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Ikanos Picks Up Alcatel’s Check

imageIkanos (IKAN) announced last week that it would pay a ‘leading European OEM’ $1.6M in return for a development agreement, most likely Alcatel. This is a very odd deal and is worthy of closer examination.

From the release:

Ikanos Communications, Inc … today announced that it has entered into a $1.6 million strategic non-exclusive development and feasibility study agreement with a leading European original equipment manufacturer (OEM) that supplies solutions that deliver triple play services. This extension of the parties’ relationship leverages the OEM’s extensive DSL and networking system expertise, sets forth a time line that is compatible with Ikanos’ next generation design cycle, and explores highly integrated, low-power architectures for next generation, multi-mode VDSL2/ADSLx products …

 This is what we have been able to deduce.

  • Ikanos is paying a certain Euro OEM and in return they receive guarantees that this OEM will reach certain deliverables within a given time frame. These deliverables could be revenue or development milestones – most likely development milestones.
  • The agreement is for a next generation VDSL product with the market share leader in Europe. They are also an existing customer. Alcatel-Lucent (ALU) closely fits this description.
  • There is some degree of exclusivity in the relationship. The customer does not have exclusive use of the next generation IKAN product, though Alcatel may have agreed to exclusively use Ikanos if they hit certain development guidelines. This is unclear.
  • Conexant (CNXT) supplies Alcatel in the US market, and Infineon (IFX) was in competition with Ikanos for the Alcatel European/Asian market.

New chips are prone to bugs and the customers that are first to power them up express frustration that chip vendors use their systems to help debug beta silicon- incurring significant costs in the process. Ikanos appears to be defraying the costs associated with one of their customers qualifying new silicon.

Alcatel is the #2 provider of DSL equipment worldwide and a leading provider of optical access hardware, and the future of VDSL is providing the last 100m link in certain optical access situations. Since Alcatel is not a 10% customer for Ikanos it is hard to deny the importance of forging a strategic relationship with this supplier. Ikanos already supplies VDSL for leading Korean and Japanese equipment makers engaged in FTTH build outs. (see “The Proving Ground of NTT“)

$1.6M is not an enormous amount of money when compared with the $10M+ R&D risk capital Ikanos must invest in next generation silicon. When viewed in the context of locking up the leading vendor in the field and protecting this large R&D investment, the deal makes sense. This is what market leaders do – they freeze the market. Perhaps Infineon couldn?t do a deal like this (corporate gridlock) so Ikanos put this on the table.

The unprecedented nature of this deal shows how the competitive dynamics of the VDSL silicon business have changed. In a previous life, Ikanos held such a technological lead that it could dictate terms to customers who needed their silicon. Competitors have caught up and now it is the equipment vendors that carry the stick.

Comments and corrections welcome.

Author is long IKAN


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  1. I rather believe the OEM in this deal may be Sagem. Just take a look at the IKAN customers list. Would make a lot of sense because they also have a high volume low cost production site in North Africa.


    Posted by Taro A | September 6, 2007, 11:21 AM
  2. TA’s guess seems likely. IKAN is all about CPE gear. This is more up SAGEM and Thomson’s line of expertise.

    Posted by iain | September 7, 2007, 10:51 AM
  3. Knowing that Andrew has strong connections in France and Italy, maybe he should check with Irtaly too?


    Posted by Taro A | September 7, 2007, 1:06 PM
  4. Unless Andrew comes up with some beef to back up his Alcatel story connection, I believe I have good reasons to believe that the European OEM partner mentioned is Sagem and not Alcatel.
    Should that in deed be the case I would kindly ask Andrew to correct his much published statement accordingly.


    Posted by Taro A | September 8, 2007, 3:04 PM
  5. I spoke with the company and the words they used were “the customer has the lions share of the European market”.

    I’ve spoken with others and the consensus is Alcatel.

    That being said, the consensus is often wrong.

    What have you done to believe it is Sagem? I can’t deny that it could be them as well.

    Posted by Andrew Schmitt | September 9, 2007, 7:44 AM
  6. How active is Alcatel in the CPE area? That’s where the volume is and that’s where the next wave of revenues are supposed to come from. Sagem has a “lions share” of the European VDSL2 CPE business right now and also, with IKAN is making progress in ADSL2 in several European markets besides France. They badly needed a solid ODM partner. My bet is Sagem but I have no solid evidence to back that up. Some of your former colleges from VTSS may know more, in particular if located in Italy or France.


    Posted by Taro A | September 9, 2007, 11:17 AM
  7. Taro

    I wasn’t aware of the fact Sagem is deploying VDSL2-based residential gateways. In fact ,I don’t think the VX180 is in volume shipments. Could you please elaborate?

    I must admit that from what I can understand ,the OEM customer comes from the DSLAM side and not from the residential gateway side. Until proven otherwise, i think it’s Alcatel.

    do you guys have any idea as to the timeline for this joint development? Does it have anything to do with Alcatel’s 48-port ADSL/VDSL2 line cards powered by IKAN? Is it a second generation of that product?

    Posted by Ohad | September 9, 2007, 3:38 PM
  8. Correct, Sagem isn’t shipping VDSL2 CPEs at this time (Gemtek is, on Vx160 basis)- but that doesn’t mean they don’t plan on doing that. If Ikanos firmly believe they have the customers lined up and ready to go soon but Sagem isn’t too convinced, then we may a chicken and the eggs situation, right? The key to that could easily be pre funding of platform developments to be ready to win some of those upcoming tenders.

    Having local production (almost) and a good track record Sagem would be the ideal partner to book the lions share of those tenders. When – or if – they come.


    Posted by Taro A | September 28, 2007, 10:53 AM
  9. Ikanos has a lion share of European VDSL2 right now (through Gemtek), Sagem doesn’t. Sagem has an important share of Ikanos based ADSL2 European business right now and just won an another tender, I believe in Italy. Just wanted to correct where I contradicted my self above. We all make mistakes…


    Posted by Taro A | September 28, 2007, 1:55 PM
  10. At this point I believe my analysis was wrong in naming Alcatel as the vendor. I agree with the above commenter that it was most likely Sagem based on subsequent discussions I had.

    Posted by Andrew Schmitt | October 21, 2007, 8:31 AM
  11. Thanks for the update, Andrew.

    Is the jump in VDSL CPE shipments in Q2 attributed to Sagem?

    Posted by Ohad | October 24, 2007, 12:05 AM
  12. Andrew, your original analysis was right. the leading european OEM is indeed ALU!

    Posted by ohad | December 6, 2007, 8:28 AM