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Questioning Market Leaders For Long Term Investors


WILLIAM WEIR - POWER X NETWORKS
CEO Interview - published 11/13/00

DOCUMENT # LAD200

WILLIAM WEIR is Vice President, Marketing, of Power X Networks Inc. Mr. Weir brings over 20 years of semiconductor experience and almost 30 years in the electronic components field to Power X Networks. As a member of the executive staff, his responsibilities include product marketing and roadmap definition, strategic planning, and corporate marketing worldwide. Prior to joining Power X, Mr. Weir served as Product Line Manager for Agilent Technologies, where he directed the marketing efforts of the Network Products Operation. His responsibilities included strategic and tactical marketing management for all standard and ASIC IC products spanning the Networking, Server, and Storage Area marketplaces. Mr. Weir joined HP/Agilent from SEEQ Technology, where he was Director of Worldwide Marketing. As a member of the corporate staff responsible for product direction, he successfully repositioned the company in the Fast Ethernet Physical Layer marketplace, complementing SEEQ’s strong position in Layer 2 media access controller technology. Prior to SEEQ, Mr. Weir was Founder and Vice President of the Data Communications Business Unit and a corporate officer at Integrated Circuit Systems (ICS), where his team designed and introduced the first single chip CMOS 10/100 Base-TX Ethernet PHY transceiver in 1996. During his five years at ICS, Mr. Weir was involved with Ethernet and ATM communications technologies, and high-performance clock generation products. Mr. Weir has also held senior management positions in marketing, sales, and engineering for Sprague Semiconductor Group/Allegro Microsystems, Solid State Scientific, Inc., and Ford Electronics. He holds a BSEE from Bucknell University and an MSE from Pennsylvania State University. He has co-authored an article on high-voltage CMOS processes, and has been a past member of various IEEE committees, as well as the IEEE and AES societies.

Sector: Semiconductor Equipment

TWST: Could we start out with a history and a quick overview of Power X Networks?

Mr. Weir: Power X was founded in 1996 by a team of R&D scientists from ICL Labs, a Fujitsu company, in Manchester, England. They had a goal of inventing a very low-latency, highly scalable architecture for switching applications. The resulting TeraChannel architecture, as they named it, was first applied to the communications/telecom market in 1998 after some two years of developing a strong patent portfolio and generating switch specific core competencies. TeraChannel was productized in 1999, meaning that our first-generation products appeared in the laboratory in 1999 initially as a complete chip set to address the telecom switching market. Based upon that success, the initial chip set and systems sampling commenced this year in 2000. Parallel to that, we also initiated, through my marketing group, an effort to leverage the core competencies, the patent portfolio, and the technology into the System Area Networking — InfiniBand switching market. So that’s a brief thumbnail sketch of the actual history. I might note that Power X Networks comprises Power X Limited. and its US sister corporation Power X Networks, Inc. The “Limited” and the “Inc.” are just legal denoters for each respective subsidiary. It is one company, and we are utilizing Power X Networks as our umbrella name to denote the overall global corporation and image.

TWST: What is the market that the product is designed to serve?

Mr. Weir: Our industry niche is the telecom edge system vendor market. Our customers are the system vendors that build mid to large-scale switches and routers for the optical Internet. This is the piece of the optical Internet that sits between the business campus and metro area network infrastructure and the core central office switching equipment, and it is quite large. Our market addresses what is known in the industry as the edge of the core, and aggregates, for example, many SONET OC48 optical links. It aggregates them into switches called edge switches, and then our product would feed it back out and it gets aggregated into a core product. This is a much more lucrative market than either the access or the enterprise side or the core side, simply because on the core side the unit volumes are quite low. On the enterprise and access side, although the unit volumes are higher, it is extremely competitive and therefore the margins are lower than the sweet spot we address. So our core competencies have been initially aimed at the edge. Although I will say that what is the edge today could be the access tomorrow, and what’s the core today could be the edge tomorrow, and it does blur where the segments meet. So we actually target fairly widely, and in reality we have design wins in the higher end of the access space, and now, new interest from the core guys because of our highly scalable technology.

TWST: How big is this market that you’re targeting?

