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Will LSI venture into Ethernet?

Posted: 30 May 2008 ?? ?Print Version ?Bookmark and Share

Keywords:LSI Ethernet? storage? networking market? 10GbE?

In his first 24 months as a CEO, Abhi Talwalkar has been part of five acquisitions, two divestitures, a $3.5 billion merger and a radical restructuring in the manufacturing strategy of LSI Corp. But his work is far from over.

For a company now focused exclusively on storage and networking markets, it has a glaring lack of standard Ethernet products.

Plenty of start-ups are prime acquisition targets to fill the need including 10GbE specialists such as Aquantia, Chelsio, Solarflare, ServerEngines and many others. (LSI already has an investment in Chelsio.) Alternatively, the growth could come organically because LSI has many of the key gigabit and 10GbE capabilities in house in its still active ASIC group.

Just what will happen and when is unclear. But Talwalkar is clearly exploring his options, even if he isn't willing to provide much detail on his thinking at this stage.

Networking silicon "is an area of development and we are working on making it a bigger part of our business," said Talwalkar in an interview at the company headquarters. Whether he wants a portfolio of standard Ethernet products to go up against the Broadcom's and Marvell's is still unclear.

"It's not something we have decided on," he said. "We're looking at that market overall in terms of data center fabrics. You can't be participating in that market and not see what's going on in fabric convergence," he added, referring to the move to put more traffic over fewer networks.

Market concerns
Talwalkar is quick to point out that LSI currently has multiple ASICs in the works with customers building Fibre Channel over Ethernet products, one of the key directions in networking convergence for companies such as Cisco Systems and IBM Corp. The company is also working on Gigabit and 10GbE ASICs.

"It's a question of whether we want to participate in [Ethernet] in a broader way," said Talwalkar. "Right now our plan is to participate through our custom approach."

Market timing is part of the equation. "There have been hundreds of millions invested in the [10G] curve that has been in front of us for the past 7-8 years, but it is much more real now than it ever has in terms of deployments of switches and intelligent server cards in the next 12-24 months," he said.

Networking represents just 20 percent of LSI's business today, the rest coming from its storage division. Having a strong 10GbE offering could bolster both groups strategically, said Linley Gwennap, principal of market watcher The Linley Group. That's because the storage networking sector is one of the fastest growing segments in business computing today.

Much of today's LSI is the result of the $3.5 billion merger with Agere Systems, the former semiconductor unit of AT&T. Agere added read channel chips to LSI's position in hard disk, RAID and storage interface components. It also brought a wealth of networking chips both in datacom products for business computing as well as telecom parts for service providers.

New phase
After the merger, LSI sold off Agere's cellular baseband business to Infineon for $446 million. It separately bought a hard disk chip business, giving it pre-amp components and some of its first design wins with Hitachi Global Storage Technologies.

"Every one of the top hard disk makers is a customer of ours today," he said, noting hard drive silicon is a growing multi-billion dollar market and the only storage market where LSI participates but is not the number one player. "Our market share in this sector is in the mid to high '20s, so we are far from saturated," he said.

Despite consolidation both among drive makers and their suppliers, "the hard disk industry is probably healthier today than it has been for a long, long time," Talwalkar said. "Solid state drives will play a role, but the hard disk industry is not going away and will probably continue growing at 12-15 percent a year in terms of units," he added.

With its strategies in storage and networking starting to emerge, Talwalkar claims LSI is entering a new phase of its life since he was brought on in May 2005 by the company's founder Wilf Corrigan to lead a corporate restructuring.

"I claim the transformation is behind us, and we are in a mode of execution," said Talwalkar. "The last three quarters we've exceeded expectations and seen bottom line expansion and design win expansion at record levels. We've stopped calling on markets beyond storage and networking, so it's all about delivering higher levels of value in those two markets."

That means LSI needs to supply an increasing amount of the silicon blocks for the ASICs it builds, something Talwalkar claims is happening. Customer supplied intellectual property "is probably down to 20 percent and we're bringing 80 percent of the IP to the table ourselves," he said.

The transformation for LSI does not mean the end of ASICs, which still make up nearly half the company's business.

There are some segments in storage and networking that will always be custom like hard drives," he said. "There are a lot of common foundation blocks for these components, but you can't take a chip from a Seagate drive and plug it into a Western Digital drive," he said.

Thus LSI's business "will slowly lean more to standard products, but some of our segments will continue to be custom in nature," he said.

Going fabless
In a more radical shift, LSI is now almost completely out of manufacturing, turning to third parties such as Taiwan Semiconductor Manufacturing Co. and Chartered Semiconductor to make and package its chips and boards. It sold its fab two years ago, sold assembly and test operations six months ago and is about to dispose of a systems manufacturing site in Kansas.

"This will be the last quarter we will do any of our own internal manufacturing," said Talwalkar.

That's quite a shift for the company that once set the pace in being an ASIC designer and foundry for Silicon Valley. But the industry is also about rapid change, and Talwalkar gets that.

"You have to have scale and innovate or you are going to die a slow deathor maybe a fast one," he said.

- Rick Merritt
EE Times

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