SAN FRANCISCO --
will buy network chip start-up
for $430 million, a move that puts the communications chip giant in direct competition with
in the emerging market for network processors.
The devices are programmable off-the-shelf chips that go into network routers and provide a cheaper alternative to custom chips made in-house by equipment makers such as
estimates the market will grow to $1 billion a year by 2003.
Motorola will issue 2.9 million shares of common stock to fund the purchase. C-Port, a 3-year-old company, has been closely watched in the industry for its network chip design for high-end routers in optical networks. Since Motorola already makes processors geared for the opposite end of the network, the purchase allows the company to straddle both ends of the market.
The acquisition could be the first of many the Street will soon see. Intel first threw open the curtain on this market Sept. 1, when it
unveiled its own network processor.
Peter Glaskowsky, an analyst at technology research firm
, estimates that dozens of companies are preparing to launch similar products. These include established companies like
and a host of start-ups such as
, led by Dan Dobberpuhl, a former
Digital Equipment Corp.
engineer who helped develop the
technology, which is at the heart of Intel's own network processor.
"We already have about 15 companies, and another 15 will come forward in the next year or two," Glaskowsky says. "If anyone asks us if they should get into this business, we are already discouraging it."
Besides, he expects to see large Japanese chipmakers like
enter the market. "They haven't been active in networking, but it wouldn't surprise me to see many of them come out and acquire start-ups."
At the same time, Cisco and other makers of custom-designed chips -- known as ASICs, or application-specific integrated circuits -- are still in the game. While the off-the-shelf processors will likely replace the custom products in mainstream equipment, says Tom Halfhill, embedded chip analyst at MicroDesign Resources, at the highest-end the custom chips still provide the highest speeds possible. Others in the field include companies that make chip technology used by Cisco for its custom chips, such as
Quantum Effects Devices
which raised $60 million in its Feb. 1 IPO, and start-up
of Waltham, Mass.
The market is just too good and too wide open at this time for any processor maker worth its silicon to ignore, says Glaskowsky. He likens it to the beginning of the graphics chip market, which started out five years or so ago with about 40 companies and turned into a brutal sector in which the leader one day would be unseated six months later, as competitors came out with new and better designs.
The players themselves know the competition will be rough. "A market this size becomes very attractive," says Dan Artusi, general manager of Motorola's networking and computing systems group. "A lot of people will see the opportunity to jump in. But we have been in that market, and we are involved with those customers. We are already working will all the major telecom network equipment suppliers."
Each chipmaker claims to be ahead in the game. "We don't see anyone with a product offering as broadly applicable as what we offer," says Intel spokesman Tom Beerman. "A lot of companies are talking about network processors, but I'm not sure of more than one besides Intel that is actually shipping."
For now, these companies are racing to deliver product. C-Port sampled its first processors in the fourth quarter of last year and will produce them in high volume this summer, says C-Port founder and CEO Larry Walker. Intel unveiled its processor in late August and announced Feb. 16 that it had signed 30 customers.
How do you tell who's on top? Glaskowsky says watch not only for the names of new customers, but the particular products the chips will go into. "Cisco makes products that sell in the hundreds, and it makes products that sell in the hundreds of thousands," he says.
Intel's Beerman agrees that market dominance will depend on who gets the highest-volume sales. "It's too early to tell," he says. "But clearly we are after the high-volume wins."