Mr. Weir: The aggregated edge switching market this year, as estimated by RHK Associates, is about $5 billion worth of switches and routers sold. That translates to about 55,000 units, so you can tell these are not trivial chassis, and they carry significant price tags. Many are installed in a CLEC, you know, competitive local exchange carrier spaces. Others are installed in main central offices, in campuses, or in satellite exchange offices. So these are units that may sell up to a couple of hundred thousand dollars actually. So being a player in this market is quite nice. I will add, there is an equally big opportunity in the nonaggregated side of our market. Those requirements are a little bit different. We can address that although we find that the real opportunities right now, the low-hanging fruit, is the aggregated edge market. Going out a few years, the compounded annual growth rate (CAGR) of this market is somewhere on the order of 20% plus, which is a steady and healthy growth, and the market is estimated to double in units by 2003. So our market is up and to the right in terms of growth.

TWST: What’s the driving force?

Mr. Weir: The driving force is really the large thirst for bandwidth out in the optical Internet infrastructure. All of these connections we’re talking about into our customers boxes are optical connections. These are literally boxes that are placed in the optical Internet and the backbone telecom infrastructure. As you may know, Internet data traffic is growing at around 300% per year, so needless to say, the big buzz out there is the need for speed, which is the Internet growth curve fueled by the vast increase in data traffic from stored files to clients. In fact, this year, data traffic actually exceeded voice traffic for the first time, which says that packet-based switch and router systems, which is a data-oriented transport mechanism, is the fastest growing segment of the telecom equipment space. The term fat pipes really applies to our market space.

TWST: Who do you compete with in this space?

Mr. Weir: Our closest competitors today turn out to be traditional ASIC, or customer silicon vendors. Our customers today are still struggling with that model, which is not flexible, and lengthens time to market. With the appearance of Power X and network processor silicon providers, system vendors are now discovering the tremendous advantages of programmable merchant silicon. This new way, they can aim their resources on what they do best, which is designing at the system level. There are some new entrants into the switch fabric space, and they are trying to offer similar approaches, although I’ll qualify that and try to be as objective as I can, our customers tell us that our feature set, where it really counts is by far the best. Obviously my engineering side is proud of our demonstrated achievements in this area. I fully believe that one good reason we excel with our customers is because, of those companies, Power X is the only company to focus exclusively on the switch fabric function, on the actual switching function itself, within the switch. The other companies I mentioned have spread their resources across the packet processing function as well as what we do, and I think that has actually helped us, in a sense, in that we have remained focused on an extremely complex area and really understand the issues in our niche. We sell a systems level solution, not just a chip set. So system on a chip set is a good analogy. We offer hardware, software, and firmware design services, and out of that, even offer software switch simulation packages. We’re the only company, in fact, in the industry to do that in the switch fabric space, to offer an engineer a complete software simulation model, under license of course, that will completely model the behavior of his switch before he ever builds one. Our competitors don’t do that. We have a very rich core competency that I could go on and talk about in at least four areas with patent portfolios in each, which cover embedded physical layer technology, low latency arbitration algorithms, single stage, low latency switch fabric technology and, of course, software and system design. All of these areas we focus on exclusively. Our competitors offer good solutions, but at the end of the day, our customers tell us the reasons they chose us over those other folks I mentioned is strictly because we offer better real performance and a total systems solution they really want and need. We are on a mission to prove that the advantages of merchant switch fabric silicon with system support is the only way to go in their competitive time to market environment. We do only switch fabric solutions, and we do them very well.

TWST: As you look out over the next year or two, how would you describe the strategy that the company is going to follow?

Mr. Weir: Our close-term strategy right now is to stay focused on rolling out our TeraChannel product family into production, and we are on track to our introduction roadmap. We also want to complete our technology leadership agenda. We have an agenda internally in our company to place ourselves as the technology leaders in this segment, which we are in the process of doing. That is in the communications sector. So job one in the next couple of years is to take care of our prime market segment with full-bore production and technology leadership. In parallel to that, over the next couple of years, we are going to roll out an equivalent product effort in the System Area Network, or Storage Area, as some people call it, which is equally as lucrative and actually represents a bigger potential market. So I believe that with those two large market segments that we can focus on, our strategies will be quite successful as we continue to roll out our product families.

TWST: All of a sudden we’re seeing this wild spending on the part of the telecoms. What happens if that spending gets cut back because they can’t generate the sales?

