Joey & Intel Invesors - Intel's Purchase of Level One may be starting to pay off already.
Intel set to debut Layer 3 chip of Level-One
This chip will help grow Intel's Communications/Networking businesss.
Paul
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Intel set to debut Layer 3 chip of Level-One
By Mark LaPedus, Electronic Buyers' News May 7, 1999 (1:52 PM) URL: ebnews.com
LAS VEGAS — Having dominated the PC space, Intel Corp. is now looking to conquer another huge market: communications ICs. In just the past three months, Intel has transformed itself from a niche supplier of LAN-card semiconductors into a communications-IC powerhouse, selling products that extend from the LAN to the WAN. At the Networld+Interop trade show in Las Vegas later this month, Intel and its latest acquisition, Level One Communications Inc. (Sacramento, Calif.), will give OEMs a sneak preview of a new high-end LAN-switch chip for Fast Ethernet and Gigabit Ethernet networks, sources said.
Developed by Level One, the 24-port device is targeted at the hottest market in switching — Layer 3, which enables packet data to be directly routed from one specific Internet Protocol (IP) address to another over a network. Layer 2 switches, which simply send packets of data over a network, are the most common products on the market today, but these systems are under extreme price pressure, analysts said.
Officials from Level One declined to comment on the chip.
The new Intel subsidiary is likely to face tough competition. Competing switch-chip makers — including Broadcom, Galileo, MMC Networks, PMC-Sierra, and Vertex — are also chasing after the Layer 3 market, a business that reached $886 million in hardware sales last year, according to In-Stat Group (Scottsdale, Ariz.).
With its own move into the switch-chip market, Intel is quietly putting the pieces in place to become a powerful one-stop shop for components for LAN/WAN applications, according to Richard Faust, an analyst with Kaufman Bros. LP (New York). "Intel realizes that it needs to enter new markets because the PC business is slowing, but it goes beyond that," Faust said. "Intel hopes to dominate all networking platforms — remote-access equipment, routers, switches, and others."
Intel's networking-chip and -equipment business was roughly 5 percent to 10 percent of the company's total sales in 1998. At a recent analysts' conference, Mark Christensen, vice president and general manager of Intel's Network Communications Group, said the company hopes to grow this business by 30 percent a year.
Intel's $2.2 billion acquisition of Level One will give it a head start on that target. Level One is a leading supplier of of T1/E1, xDSL, and related LAN/WAN chips.
Last month, Intel entered two additional markets: high-end network processors; and home-networking chips and equipment.
Despite the aggressive moves, the company faces some difficult challenges, according to observers. In the chip arena, Intel could face some adversity because it competes against its chip customers, selling its own hubs, switches, remote-access equipment, and other LAN/WAN products, Faust pointed out. "Intel will have a difficult time in the [communications-IC] market," he said.
Nonetheless, competitors are keeping a close eye on Intel's networking-chip efforts, especially in the rapidly growing switch-IC business. About 1.5 million switch controllers were shipped last year, according to In-Stat.
"Intel will be a tough competitor," said Douglas Spreng, president and chief executive of MMC Networks Inc. (Sunnyvale, Calif.), one of the few merchant suppliers of switching chips for Layer 3 applications.Spreng pointed out that many OEMs buy Layer 2 chips from merchant suppliers. But in the past, OEMs have developed their own Layer 3 controllers in-house due to the lack of merchant parts on the market today.
However, increased demand from OEMs has sent a handful of companies into the market. Broadcom Corp. (Irvine, Calif.) acquired Maverick Networks Inc., a fabless IC designer now developing these types of products. And Israel's Galileo Technology Inc., the acknowledged leader in the Layer 2 switch-chip market, plans to have its Layer 3 products out later this year, according to Mitch Kahn, Galileo's vice president of marketing. The company's U.S. office is located in San Jose, Calif.
"Layer 2 will remain the largest part of the [switch-equipment] market for a long time," Kahn said. "We also realize that Layer 3 will become a big market, but it's a lot tougher to develop [the silicon] than people had originally expected. Layer 3 is more software-intensive than Layer 2." |
