Bottlenecks created by the proliferation of wireless communications have been a boon to multicore semiconductor pioneers Cavium Networks (CAVM) and NetLogic Microsystems (NETL). These two small Silicon Valley companies make chips with many cores that speed up wireless networks. Their revenue growth has skyrocketed as their chips are now in high demand.
Cavium, the market leader, will see revenue growth of over 96 per cent this year. Its sales have increased some 69 per cent during the last five years. NetLogic's revenue growth has been just as spectacular: 116 per cent this year, nearly 30 per cent over the last five.
Cavium has grown quickly since it went public three years ago. Now they are competing with tech giants Intel (INTC) and Broadcom (BRCM).
Cavium currently gets about 24 per cent of its revenue from Cisco (CSCO), its largest customer. The network giant accounts for some 35 per cent of NetLogic's sales. The two companies' revenue should continue to grow with Cisco's recent introduction of its CSR-3 router. The new router will help Cisco do a better job of managing video traffic and easing wireless traffic jams in general with the aid of Cavium and NetLogic chips.
Application awareness is a recent trend in networking currently being spearheaded by smaller firms such as F5 Networks (FFIV), Riverbed (RVBD), Cavium and NetLogic. In the past, Cisco and Juniper (JNPR) routers treated all web traffic the same. With the recent explosion of wireless communications, a new approach became necessary to keep up with the burgeoning traffic. Application awareness allows internet packet inspection so that voice and video traffic can be distinquished and prioritized. Cavium and NetLogic chips also provide greater security and quality of service.
Analysts have speculated that Apple's new iPad will cause a significant increase in wireless data traffic. As a result, NetLogic would greatly benefit from the expected updating of the cellular backhaul network. As Wi-Fi traffic increases, market adoption of femtocells (small cellular base stations) will spread, which will boost sales for Cavium.
Cavium recently released new processors with 32 cores, the latest additions to its Octeon II chip family. The doubling of cores was necessary because of the proliferation of smartphones, netbooks and mobile gadgets.
The coming transition to the speedier 4G Long Term Evolution cellular network will include the use of the Octeon II processors.