Broadcom Enters FTTH Chipset Market

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Includes: AVGO, ENTR, FSL, IKAN, NOK, PMCS
by: Andrew Schmitt

Broadcom is entering the PON chip market and has secured design wins with a major tier-1 equipment vendor. While this is something predicted here, the timetable was sooner than expected. This will have a substantial impact on FTTH component and equipment suppliers as well as the carrier currently conducting lab trials with the device.

Discussion with a number of industry participants revealed an unannounced Broadcom GPON program in advanced stages of development, with a design win at Alcatel-Lucent, the upcoming primary supplier of Verizon’s FiOS hardware as the carrier transitions away from BPON.

Broadcom designed the device internally despite a lack of active involvement in FSAN, the carrier-run group responsible for GPON interoperability that leads the ITU standards body. The device was first prototyped in an FPGA and the company now has silicon samples destined for testing in Alcatel equipment as well as Verizon carrier labs. Target deployment is 2H2009.

The chip includes the MOCA transceiver (revision 1.1) functions required by Verizon and currently supplied by Entropic in a standalone device. Broadcom is not doing the central office [OLT] chip and is initially focusing on a highly integrated gateway device for the customer location that displaces the standalone router and optical ONU terminal.

This is not unlike similar Broadcom products made for the Cable Modem and DSL markets. As cable/DSL broadband growth slows it is no great surprise that it plans to enter the FTTH chipset market. Broadcom and Broadlight, a private chip company which makes BPON and GPON FTTH chipsets, partnered in June 2004 to deliver FTTH chipsets (press release here). This partnership failed to reach any public fruition.

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The PON chipset market reached $100M in 2007 but hasn’t reached the growth rates many hoped for. It is clear that Broadcom made the decision to enter this market not for the $100M market size, but for the opportunity to seize the MOCA market and continue to position itself as the chipset supplier for the connected home.

For a discussion of the difference between GE-PON and GPON see here.

Impact on GPON Chipset Vendors

image While GPON attracts a great deal of attention it accounted for only 18% of ports shipped in Q108, as deployments on the scale of Asia’s (GE-PON – 60% share) have yet to begin worldwide (source Dittberner Associates). As written before, we staunchly believe the majority of the market for the next 5 years will be GE-PON, due to it’s dominance of Asian deployments. While the GPON market is smaller Alcatel-Lucent is the lead vendor for Verizon, which is the largest planned GPON deployment.

  • Freescale (NYSE:FSL) was the incumbent supplier of GPON silicon to Alcatel-Lucent (press release here) and according to checks has been displaced from future designs. It is possible that Freescale is exiting the GPON business as a result of being displaced by Broadcom.
  • Broadlight was a successful vendor of BPON (standard previous to GPON) chips to Tellabs and encountered much stiffer competition in the GPON marketplace. Broadlight continues to make forward progress with a GPON design win at Huawei, which is making inroads in the EMEA region. At this point Huawei and Alcatel/Lucent account for most global GPON shipments.
  • PMC-Sierra, while a market leader in GE-PON based FTTH chipsets, has not made significant inroads in the GPON marketplace. The emergence of Broadcom in a critical tier-1 account will make it difficult if not impossible for PMC to reach the level of dominance in GPON that it currently has in GE-PON.
  • Ikanos occupies a niche within the GPON hierarchy, focusing on hybrid VDSL/FTTH applications that leverage it’s VDSL expertise. Ikanos also has a moderately successful home gateway chipset (acquired from Analog Devices) that gives it the ability to produce a full GPON system on a chip for the ONU. It also can mimic the features of a comparable VDSL gateway. Broadcom also has VDSL technology, essentially negating any technology advantage Ikanos had.
  • Several other vendors such as Conexant and Iamba face yet another competitor.