Mr. Weir: We certainly haven’t seen that yet; in fact, I think the build out and the replacement of the global networking infrastructure we have is going to continue for at least another decade. It’s in its infancy at this point, so the wild spending may moderate somewhat but will still be substantial going forward. We still have many miles of copper out there that hasn’t been converted to fiber. We have a lot of dark fiber that haven’t been lit up yet. We’re just seeing, actually, the transition from a system that was designed and implemented in the 1960s, which is SONET, Synchronous Optical Network, which is used both here and abroad, to a larger, more efficient system with different topologies, equipment, and capacity. People are presently doing patches on the existing system, people are doing upgrades to it, but there are new technologies and companies out there that are actually just now, this decade starting to upgrade this infrastructure after 30 years. So I personally think there is not going to be a slowdown in this market. In the unlikely event a slowdown occurs, I’m pleased to say that our technology will allow us to participate in the computer InfiniBand system area networking market, which will supplement and take up any slack we may see in the communications sector.

TWST: Do you have some other opportunities?

Mr. Weir: Yes, in fact, the third one, which I hadn’t mentioned, is the technology that we have could be quite applicable to a purely optical switching environment, and this is something that we’re just now starting to research with our Founder and Chief Scientist and in conjunction with the university campuses in Manchester, England. We’re actually looking at a technology that would leverage TeraChannel switching capability at the head end, as they say, before the packet ever gets out into the purely fiber optic world. They could utilize our technology to do switching early on. Now this is a long-term strategy for the day when all intelligent switches don’t ever convert back to an electrical format for packet reading and switching as we have today. And that’s something we’re quite excited about, so that’s in the wings, and nothing that we are ready to talk about publicly for some time, but it does show you the depth of thinking and the breadth of the technology that Power X has.

TWST: If we put all those together, what kind of growth could you generate over the next year or two?

Mr. Weir: Certainly we’re privately held today, so I would be taking liberties with trying to project numbers. But given the market size that we have and the strong competitive position that we’re in, I think we’re certainly slated to do quite well, in terms of our initial growth. We’re certainly targeting at least a 70% market share in the merchant switch chip set side of the end equipment market number that I’ve talked about earlier. We have the technology to be a strong number one in our market segment, and customer activity and design wins to date say our long term goal is realistic.

TWST: What’s your market share today?

Mr. Weir: Even in this initial ramp phase of our model, we are winning designs against both the old school ASIC model, and the new merchant model competitors. We believe that today, 25% to 30% of new designs are with merchant silicon and growing, and we are winning at least 50% of these designs. The thing we haven’t talked about much that really gives us impact is the paradigm shift in the silicon provider market. Power X represents the forefront of the shift to merchant silicon in this space, and many customers recognize, for time to market and performance reasons, to go to programmable off-the-shelf solutions, as opposed to spending money and resource designing their own silicon. We see that playing out now at even the largest companies, which are part of our customer base. So in that respect, I would say that based on our market inputs, 50% of the design wins that are happening out there are going to Power X for this new generation of designs, which are using a merchant silicon approach. By that, I’m not sure how familiar you are with the network processor world, but there is a lot of press concerning that function. The reality is, there are a lot of good, solid network processor companies out there. Three or four very large and best of those, the best of breed, so to speak, are our partners. We will be announcing the first of such partnerships here in the next couple of weeks with a very large company that you’ll be quite familiar with and then followed up with some others.

TWST: Is that something investors can look for?

Mr. Weir: Absolutely. We’re quite proud of that, in fact. I think we have a leadership position in the partner program that we’re doing. We’re actually generating an entire development platform for our customers that give them a network processor partner, our chip set, the software and the hardware to go off and literally design an entire switch platform to their specification. It can be done in probably a quarter to a third of the time that it took previously with the old ASIC model. When you ask me about what’s happening, that’s what’s really driving this marketplace. There’s a big paradigm shift toward what I’ll call the merchant silicon model. As opposed to the old days when people still try to take a year or two to design and spin a very custom piece of silicon for themselves that is quite hard wired. If you need to upgrade it in the field, make a change, you just simply can’t do it. Equipment longevity in the field can be extended with this approach, and that is not lost on both the equipment vendors and the service providers that use it. The merchant model is superior to the old ASIC model in many ways.

TWST: What are the risks at this point for the company?

