BRCM: Launches 10-Gigabit Ethernet Product (this is from LB on the JDSU thread thanks LB)
Broadcom Corp Cl A(BRCM)*
Rating: 1S
Salomon Smith Barney ~ May 2, 2000
05/02/00 Broadcom Corporation (BRCM $174.25,1-S,Tgt $250.00) Clark West
--SUMMARY:--Broadcom Corporation--Semiconductors
* Broadcom has introduced its first optical chip, a 10-Gigabit Ethernet
(10-GbE) transceiver.
* Since the 10-GbE market is still pre-standard, the financial impact for
Broadcom will likely be undetectable for the next year or more.
* More importantly, the announcement officially signals the company's
much-anticipated entry into the optical chip space.
05/02/00 Broadcom Corporation (BRCM $174.25,1-S,Tgt $250.00) Clark West
--EARNINGS PER SHARE--------------------------------------------------------
FYE 1 Qtr 2 Qtr 3 Qtr 4 Qtr Year
Actual 12/99 EPS $0.07A $0.09A $0.13A $0.15A $0.45A
Previous 12/00 EPS $0.18A $0.19E $0.21E $0.22E $0.80E
Current 12/00 EPS $0.18A $0.19E $0.21E $0.22E $0.80E
Previous 12/01 EPS $0.25E $0.27E $0.28E $0.30E $1.10E
Current 12/01 EPS $0.25E $0.27E $0.28E $0.30E $1.10E
Previous 12/02 EPS $N/A $N/A $N/A $N/A $N/A
Current 12/02 EPS $N/A $N/A $N/A $N/A $N/A
Footnotes:
05/02/00 Broadcom Corporation (BRCM $174.25,1-S,Tgt $250.00) Clark West
--FUNDAMENTALS--------------------------------------------------------------
Current Rank........:1S Prior:No Change Price (05/01/00)....:$174.25
P/E Ratio 12/00.....:217.8x Target Price..:$250.00 Prior:No Change
P/E Ratio 12/01.....:158.4x Proj.5yr EPS Grth...:50.0%
Return on Eqty 99...:N/A% Book Value/Shr(00)..:2.63
LT Debt-to-Capital(a)0.1% Dividend............:$N/A
Revenue (00)........:933.90mil Yield...............:N/A%
Shares Outstanding..:250.7mil Convertible.........:No
Mkt. Capitalization.:43684.5mil Hedge Clause(s).....:
Comments............:(a) Data as of the most recently reported quarter.
Comments............:
05/02/00 Broadcom Corporation (BRCM $174.25,1-S,Tgt $250.00)
--OPINION:------------------------------------------------------------------
Broadcom made its first splash into the optical chip market with a device
designed for 10 billion bit per second Ethernet. While the revenue
impact is likely to be tiny over the next year or two, it signals the
beginning of Broadcom's foray into optical transmission applications.
Broadcom Enters the Optical Market
Broadcom has introduced the BCM8010, its first product designed for
optical network interfaces. When coupled with a coarse wave division
multiplexing (CWDM) optical module from suppliers such as MRV
Communications, the BCM8010 combines four channels of 2.5-gigabit per
second (Gbps) transmission to form the physical layer interface for
10-Gigabit Ethernet (10-GbE).
The part performs two primary functions: serialization/deserialization
('SERDES') and clock synchronization. The SERDES function is necessary
because optical networks carry data in rapid-fire light pulses, one bit
at a time. Equipment is constructed to process data in byte-wise
fashion, however, so the SERDES converts the serial stream into a
parallel phalanx--as well as reversing the process in the outbound
direction. The device also accomplishes the tricky task of detecting the
timing of the incoming stream and synchronizing it to the host system
clock.
In our view, 10-GbE is an evolutionary step in the Ethernet staircase.
For reference purposes, currently available 1-GbE transceivers sell for
under $5 per channel. Vitesse Semiconductor and Agilent are the primary
incumbents at 1-GbE rates, and both use more exotic technologies such as
Gallium Arsenide (GaAs) and bipolar processes. Broadcom has achieved
this milestone using standard CMOS manufacturing technology and pricing
the part for just $88 in sample quantities. While Vitesse and Agilent
both have 10-GbE products on the drawing boards pending more standards
development, Broadcom has opted to make an early jump on the market.
Given the embryonic size of the 10-GbE market, however, we expect that
this announcement will add little incremental revenue for Broadcom over
the next twelve to eighteen months.
Broadcom is planning to broaden its optical horizons to include Fibre
Channel chips, OC-n (e.g., OC-48 and OC-192) transceivers and framers, as
well as more GbE variants. Since Vitesse has derived a good percentage
of its growth over the last year from Fibre Channel and GbE chip sales,
it is the most exposed to Broadcom's immediate ambitions. As Broadcom
adds OC-n transceivers and framers to its portfolio, the company will
increasingly compete with AMCC, Conexant, Intel (Giga), Lucent
Microelectronics, PMC-Sierra, TranSwitch, and others in the optical
transmission space.
Sizing the Market
We believe the push to develop 10-Gigabit Ethernet will reach a loud
pitch over the next two years, although the dollar sales will remain
small. For comparative purposes, we estimate that there was less than a
million 1-GbE ports shipped last year, generating only $7 million or so
for transceiver chip vendors. 10-GbE is unlikely to surpass that mark
before 2002, or more likely 2003.
The argument for 10-GbE is highlighted in the nearby figure. For years
there has been a significant mismatch between transmission rates in the
LAN and WAN. For example, today's LAN mainstream 100 Mbps Fast Ethernet
has no close equivalent in the WAN. If a corporation wanted to create an
unconstrained connection between far-flung Fast Ethernet networks, the
best option available from a carrier would be a 155-Mbps OC-3c
connection--an expensive proposition with 55 Mbps in theoretical excess.
The two roads may finally converge with both LAN and WAN interfaces
working at close to 10 Gbps. Proposals for the 10-Gbps Ethernet
specification under the 802.3ae moniker are still moving through the
Institute of Electrical and Electronics Engineers (IEEE) standards body,
but pre-standard products are beginning to appear on the market.
At a minimum, the demand for 10-GbE will be driven by the need to
aggregate GbE traffic. Typical applications could be Web hosting sites
such as Exodus or large network attached storage (NAS) server farms at
Fortune 500 companies.
It is possible, however, that 1/10 GbE could become a popular way of
taking advantage of Passive Optical Networking (PON) and the provisioning
of lambdas on demand.
It is still early, in our opinion, to judge the feasibility of these new
network constructs. In any case, while the number of ports shipped may
remain very small relatively to more established technologies until the
2004 time frame, 10-GbE is further proof of the scalability and
durability of Ethernet. |
