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― THE FRIDAY
LETTER ―
(emailed weekly, from Gilder Publishing,
for friends and subscribers)
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| http://www.gilder.com/
| Issue 233.0/February 3, 2006
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HEADLINES:
▪ The Week / The NPU Niche
▪ Friday Feature / More on Network, Security, & Knowledge Processors
▪ Friday Bonus / Malpass Handicaps
Three Scenarios for ‘06
▪ Readings /
The Week / Gilder: The NPU Niche
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GTR Subscriber Question (1/29/06): George, could you further explain
your message on NPUs and EZchip (LNOP) after your visit to Silicon
Valley?
George Gilder (1/30/06): I am all for EZchip (LNOP).
In my report from Silicon Valley, I was merely gauging risk factors in the NPU
market. Nothing in this world, regardless of its technological elegance, is
free of risk factors. [See the supremely elegant but apparently butterfingered Microvision
(MVIS).]
The
chief surprise for me from both the Linley Report and my trip to the
Valley of the Shadow of 2001 was continued pessimism about total prospective
demand for network processors. Experts who believe that EZchip has the best
position in the market also tend to think the market is relatively small--as I
recall total NPU cumulative merchant sales over the next few years of under
$600M. I reported on this estimate (I think it is worth knowing about.) and I
said I disagree with it. At the same time, I reported that from existing design
wins Linley projects a fast EZchip revenue ramp over the next three
years (beginning later this year).
The
market researchers are appraising the current demand for core routers, edge and
metro switches, Ethernet nodes, provisioning platforms, and other aggregators
and distributors of packets. They add them all up and get a relatively small
number. If two years ago they had added up the market for security processors (Cavium,
Raza Micro, Hi/Fn) or "knowledge" processors and
content addressables (CAMs) from NetLogic (NETL), they would have found
a small market for these as well.
You cannot build a bridge by counting the swimmers.
And, you cannot judge a future market by counting current sales or even
surveying intended purchases by current buyers.
My "Qualcomm" effusions about EZchip came from estimates of
the China market (EZ has design wins at ZTE and Huawei) and from
looking at the general transformation of the network around the globe as
television--the world's largest dispenser of analog information--is massively
digitized and converted to packets, which in turn have to be linked to a
variety of legacy networks everywhere. This move to Life
After Television has been a key paradigm for 15 years. It is happening
now.
Evidence
mounts that the 3Com-Huawei (COMS) partnership is thriving. (Fred Hickey
in Barron's makes a good case for 3Com as a turnaround buy.) But I have
not been able to ascertain the prevalence of EZchips in the product line of
this hybrid company. The move to video, though, is accelerating and it will
eventually entail at least a thousand-fold increase in IP traffic around the
world. With high-definition also ascendant [see Corning (GLW), Sigma
Designs (SIGM), Trident (TRID), Silicon Image (SIMG), Zoran
(ZRAN), Genesis Microchip (GNSS), Pixelworks (PXLW), et al), much
of the network will be racheted to 10 gigabits per second and above. With
ultra-wideband and 802.11n, the industry is planning for a world in which
people shunt high-definition images amid other data around their households
wirelessly. This may bring NPUs to set-top boxes and residential gateways.
EZchip
is champion at this function: reading packets, deciding how to distribute them,
and converting them to the appropriate protocols at wirespeed. I thus expect
upside surprises. The fact that Silicon Valley [Intel (INTC) et al] is
still counting swimmers and sees network processing as a relatively
uninteresting niche, is an additional positive for LNOP because it means less
competition.
Excerpted from posts on the www.Gildertech.com GTR
subscriber-only message board. To read more posts by George Gilder and
the GTR analysts, logon now at www.Gildertech.com.
|
|
Friday Feature
/ More on Network, Security, & Knowledge Processors
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GTR Analyst, Charlie Burger (1/27/06): Whoa! It seems the only thing flying faster
than NetLogic’s (NETL) processor speeds these days is the company’s
stock price, up by a whopping third so far this year. But after listening to
CEO Ron Jankov, it’s hard to be anything but buoyant.
