Network processor specialist, EZchip Semiconductor, is to acquire Tilera. The deal is valued at $130 million in cash: $50 million when the deal closes, and up to $80 million more depending on performance targets being met.
Bob Wheeler, The Linley Group
Tilera's products include multi-core processors, intelligent network interface cards (NICs) and one rack-unit (1RU) network - 'whitebox' - appliances used for security applications.
Acquiring Tilera will broaden EZchip's market. Tilera's devices are used for network appliances, enterprise routers, cloud computing, video and voice encoders, security, deep-packet inspection, load-balancing, and emerging applications such as software-defined networking (SDN) and network functions virtualisation (NFV).
EZchip's first acquisition will also broaden the company's US presence and customers: Tilera has 100 customers including Brocade, Check Point Software Technologies, Cisco, Fujitsu, Harmonic, MikroTik and ZTE.
EZchip estimates that with the acquisition, its total addressable market will double to $2 billion by 2016.
EZchip's flagship NPS is a high-end network processor family while Tilera's multi-core general processors include the Tile-GX family with 9, 16, 36 and 72, 64-bit cores, programmed using the C-language and which supports the Linux operating system.
"The two companies are highly complementary," says Bob Wheeler, principal analyst for networking at the Linley Group. "Beyond the obvious addition of products, markets, and customers, I see Tilera’s software and systems expertise as important to the success of EZchip’s existing NPS programme."
Eli Fruchter, CEO of EZchip, says that the two companies have been discussing co-development of a next-generation multi-core family that will add specialist networking accelerator hardware from EZchip. The resulting family will have the highest core count at the lowest power, while achieving leading networking and packet-processing performance, says the CEO.
Tilera's designs are noted for their processing performance per watt. Wheeler also highlights the company's iMesh tiled architecture which enables efficient scaling as cores are added to a chip. "Tilera’s proprietary 64-bit VLIW [very long instruction word] CPU design is also important in delivering leading power efficiency," he says.
The next-generation device family will use a standard processing core and move away from Tilera's proprietary technology. EZchip's NPS uses the 32-bit ARC core which EZchip has redesigned. "Network security and monitoring are the primary targets [for the next-gen devices]," says Wheeler. "Tilera currently serves other applications, including videoconferencing, but these won’t benefit from EZchip’s accelerators."
Tilera's revenues were $35 million in 2013, suggesting single-digit percent market share using EZchip's $1 billion TAM estimate. It thus has some way to go to compete with Broadcom and Cavium. Near term, customers may be more willing to work with a profitable public company, notes Wheeler, but for EZchip to achieve major share gains will depend on delivering next-generation processors.
Tilera's revenues declined in the first half of 2014. EZchip would not detail why, except to suggest that the decline in orders is temporary and that growth will return in the second half of 2014. EZchip is confident Tilera's revenues will exceed $35 million in 2015.
EZchip will pay Tilera's shareholders up to $80 million if revenue targets are met: $50 million in cash if revenues reach $45 million between when the deal closes in Q3 2014 and June 2015, and a further $30 million if revenues of $31 million are achieved in the second half of 2015.