Mr. Weir: One of the risks that we have right now is internally, in bringing up our customer-owned tooling model for our own silicon. Having a heritage from ICL Fujitsu, we utilize Fujitsu wafer processing and their back-end services. However, we realize that we also need to expand our manufacturing capability. This year we initiated a relationship with TSMC in Taiwan, and they are recognized as a leader in their field. Coupled with their backend service partners for assembly and test, they represent world-class manufacturing. So we’re staffing up and putting the infrastructure in place to be quite self-sufficient as a truly fabless semiconductor and systems supplier. So for us that is a risk, although I believe we’ve managed it quite well, as we’re bringing in very experienced operations and manufacturing people, as we speak, to implement the process. These people that have actually been through small company production ramp ups and conversions, have done it, got the T-shirt, actually done it a couple of times, so we feel quite good about that. I think one of the advantages of establishing the Silicon Valley office here is that we have access to some really world-class folks that have been through some of that. So it complements the engineering team in Manchester, which by the way, sits at the center of one of the largest collegiate campuses, if not the largest, in Europe. I don’t know if you are familiar with that statistic, but what that offers us is quite a stable engineering environment over there. So companies like Power X can recruit fine talent from this campus network. There are at least four universities in that area. All of them have technical programs, and it’s actually quite a good environment. It’s kind of like having a couple of Stanford’s at your doorstep. So it’s similar to that, except I just think of it as not nearly as many companies vying for all that talent.

TWST: Does it make life somewhat easier?

Mr. Weir: Yes, so we actually think that’s a strong advantage to our investors in that our technical team is quite stable, very experienced, with strong telecom and computer background and roots in that area to draw on. We think of it as a personnel core competency.

TWST: As you look out over the next two or three years, what two or three reasons would you give investors to put money in the company today?

Mr. Weir: Certainly, first and foremost we have developed a strong list of core competencies and patent positions and portfolios in each of those. These are what I call the crown jewels of the company, and right now we have at least four portfolios that we are quite proud of, which are embedded, physical-layer high-speed technology, proprietary arbitration algorithm schemes, which are recognized by our customers as the most efficient they’ve ever seen. It has patents and a portfolio associated with it. The fact that we do everything in single-stage fabric is quite key and, of course, patented, and the fact that we have a systems level group, fully complementary software and firmware, we’re quite proud of that. That’s having the right guys all together that can offer a complete chassis level solution to our customers. As I mentioned, this is not a smaller pizza box switch that you can get a Taiwan guy to build. These are serious hardware designs and quite frankly, there’s a lot of risk building these large systems, in terms of the high-speed signals. I think of a chassis as a very large chunk of metal tied to our chip set. So we really think of our product as a systems level solution, not just a chip set. Many of our customers rely on our ability to help them with these issues. So those are, I think, the facts why we’re considered in a lead position by our customer base. Also, the fact that we have these technology portfolios, we can leverage into at least one other very high growth market. The fact that we have our engineering teams in a stable environment over in the UK, are all, I think very strong positions to be in from an investment standpoint. So we have technology, a growing market, and leading products to address it.

TWST: Does having the design group in England give you a little protection, being out of the competitive fray?

Mr. Weir: Yes, certainly. We do also have a strong office here in San Jose. We also have an equally strong technical office in Boston. For a pre-IPO company, we have about 95 employees at this point, 70 of whom are purely in engineering and technical positions, so we are a global company and a strong technical company. We are represented in Asia, across the continent and, of course, in the US. I think all those reasons add up to position us very strongly. We were actually, in the last private offering, substantially oversubscribed in our last round of funding, which closed in August this.

TWST: Do you have enough funding to get from here to where you need to go over the next couple of years?

Mr. Weir: We certainly have enough funding to get from here to our planned IPO, sometime in the second half of next year, yes.

TWST: Thank you. (TM) 

WILLIAM WEIR
 Vice President of Marketing
 Power X Networks Inc.
 2833 Junction Avenue
 Suite 110
 San Jose, CA 95134
 (408) 456-2500
 (408) 456-7618 - FAX
 www.powerxnetworks.com
 e-mail: info@px.uk.com
Each Executive who is the featured subject of a TWST Interview is offered the opportunity to include an Investors Brief or other highlight material to be provided and sponsored by and for the company. This Interview with William Weir, V.P.-Marketing, Power X Networks, Inc. is accompanied by an Investors Brief containing corporate information.

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