Start-ups take the lead in network chip development

Cisco Systems, 3Com, and other network device makers are increasingly finding it less valuable to build their own processors, leaving a mix of established and start-up chipmakers to fill the void.

While nearly all the chipmakers are jumping into the new market, start-ups--which include Agere, Maker Communications, and Solidum Systems--are currently leading the way with the most innovative technology, according to analyst John Freeman of Current Analysis. These and other companies have begun to ship their new-generation processors to the hardware makers for testing, Freeman said, and products using the new chips should arrive on the market by the first half of 2000.

In the past, network hardware makers faced a difficult choice between two types of chips: custom-made processors that were fast but not programmable using software; and general-purpose processors, such as Intel Pentiums, that were slow but flexible enough to add new features and perform bug fixes simply by changing the software code and downloading it onto the processors. Now established companies such as MMC Networks and Intel as well as start-ups like C-Port and SiTera are building processors that are not only fast but programmable, analysts say.

Technology advances such as faster cores and shrinking sizes make possible the new generation of chips, which can reach speeds of 2.5 gigabits-per-second (Gbps), according to analyst Jeremey Donovan of market researcher Dataquest. "There's a happy medium that the new generation of processors achieve," he said.

For networking hardware companies, it means they can add new networking technology to their products at a quicker pace.

And for network administrators, it means the hardware they buy, such as routers, switches, remote access devices, have longer life spans. "It allows them to upgrade their systems, so it extends the longevity of their infrastructure. You don't have to swap out an expensive line card or buy a whole new system," Donovan said.

The upgrade is akin to consumers who bought 56-kbps modems before the V.90 standard was created. Users of U.S. Robotics' X2 technology and Rockwell and Lucent Technologies' K56flex technology upgraded to the standard by uploading new software.

Executives from both SiTera and C-Port believe the new generation of chips could forever change the nature of the networking market.

In the past, it took 18 months for several hundred engineers in a hardware device company to build a custom-made chip. With the new-generation chips, it now takes half that time, said Wade Appelman, SiTera's vice president of marketing.

The engineers also had to guess which new networking protocols winding their way through a particular standards organization would be approved as standards, and they'd install them in the chips, he said. "You used to have to take out a crystal ball."

Because the chips are now upgradable, the life of a networking device grows from a mere 12 to 18 months to three to five years, he said.

Dave Husak, C-Port's chief technology officer, agrees, pointing out a typical problem in the old days. A small business may have bought a 16-port 10/100 Ethernet switch for its main office; but if, a year later, the office quadrupled in size, then the business would likely have had to buy a more sophisticated switch for its main office and turn the 16-port Ethernet switch into a Virtual Private Network (VPN) gateway for a branch office, he said.

Husak has a grander vision of how the new generation of chips will affect the networking market. He believes it will soon resemble the desktop PC market, where Microsoft and Intel reign with third-party vendors developing the software.

C-Port's goal is to become the company that not only offers the chips, but also the software infrastructure that allows third-parties to write the applications, such as voice services across an Internet protocol (IP)-based network.

"Instead of building [application-specific custom-made] chips, they can focus their resources on development, on features like quality of service, voice, video, and data integration, security and monitoring," Husak said.

Husak envisions a time when a Dell-like model would work, where a networking vendor can sell directly and build to a customer's specific needs.

Analysts say it's possible in the long term. In the meantime, the chipmakers are now fighting to sign up vendors to support their chip and software platform, Freeman said.

The new chips will result in networking hardware vendors earning less money from hardware, and more money from services, such as software upgrades, Donovan said.

Eventually three or four chipmakers will sell the majority of the world's communications chips. Lucent Technologies and Intel will be two of the companies, with Texas Instruments, Motorola, Conexant and Broadcom fighting for the other spots, he said.

Most of the start-ups will eventually be bought out by the larger players, with a few staying independent, he said. Start-ups, he said, often perform the "revolutionary work," while established bigger companies do the "evolutionary work" in moving industries forward.

StratumOne Communications, a startup that develops semiconductor technology, was purchased by Cisco today, while SiTera announced it has raised $14 million in its second round of venture funding.

Freeman believes several start-ups, including C-Port, will perform well in the market, and said Intel is the wildcard. "It will be tough to beat Intel because they can easily sign up every third-party vendor there is," he said. "If a start-up asks you to write to my code and Intel asks you to write to my code, which market opportunity is going to be bigger?"