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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