Conexant’s Chip Blueprint Below Industry Standard

Conexant Systems’ much-touted cable modem blueprint did not get certified Thursday by an industry standards group.

Industry analysts said the news comes as a “minor embarrassment” for the Newport Beach-based chip maker, whose staff had voiced confidence late last week that Conexant would be the first technology company to pass Cable Television Laboratories’ rigorous testing process on its first try.

CableLabs officials declined to comment Thursday on why Conexant’s cable modem reference design did not pass.

“It’s a little humble pie for Conexant, but not a huge setback,” said Michael Paxton, an analyst with the Arizona-based research firm, Cahners In-Stat Group. “Everyone knows know that Conexant has, or soon will have, a cable-modem chip solution. But they’re still about a year behind Broadcom [Corp.], and they have quite a bit of catching up to do.”

That gap is expected to grow today. Irvine-based Broadcom is expected to unveil its next-generation cable-modem chip, which promises to bring faster and better delivery of video, voice and data services to home computers, according to sources.

Following the industry mantra of squeezing more technology on fewer chips, Broadcom’s latest chip merges several features normally handled by separate components inside the cable modem box.

These features include a microprocessor that runs the modem’s operating system software, a USB transceiver for latching the modem onto a PC network, an ethernet connection to allow people to use their home PC to remotely access their corporate network, and security features built into the chip’s hardware to help improve the security of e-commerce transactions.

More important, sources say, the chip works with the latest industry standards--a full generation ahead of the standard that Conexant is seeking for its current cable-modem reference design.

Broadcom officials declined to comment Thursday on the new chip.

The cable-modem rivalry between Conexant and Broadcom has heated up recently, especially over the relatively small but exploding market for cable modems.

Just over 2 million modems were shipped worldwide this year, more than double the 978,000 units rolled out in 1998, according to Cahners. By next year, manufacturers are expected to ship another 3.66 million, growing this year’s $630 million market to more than $1.1 billion worldwide.

Without CableLabs’ stamp of approval, modem manufacturers won’t use Conexant’s technical designs in products aimed at the U.S. market, analysts said. And that’s the key market right now, given the public’s demand for high-speed Internet access.

To convince consumers that cable modems won’t face the same fate as the VHS-versus-Beta VCR fiasco, the cable industry has spent several years standardizing equipment so people can use the same store-bought modem or cable set-top box no matter where they live or what cable company provides their service.

Broadcom has dominated this market to date. It was the first with a full chip-set for these modems--as well as several complete technology reference designs for cable modems and other related devices--that met the standards set by CableLabs. That edge has helped the company seal a slew of deals to supply chips to manufacturers, including giant General Instrument Corp. and Motorola Corp.

Broadcom, in fact, was part of the pool of industry players that initially created the standards.

Thursday’s news forces Conexant to refile its cable modem reference design to CableLabs in late January, when the standards group will again accept submissions.

Conexant officials denied being embarrassed about the delay, and insisted the delay in certification will have very little impact on the company.

“We’ve made a lot of progress developing this technology,” said Dan Marotta, vice president of Conexant’s infotainment division, which handles the company’s cable-modem team. “We’re committed to this technology in the long term.”

The delay won’t impact Conexant financially, say Wall Street analysts, because the company hasn’t announced any cable-modem customers and the devices aren’t part of its core revenue stream.

“They’re strengths are in the wireless and network equipment sales, and their PC modem sales are still pretty good, too,” said Jeff Lipton, a financial analyst with Hambrecht & Quist. “From a revenue standpoint, [the delay] doesn’t matter. They’re working with [cable modem] customers right now, and I’m expecting that they’ll have their certification by the time the customers start ramping up production.”

Once Conexant’s reference design gets the industry’s standardized stamp of approval, Conexant has a good chance of stealing 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.

But every delay is a hindrance, considering that the market is already filled with Broadcom’s products, analysts note. Several companies’ cable-modems were certified by CableLabs on Thursday, including Milpitas-based equipment maker Com21 Inc., which uses Broadcom technology inside its device.

To date, nine different manufacturers have tapped Broadcom’s technology for modems that comply with CableLabs’ DOCSIS (Data Over Cable Service Interface Specifications). Among these, 11 cable modems--which use one of three different generations of Broadcom’s chips--have received the stamp of approval.

The rivalry among these large semiconductor firms illustrates the shift in the computer industry, where finding better ways to send and receive information is becoming more important than building a more powerful PC.

“I like to compete against a worthy competitor, and [Conexant is] a worthy competitor,” said Henry T. Nicholas III, co-founder and chief executive of Broadcom. “I like to trash talk. But when the game’s over, I do like and admire them.”