Convergence of VoIP and video on the Internet is just beginning, and more
complex traffic means more processing at every node; Jankov estimates that his
knowledge-based processors will need to increase their performance by 300-fold
during the period 2003–08 just to keep up. And according to Jankov, he’s the
only one who can keep up—he uses only four chips in parallel compared to ten
for his competitors, employing the fastest chip at 400 MHz compared to 200–
250 MHz for competitors (until now Cypress and IDTI), as he moves more swiftly
than they down the Moore’s law learning curve. But he believes the biggest
barriers to entry in the market are the need for software expertise and the frustratingly
long cycle between design wins and production that lasts well over a year …
But even if it NetLogic turns up in every box across the net, are investors
boxing themselves in at the current price? [More on NetLogic Available on Gildertech.com]
GTR Subscriber Question (1/31/06): I was surprised to find out that Agere (AGR)
NPU's are still predominant in some wireless equipment. Apparently, there is a
device called a "gateway" (possibly embedded in a base-station; I
don't know) that converts wireless to IP data. These NPU's are old, and have not
been updated or souped up at all. There is a lot of development in Richardson, Texas
by several companies that are incorporating NPU's. Are you aware of this
market, and players?
George Gilder’s Reply (2/1/06): Moving down market to a focus on access, Agere continues
to produce network processors and is gaining share. It offers a particularly
simple C-programming model, but it has abandoned its planned move to the 10
gigabit-per-second devices that will increasingly be needed even for those
wireless gateways.
GTR Subscriber Question (1/30/06): Have you scrubbed Hi/Fn's (HIFN) network
processor technology and how it compares and contrasts with LNOP?
George Gilder’s Reply (1/30/06): Hi/Fn purchased the network
processor and powerPC network line from IBM (hence the Lenovo
connection), and is reorienting the chips toward security applications. Hi/Fn
is not competitive with EZchip (LNOP) (no 10-gigabit packet management)
and may be complementary, if it does not run into trouble as NetLogic
(NETL), Cavium Networks and Raza Micro introduce new
security products.
Excerpted from a post by George Gilder on the www.Gildertech.com GTR subscriber
message board. To read more posts by George Gilder logon now at www.Gildertech.com.
|
|
Friday Bonus /
Malpass Handicaps Three Scenarios for ‘06
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David Malpass, the chief global economist for Bear
Stearns, is the best Wall Street forecaster of the U.S. economy, in our view.
Below he handicaps three scenarios for 2006:
• “Economy stays strong, inflation rises a bit, Fed keeps rates at or above 5%
for many months. This is the likely scenario. Implication: Durable
expansion, gradual removal of excess credit, not goldilocks for equities,
equities moderately outperform bonds and cash due to profit growth. If
inflation goes up more than a bit, the Fed would have to hike above 5%, with
less positive implications for growth and equities.
• “Economy stays strong but inflation remains contained due to an efficient
global allocation of capital. Fed hikes to 5% and stops, leaving nominal
U.S. growth and ROI well above the Fed funds rate. Pass-through from
dollar weakness to U.S. CPI inflation is spread out over several years.
This scenario is possible, though it implies an even more positive view than
ours of the global expansion, the efficiency of global capital allocation, and
equity prospects. Under this scenario, an intense, very profitable global
capitalism directs capital smoothly between Chinese manufacturing, Indian labor,
U.S. services, U.S. housing (which is heavily weighted in inflation indices)
and elsewhere, delaying inflation.
• “Economy begins to weaken, Fed funds peaks at 4.75% or 5%, then
declines. Unlikely, given signs that strong growth is underway, fast
growth abroad, 4.9% unemployment, plentiful corporate and household
liquidity, low inventories. Implication of a slowdown: This scenario
would cheer bonds and, at first, equities, but would almost immediately create
worries about profits, the dollar, foreign investments, and credit spreads.”
Excerpted
from a blog by Forbes Publisher Rich Karlgaard:
http://blogs.forbes.com/digitalrules/
|
Featuring: George Gilder’s Silicon
Eye; John Mauldin’s Just One Thing; The Singularity is Near,
By Ray Kurzweil; Flat Tax Revolution, By Steve Forbes; Andy Kessler’s How
We Got Here; and many more fantastic must-reads … |
Readings
/
‾‾‾‾‾‾‾‾‾‾‾‾
Gilder: No Love For Net
Processors
http://www.forbes.com/newsletter/2006/02/01/cisco-ezchip-intel-in_gg_0202adviserqa.html
General Motors Awards $15Billion In IT Services
http://www.informationweek.com/story/showArticle.jhtml?articleID=178600931
AMD’s
Q4 Growth Rate Bests Intel’s – For Now
http://www.informationweek.com/story/showArticle.jhtml?articleID=178601100
Asia-Pacific
Edges Closer To 50% Of Chip Market
http://www.informationweek.com/news/showArticle.jhtml?articleID=178601113&subSection=
Kudlow:
Righting The Court, And The Fed
http://www.nationalreview.com/kudlow/kudlow200601301429.asp
Robert Rubin’s Platitudinous Prescriptions
http://www.nationalreview.com/nrof_comment/tamny200602020907.asp
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