http://www.transwitch.com/news/article/index.jsp?news=412

What do you make of that?

Current chip vendors only have the higher volume cell site sized EoPDH solutions. They seem to be resisting the R&D spending to create the chips for the aggregation port (GigE) to hand off to the packet networks. This seems to leave an FPGA IP vendor, TPack as one of the few ways to create this aggregation port. The costs seem rather high for this solution (Large FPGA cost plus large IP cost = expensive solution).

Marvell and Broadcom are VERY BUSY just competing in the enterprise markets and have little bandwidth to apply to the MUCH lower volume Telecom requirments market. They will try to put in support in their standard products but they are not looking to become PMCS (and why would they).

Just My Personal Opinion
This may or may not represent my employer’s position.

jmunn

At the same time there is an explosion in what I call ‘exception processing’ with deep packet inspection capabilities. This is where the NPUs and FPGAs live. The overall volume here is lower though the value is much higher.

one of the point that is missing so far is that FPGAs from Xilinx and Altera have been filling in a lot of the gaps left by ASSP companies.. as such FPGAs have been beneficiaries of lower volume, reduced R&D by PMCs of the world.

As cost of development growing with Moore’s law, FPGAs will continue to hold strong in this space even with revived spending by telcos and therefore increasing volumes.

On another note, Andrew, I am curious to know what you think about the PON ASSP gold rush – at this point, there are at-least 6 companies (probably 8 or more as rumor for new one shows up almost every month) going after the PON MAC space. Is there enough room for so many players? specially when you think of at-least two of them working on central office chips as well!

five_whys

1) This was not apples to apples, the ASP declined 15%
2) I will give you ASP decline assumption if you accept a similar COGS decline assumtion over the some period (“things” travel downhill).
3)In many cases prices (ASP)have gone up in the mentioned chip markets (per Herb’s commens on TXCC margins) as volume has not met expectations (jusy ask ALU after their annual “vendor negotiation” meetings in NJ recently.
4)Outside of those mechanical issues, your points on the impact of margin on chip co’s are on target.

However, for the future, as you said, I would not fight Ethernet. That fight is over. However, The time constant for change is high because these are changes to public infrastructure (privately owned maybe) networks and equipment and therefore any transition technologies such as those described above will last for a long time, albeit with long term modest growth that comes in bursgt mode.

Having said alll this, Ethernet leaders like BRCM and MRVL have to make the necessary increases in complexity for public infrastructure. Such as the network maintenance, service levels, guarantees etc. This is not in the DNA of the mass market Ethernet switch companies. it is acutally in the DNA of the telecom companies.

This leaves the question, in my mind, of who wins – still open. Companies like TXCC may be too small, but PMCS, LSI/Agere and others may have a chance if they still chose to play in this market. I am not convinced that BRCM will win or even has a prayer. If they acquire a WAN company, then that changes the game.

For TXCC, 1998 saw gross margins of 62% or so. Today, that number would be in the 70-73% range. These numbers are not directly comparable because the company has upscaled in terms of the relative complexity of their devices.

The question, as well as Lee Goldberg’s editorial, was really directed at the exceptions. I think it is probably pretty well established that there is no need for a next generation of straight framers. But is there a need for further generation of EoS framers? TranSwitch and Galazar both have Ethernet-over-PDH devices. Is there a need for another generation of these devices? TranSwitch and Zarlink have circuit emulation chips. Do we need open ended development here as well?