One can make a solid case that Alcatel-Lucent and Huawei and perhaps Motorola are the only high volume GPON suppliers for the foreseeable future. The win by Broadcom locks up a significant portion of this future market share and will make it difficult for other vendors to reach a dominant position in GPON in the same way PMC-Sierra did in GE-PON. Broadlight appears to be the only viable competitor to Broadcom at this point

Impact on GE-PON Chipset Vendors

We have no information that Broadcom is making a GE-PON device but given it’s strength in access chips and it’s efforts in GPON, it is hard to imagine something isn’t in the works. GE-PON accounts for the majority of the market and is closer to moving to a “White Box” model, where equipment design and manufacture is outsourced to Chinese and Taiwanese ODMs. This is how Cisco/Linksys, Logitech, and Netgear get the hardware to sell to consumers. Broadcom excels at this market and has the size and experience to dominate it.

The GE-PON chipset market is more mature, with nearly most chips being supplied by PMC-Sierra and the rest by Teknovus. PMC-Sierra dominates Japan but Teknovus has secured significant share in China.

We’ve speculated in the past (see Teknovus and Passave at a Crossroads) that Broadcom would enter this market. If China continues its trend towards deploying GE-PON it is a certainty.

Impact on MOCA chip Vendors

While GPON chipset market is (was) fragmented there is only one dominant MOCA chipset vendor - Entropic.

Entropic recognized a whopping 75% of their revenue from Verizon FiOS suppliers in Q108, or about $31.5M in quarterly revenue. Entropic provides the MOCA chipsets in equipment used by Verizon as part of it’s FiOS deployment. These chipsets enable the Verizon set-top boxes made by Motorola to communicate with the FiOS FTTH gateway (Tellabs) or home router (Actiontec) over existing in-home coaxial cable. In some cases the set-top boxes connect to the standalone home router, in newer configurations its functions are collapsed into the optical gateway itself.

As Verizon transitions from BPON to GPON the Tellabs FTTH gateway business will transition to Alcatel/Lucent. This is the design Broadcom has secured.

Broadcom’s new GPON chip includes the MOCA transceiver, using technology acquired from Octalica (see Press Release), which eliminates the need for a standalone MOCA device in the FiOS FTTH gateway or a separate chip in the Actiontec router. This is the chip currently supplied by Entropic.

Entropic recognized 39% of their revenue from Actiontec (26%) and Tellabs (13%) in Q108. The loss of these sockets as a result of the availability and deployment of an integrated Broadcom device would have a dramatic impact on Entropic’s revenue.

Another 36% of Entropic’s revenue during Q108 was from Motorola. While the Broadcom GPON chip is not a replacement for Entropic’s Verizon/Motorola set-top box application, Verizon will qualify Broadcom’s MOCA technology in their labs prior to deploying the new Alcatel FTTH gateway equipment. Once Broadcom’s Octalica-based technology is qualified in the gateway, it becomes a viable supplier of standalone MOCA chipsets for the Motorola set-top box. At best this would have a downward impact on pricing, at worst Entropic could lose the design.

Broadcom is already a major supplier of silicon to set-top box equipment makers such as Motorola. They supply much of the bill of materials for these systems and can use kit pricing to squeeze other vendors out. Broadcom also has the intellectual property to integrate the MOCA technology into set-top box system-on-a-chips, similar to what they have done with their GPON chip.

Based on Entropic’s Q108 customer profile, 75% of their revenue is immediately at risk once Broadcom’s GPON/MOCA device is qualified at Verizon.

Summary

While the arrival of Broadcom as a GPON supplier is certainly news and will change the lines of force within GPON chipset, it is Entropic that stands to be impacted most. Broadcom will leverage it’s GPON win to dominate the nascent MOCA market. While a single GPON chipset might fetch $20 or so and will generate $40-60M a year in revenue, Broadcom is using this as an entry point to address the larger MOCA opportunity of $125M (and growing 50% a year) currently owned by Entropic.

The larger goal is to seize control of the nascent home networking market. The PON ONU, DSL Gateway, or Cable Modem represents the commanding heights. Broadcom wants to make sure they control the silicon in the set-top box and the Cable/DSL/FTTH gateway because that it the surest way to control the silicon in the myriad number of devices that will appear in the connected home in the next decade.

Disclosure: Author is long ALU, BRCM, IKAN and short ENTR