By Don Clark
As a fierce battle brews between entrenched networking-equipment
makers and their upstart competitors, producers of specialized
networking chips are serving as the arms dealers and their
ammunition keeps getting more potent.
Broadcom Corp. and its peers have been churning out new chips to
help devices like switching systems move data between computers and
the Internet. Products from the so-called merchant-chip suppliers
are increasingly popular among network-hardware companies that
don't want to design semiconductors themselves.
Big networking-equipment makers like Cisco Systems Inc. and
Juniper Networks Inc. have long distinguished their products by
developing their own chips. But the merchant-chip makers are
fueling new competition.
Merchant chips are popular with both well-known equipment
suppliers and so-called "white box" network-gear makers from Taiwan
and China, which have also been aided by the rise of new networking
software. The trend parallels what happened earlier in personal
computers and server systems, allowing many companies to use
standard chips and software to make compatible products that are
often distinguished mainly by price.
Networking-equipment companies purchased about $7 billion in
merchant chips in 2013, estimated Bob Wheeler, an analyst at Linley
Group, in the research firm's most recent report. Broadcom
commanded 39% of the market, and Intel Corp. was its closest
competitor with an 8% share.
On Wednesday, Broadcom, the biggest maker of chips used in
networking boxes, announced high-performance additions to a chip
line that it expects to be widely used in both switching systems
and routers that help direct Internet traffic.
"One of the big things that we are driving in the industry is a
slow but steady conversion from in-house solutions to merchant
chips," said Rajiv Ramaswami, the executive vice president and
general manager of Broadcom's infrastructure and networking
group.
"Broadcom has done a really good job on execution, coming out
with many generations of new silicon in rapid succession," said
Andy Bechtolsheim, a well-known Silicon Valley hardware designer
and the chairman of Arista Networks Inc., which uses chips from
Broadcom and other vendors.
Other merchant-chip vendors have been just as busy. Cavium Inc.,
for example, last week used a conference in Silicon Valley to
announce the first networking chips stemming from its acquisition
last summer of Xpliant Inc. It seeks to use software enhancements
to distinguish its products from Broadcom's.
"What we are bringing to the market is not a me-too solution,"
said Syed Ali, Cavium's president and chief executive.
Intel, also exploiting acquisitions, sells chips that move data
at high speeds in addition to its better-known processors, which
handle computation. The Silicon Valley giant recently started
showing customers samples of a chip code-named Red Rock Canyon.
Other players in the market include Marvell Technology Group Ltd.
and Mellanox Technologies Ltd.
Cisco and Juniper aren't about to shut down their own
chip-design efforts. Although they use merchant silicon to power
some hardware, both companies still use proprietary chips to
differentiate high-end products.
Juniper, for example, last week announced new routing equipment
that incorporates what the company called the world's most powerful
networking chip, which was developed internally. The company said
the new product provides four times the performance of previous
Juniper chips.
"We cannot do that with merchant silicon," said Rami Rahim, the
company's chief executive.
Cisco also uses chips from external suppliers as well as
designing its own. The company, whose chief executive, John
Chambers, has at times called white-box networking one of its
biggest threats, is also pushing software advances to make Cisco a
broader partner with its customers.
"We will continue to invest and drive innovation in both custom
and merchant silicon platforms so that our customers will always
have options and choice," a Cisco spokeswoman said in an emailed
statement.
At the other extreme is Arista, a fast-growing maker of
networking equipment that uses merchant chips exclusively. The
company originally relied mainly on networking chips from Fulcrum
Microsystems Inc., a company bought by Intel in 2011. Lately,
however, Arista has also turned to Broadcom to power its switching
systems.
Mr. Bechtolsheim, who worked at Cisco and co-founded computer
maker Sun Microsystems Inc., said that networking companies could
gain technical advantages by designing their own chips. The trouble
is, he said, the design process is so costly they would need to
sell millions of units to make the effort worthwhile, and that's a
prospect that's out of reach for most equipment makers.
Write to Don Clark at don.clark@wsj.com
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