Conexant to Detail Plans for Cable Modem

The war over the burgeoning cable-modem market is poised to explode today, as chip maker Conexant Systems Inc. unveils a technology blueprint that, company officials say, promises to one-up rival Broadcom Corp.

Newport Beach-based Conexant will unveil a how-to guide, known in the industry as a “reference design,” for cable-modem manufacturers. It provides details about all of Conexant’s silicon and software products needed for building the guts of one of these high-speed Internet devices.

Cable modems are part of a long-promised, “Jetsons”-like future: high-speed Internet devices that will allow consumers to enjoy everything from instant Web access to video-on-demand, and to be connected to home networks that link everything from computers to refrigerators.

The market for cable modems is relatively small, but exploding. Just over 2 million modems were shipped worldwide this year, more than double the 978,000 units rolled out in 1998, according to recent findings by Cahners In-Stat Group, an Arizona-based research firm.

By next year, manufacturers are expected to ship an additional 3.66 million, growing this year’s $630-million market to more than $1.1 billion worldwide.

The advent of Conexant’s design marks the first time a semiconductor manufacturer has offered both pieces to the modem puzzle, the hardware of the chips and flexible software programs, to create a fully functioning cable modem.

What Conexant has--and Broadcom, so far, doesn’t have--is the software piece. Conexant’s design incorporates all the network-management and protocol needed for the modem to do various tasks, such as manage data or be hooked into home-networking devices.

“Right now, manufacturers can take our technology, throw in some memory, wrap a plastic box around it and go,” said Scott Keller, product manager for Conexant’s cable modem group. “Broadcom’s design doesn’t do that. You look at their reference design, and all you can do is evaluate the power of their chips.”

Today’s announcement also is expected to bring public the battle between Conexant and Irvine-based Broadcom that has been privately brewing for months, where multibillion-dollar opportunities have led to cutthroat maneuvering and behind-the-scenes sniping between executives at the neighboring firms.

“Broadcom has had a terrific run all on its own, but they knew they couldn’t go do [business] forever without facing real competition,” said Mike Paxton, a Cahners analyst. “Still, this is all a huge gamble because everyone’s waiting to see what happens on Thursday.”

That is when CableLabs, the research arm of the cable industry, will announce whether Conexant’s designs meet industrywide standards and will work with competing products.

Without this stamp of approval, modem manufacturers won’t use Conexant’s technical designs inside their products aimed at the U.S. market, analysts said.

The cable industry, which traditionally has bought equipment from suppliers and leased it to customers on a monthly basis, is starting to sell its products on the retail market.

The reason, in part, is to offset the cost of rolling out a host of competitive new services such as high-speed Net access and long-distance phone service. Advanced cable modems cost operators about $150 apiece, whereas set-top devices cost from $200 to $450.

Broadcom has dominated this market to date because it was the first out of the gate with a full chip set for modems that was approved to meet the standards set by CableLabs. That edge helped the company seal a slew of deals to supply chips to manufacturers including giant General Instrument Corp.

Broadcom’s cable-modem solution, which it presents as an all-in-one package to manufacturers, incorporates some of its own software and some developed by Cisco Systems Inc. Broadcom’s focus is on “building the best silicon in the world,” company officials said Friday.

If Conexant’s reference design performs as advertised, and gets the industry’s standardized stamp of approval, Conexant has a good chance to steal market share from Broadcom, analysts said. Manufacturers, looking for a competitor to drive down chip costs, are searching for a second source for modem chips and system designs.

Conexant officials said they are confident the design will pass CableLabs’ rigorous tests. And within the next two weeks, Conexant will announce that it has stolen “at least one of Broadcom’s major cable-modem customers,” according to industry sources.

“Worst-case scenario is we don’t pass on Thursday. Then we’ll definitely pass in the next wave,” Keller said. “That means manufacturers will still be able to roll out cable modems with our technology inside by April.”

Broadcom officials, who were not briefed on Conexant’s news before today, denied that any of their customers where changing camps.

Conexant and Broadcom are expected today to unveil television-tuner chips that are smaller and cheaper than normal ones.

The chips are about the size of a fingernail, compared with traditional tuners, known as “cans” in industry slang, that sometimes resemble sardine tins and have as many as 200 parts. Each tuner reduces signal interference, say analysts. Each tuner uses a different type of technology, with benefits and drawbacks, and will save cable-modem manufacturers money.

“They are nothing,” said Mehrdad Nayebi, general manager of Broadcom’s radio-frequency business unit. “We’re going to blow them out of the water.”