals for pre-tax operating profit, Reuters reported. Chief Executive Robert Bailey's fiscal 2000 bonus was $651,870, a 39 percent increase over 1999's $469,735, while his base salary rose 2 percent to $259,348, PMC said in the annual shareholder proxy filed with the Securities and Exchange Commission, according to Reuters. Chief Operating Officer Gregory Aasen's bonus rose 30 percent to $301,612 while Chief Financial Officer John Sullivan's increased 37 percent to $192,156, Reuters reported.

Reuters contributed to this report.