Broadcom keeps looking over their shoulder at Intel, they need to look over the other shoulder.
IBM Unveils New Networking Chips, Wins Cisco Deal
By Nicole Volpe
NEW YORK (Reuters) - International Business Machines Corp. (NYSE:IBM - news) on Monday unveiled new networking chips, including a processor that allows for less expensive customization by using software rather than design changes.
Cisco Systems Inc. (NasdaqNM:CSCO - news), the top maker of computer-networking equipment, is developing the new IBM network processor for an advanced networking system, IBM said, declining to give further details about the system.
The Cisco deal was the latest in IBM's efforts to win over top-tier networking customers amid market turmoil that has given a rough ride to many of its upstart and even established competitors in the communications sector.
Indeed, Armonk, N.Y.-based IBM beat out Intel Corp. (NasdaqNM:INTC - news), the world's biggest chipmaker, on the project with Cisco, an industry source said.
``This was an excellent win on IBM's part,'' said Frank Dzubeck, analyst with Communications Network Architects. ``It establishes for them a stronger base within Cisco.''
Financial details of the deal were not disclosed, and Intel was not immediately available for comment.
IBM's focus on advanced custom chips has allowed it to sidestep the worst of the downturn in demand for communications gear -- and the world's largest computer maker is currently investing $5 billion to build out its chipmaking capacity.
``We're succeeding in the demanding networking industry because our uniquely diverse and robust product portfolio is suited for a wide range of established and emerging customers,'' said Christine King, vice president of semiconductor products for IBM.
Other companies in the communications chipmaker sector include Broadcom Corp. (NasdaqNM:BRCM - news), Applied Micro Circuits Corp. (NasdaqNM:AMCC - news) and Intel. Many of these companies have seen sales dry up amid an economic slowdown and a buildup in inventory.
IBM and Intel are vying for the top position in supplying high end network processors, Dzubeck said, adding that market researchers predict the sales of the chips could go as high as $4 billion to $6 billion per year by 2004.
``But don't expect this to be a two-horse race,'' he said. ''You can find that with a Broadcom there could be with a few acquisitions they take a great leap forward.''
IBM said sales of its networking chips, housed in its microelectronics group, tripled in the first quarter.
``We've focused on the leading edge chips,'' IBM Technology Group Executive John Kelly said in a telephone interview. ''We're not immune to a downturn, but a lot of the falloff has been in older products.
``We've seen a tremendous pull from customers who need more performance, who are looking for that next generation chipset,'' he said.
Chief Financial Officer John Joyce said earlier this month that that the overall microelectronics group would show double-digit sales growth over the next year, factoring in the glut in inventory being felt by its customers, such as Cisco.
``We have looked at our customer set in microelectronics going forward, and we have anticipated what we think those customers would be purchasing from us,'' he said. ``That is why I give the double-digit revenue growth going forward which is what we would expect out of microelectronics out through the rest of the year.''
He added that once IBM wins a customer on the strength of a chip design, it was likely to hold onto that customer.
``Once you win that design win going forward, the chances of a change are small,'' said Joyce.
On Monday, IBM unveiled the network processor, which is designed to allow customers to easily tailor the chip for specific systems or performance requirements. This allows a customer to help network administrators deliver new services, such as moving audio or video downloads across the network.
IBM also introduced a testbox for customers to work with to determine how the processor will perform within their systems. And it debuted a few new family of cores -- the building blocks that connect together to create a system on a chip -- which includes things such as processor, memory and wireless networking systems.
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