Mr. Doradla: I focus on companies within the semiconductor industry that specialize in communications, both wireless and wireline. Some of the companies that I cover include Qualcomm, CEVA, Atheros, Cavium, NetLogic and Silicon Labs.
TWST: What exactly are communication semiconductors?
Mr. Doradla: If I where to ask you what Intel does, you would say they make chips for PCs. Similarly, Qualcomm builds chips for mobile handsets, and Cavium Networks for enterprise routers. Communications semiconductor companies specialize in developing chips that make voice and data networks, both wireless and wireline, more efficient. These companies typically have in-depth knowledge of how real-world communication systems operate and leverage their proprietary design talents in developing products. The companies that I cover specialize across a range of markets that include mobile handsets, wireless 3G infrastructure, consumer electronics, and enterprise routers and switches.
TWST: What is the current status with the communication semiconductors?
Mr. Doradla: Just as the Internet has revolutionized the way we communicate, the proliferation of the Internet across wireless and wireline systems is revolutionizing the comm. semi industry, too. Although both these worlds have their own specific dynamics, at a higher level, a couple of trends are shaping and will continue shaping the industry by separating the winners from the losers.
The first trend relates to integrating multiple chips into a single chip. Solutions that were offered across two, three or more chips are now being offered on a single chip. These chips are commonly referred to as "system on a chip," or SoC. Although some industries, such as the PC microprocessor industry, have been adopting SoCs before others, it would be fair to say the growth of Internet traffic is accelerating the adoption across other industries, too. I believe companies that have SoC capabilities will continue to succeed. Examples include Qualcomm and Broadcom in the 3G and 4G space, Atheros in the WiFi space, Cavium and NetLogic in the non-PC microprocessor space, and Silicon Labs in the mixed-signal space.
The second trend that is not only shaping the comm. semi industry but the overall telecom industry is what I call "application awareness." In a nutshell, this means semiconductor chips and telecom infrastructures are becoming more aware of the end-user application. Over the past couple of years, companies adopting these trends have seen significant payoffs. Successful companies, such as Starent Networks, now part of Cisco, Cavium Networks, FFIV, NetLogic Microsystems and Riverbed, have one thing in common: All their products are application aware. These companies have successfully taken market share from their plain-old-vanilla system counterparts and have created businesses that are rich in ASPs and margins.
To illustrate the point of application awareness, let us take an Internet router supplied by companies such as Cisco and Juniper. The main function of a router is to route the Internet traffic to the appropriate destination. In the past, these routers would not be aware of what types of traffic were being routed and, as a result, would treat a VoIP session using Skype, video download from YouTube and plain Internet browsing in an identical fashion. Furthermore, router companies would reach out to the Intels and AMDs (advanced micro devices) of the world, and employ generic semiconductor chips to route the traffic. While this approach worked well in the past, given the explosive growth in the Internet - both in terms of volume and richness in applications - it is not efficient. The industry finally realized that employing techniques that could peer into Internet packets and understanding the nature of the traffic - whether it was a voice, video or browsing - resulted in routers that were able to prioritize traffic, and provide greater security and quality of service. While Starent Networks, now part of Cisco, was a pioneer in application-aware routers for the wireless industry, Cavium Networks and NetLogic Microsystems are pioneers in developing programmable microprocessor routers for enterprise and data center markets.
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