The Linley Group

Despite weak (in some cases negative) growth in 2007, we expect 2008 to be a strong year for networking semiconductors. Recent revenue patterns have been chaotic. Beginning in mid-2006 and lasting through the 3Q07, Cisco implemented a lean manufacturing program that slashed inventories. Chip suppliers exposed to this large networking OEM, therefore, saw sales decline in 2007 even though consumption of their products may have increased. Conversely, we expect these suppliers to experience strong revenue growth in 2008 and beyond as shipments resume tracking consumption. Overall, after a slight recession in 2007 that pulls industry revenue back to about $7 billion, sales of wireline communications ICs will grow steadily, approaching $8.5 billion in 2011.

With respect to specific chip markets, NPUs are a bright spot. Although some NPU vendors are faltering, others are picking up the slack. NPUs are continuing to replace ASICs and fixed-function ATM chips and even, after a decade, making inroads at major router vendors. We forecast NPU sales will top $400 million in 2010 and become one of the larger ASSP markets.

Ethernet technology is proliferating and being used in carrier networks and within equipment, but the enterprise and PC remain the dominant market drivers for all subcategories but 10GbE switch ASSPs. Shipments of Fast Ethernet switch ports will prove remarkably resilient through 2011, but Fast Ethernet is quickly losing favor as a client technology as low-cost GbE PHYs enable gigabit connections in consumer PCs.

Broadband isn't a market; it's madness. The number of client ports shipped handily outstrips net subscriber growth-indicating a level of subscriber churn that may prove unsustainable. Fiber is the ultimate access technology, but it will account for only 13% of client IC sales even in 2011. VDSL is being deployed largely behind the scenes, providing the last 100 meters of connectivity in most so-called fiber deployments. Better integration and falling prices will lead revenue from VDSL to surpass that from ADSL by 2011. —Joe

Last month, Emcore announced it will acquire the telecom-related portion of Intel's Optical Platform Division, which is essentially the LightLogic business that Intel acquired in 2001 for $400 million. Based in Newark, California, OPD had a staff of 230 people as of 4Q07. OPD's telecom products include 300-pin transponders and tunable laser assemblies. Emcore acquired this ongoing business for $85 million and expects the acquired products to generate $65 million of revenue in 2008.

With a product portfolio that includes optical sub assemblies, Xenpak, X2, and SFP+ modules, Emcore has a significant presence in the enterprise market for 10Gbps Ethernet component and transceivers. This acquisition broadens the company's portfolio into telecom applications. With the additional margin dollars from this acquisition, Emcore expects to become profitable by the middle of 2008.

For Intel, this announcement continues the company's strategy of divesting its communication businesses and focusing on its core computing businesses. Although Intel retains the enterprise-related portion of its Optical Platform Division (OPD), the company is exploring strategic alternatives. For LAN applications, OPD products include Xenpak/X2 modules, SFF/SFP modules and SFP+ modules. For the data center, OPD products include 8G SFP+ modules and active optical cables. We expect Intel to divest the remaining portion of OPD or simply shut it down. —Jag

News in Brief

Last week, 10G Ethernet startup Chelsio announced it had closed a Series E funding round of $25 million. Investor Growth Capital, which is a new investor, led the round that brings Chelsio's total funding to more than $90 million. In addition to funding its chip roadmap, the company will use the new funds to expand its sales and marketing team. Despite its substantial financial backing, Chelsio has been without senior sales and marketing management for some time. To best capitalize on its strong technology, Chelsio must quickly fill this void. —Bob

Complete coverage of Chelsio appears in our report A Guide to 10G Ethernet Adapters and Controller Chips.

New Report on Network Processors

Network processors (NPU) have become a critical ingredient of carrier-equipment designs. These chips are appearing in new designs from leading OEMs spanning many applications from PON OLTs and Node Bs to carrier-Ethernet switch/routers. This broad adoption has created a market exceeding $250 million in annual revenue, large enough to sustain multiple vendors. Yet many large vendors have abandoned the market, leaving excellent opportunities for more focused vendors.

Access infrastructure is migrating to Ethernet and IP backhaul, while data rates for both wireline and wireless networks continue to climb. These factors are driving the need for new access NPUs that are increasingly similar to metro-class NPUs. With multiple vendors offering NPU architectures that span both markets, we have combined our "Guide to Access Processors" and our "Guide to Metro Network Processors" into a single comprehensive report covering NPUs spanning data rates from 2Gbps to 100Gbps.

A Guide to Network Processors covers the vendors and products that address multiple markets using programmable designs including: AMCC's nP, Broadcom's Scalable Ethernet Switching line (formerly Sandburst), Bay Microsystem's Chesapeake, EZchip's NPA through NP-3, LSI's APP (formerly Agere), Netronome/Intel IXP, Wintegra WinPath, and Xelerated X11. Also covered are alternative architectures that are not software programmable from Cswitch, Ethernity, Lightstorm, and TranSwitch/Opulan.

Only The Linley Group follows this market closely enough to give you the complete picture. Which major vendors are in this business for the long haul? Which startups will survive? How do the latest products stack up? "A Guide to Network Processors" is the result of years of research that cannot be duplicated. If you are interested in following this strategic standard-product segment, you have located the definitive source.

Order by Jan 31 to get a special prepublication discount. For more information on this new edition, visit our web site.