CHIP VENDORS CASH IN

If you were counting them, here's another positive consequence of the industry downturn: It forced companies such as Parama Networks and Galazar Networks, which started life as system vendors, into the less capital-intensive chip business. Those start-ups, making use of the unyielding march of silicon advancement as well as their own system development expertise, have reached a level of chip integration that threatens to transform the entire relationship between chip and system vendors in optical networking.

Parama claims to have introduced the “world's first add/drop multiplexer (ADM) on a chip,” the last three words being easier to prove than the first two. (RHK analyst Allan Armstrong says Galazar may be neck-and-neck with Parama, though Galazar is targeting the edge while Parama targets the core.) With a built-in cross-connect and eight tributary framers — each configurable from OC-3 to OC-192 — all on a single chip, Parama claims to be able to do in one 8-inch by 6-inch card what it takes Cisco an entire shelf to do. It consumes one-fifth the power of existing technologies at one-third the price, according to Parama — claims Armstrong said may very well be true.

Parama execs are not only comparing themselves to Cerent Networks and Juniper Networks, whose in-house ASICs teams designed their own chips, achieving a level of chip/system integration that established both companies as serious players in the industry. (Cerent was bought by Cisco Systems; its box became Cisco's flagship 15454.) Parama's team wants to be able to make a Cerent out of anybody. When chip vendors take on more transport functionality, they may gain more influence in the industry, said Parama CEO Hemant Bheda.

“Intel used to supply microprocessors to the IBMs of the world, and the IBMs were distributing PCs,” Bheda said. “IBM was controlling the architecture. When the technology grew to a certain point, it made more sense to put the entire system on a chip, and Intel started controlling the architecture along with MicroSoft. Now the IBMs and the Dells of the world differentiate their products by providing service. We see similar things happening now in the transport industry as well.”

“I think they're getting a little bit ahead of themselves,” said RHK's Armstrong. “I think system vendors will still drive the requirements. Intel today puts out a new Pentium and everybody's got to fall in line. I don't see that happening in the optical networking business for a number of years.”

However, as chip vendors tackle more of the commodity transport work, system vendors will be freer to spend their energy creating software-based features that will differentiate them from other system vendors, a prospect the system vendors would probably prefer.

“The typical boxes out there like Lucent's DMX or Fujitsu's Flash or Cisco's 454 — those concepts were all dreamed up 10 years ago or so,” Armstrong said. “Silicon's come a long way. You can now do things you couldn't think of before. I'm not sure how system vendors are going to capitalize on this, but I think there's a big change coming.”