Merchant Silicon is an marketing term used to describe the use of “off the shelf” chip components to create a networking product and commonly used by company that design their own silicon chips when explaining that their process is better and more efficient.

The networking industry has two types of silicon: ìcustom or in houseî or ìmerchant or off the shelfî. The ‘in house silicon’ argument goes something like this :

We have our specialist engineers who can custom design an ASIC and supporting chips that are completely focussed on the features needed to deliver Product X. As a result, our designs are purposefully built to be faster, better etc. Our prices are more expensive because our products are faster and more focussed and because our costs are higher.

The ‘merchant silicon’ argument goes something like this:

The levels of expertise required to design and build a silicon chip is very high. It requires specific skills, tools, and high levels of expertise. If your core business is producing a networking device, then having your own silicon development is not core business. By relying on companies who specialise in silicon design and manufacture, we can focus on software and integration to deliver new and better features at a cheaper price.

The Product

When making routers and switches, only a very few components are custom designed as most components are ‘off the shelf’ – for example, the GBIC, the ethernet PHY chips; the management boards always use industry standard CPU such Intel x86 processors, or sometimes i960 network processors and use off the shelf memory and flash.

The custom silicon is usually specific functions such as the frame switching chip, the backplane forwarding (aggregation), specialised packet handling etc.

There are vary large companies who have extended their business from manufacturing ethernet network card components to silicon for ethernet switches. For example, Broadcom makes chips for 24 and 48 port switches as standard components, and are rumoured to make complete Ethernet switches for Google and Facebook data centres or are also OEM’d by other companies.

Companies such as Fulcrum Microsystems make fast, feature rich, silicon engines that are comparable with the largest networking vendors. This is the rough basis of products for startups networking vendors such as Arista networks and others.

HP Networking’s ProCurve division appears to have been attempting to position themselves as a silicon vendor by supporting the OpenFlow software initiative (although current position is unclear).

The Shrinking Skill Base

In the last five years, the rise of the Intel x86 CPU has seen many networking companies move to using standard Intel motherboards. For example:

• Fortinet mostly uses a standard Intel board with some limited custom silicon for security processing
• I believe that F5 uses a standard Intel chipset for management, a off the shelf ethernet chipset for interfaces, off the shelf crypto chip for SSL, and just a few custom chips for forwarding.
• Cisco ASA is an Intel Celeron board with a couple of off the shelf crypto chips for VPN / SSL acceleration.
• Bluecoat proxy servers are Intel motherboards in standard cases.
• CheckPoint uses Intel x86 CPUs and some off the shelf silicon for improved forwarding performing in the newer platforms.

As companies like these turn to standard components (sometimes never using any custom silicon), the skills base gets smaller the cost of manufacturing tends to rise. While this has been offset by improved software tools over the last decade there are less and less people designing chips.

And the price of building a large scale silicon fab costs in the billions. While there are a number of manufacturing plants, very few companies can afford to own the fab and choose the outsource the actual production to these companies.

The Risk of Failure

Companies who design their own silicon are taking a significant risk. In the modern business environment of risk free profits, there are limited risk mitigations for a failed chip development. The current fashion of MBA graduates to protect themselves by outsourcing or using proven technology means that more and merchant silicon will be the norm.

Is There an Impact ?

Custom silicon has been dying for a number of years, in my view, and merchant silicon has been working fine. It’s proven market effect in the server and smartphone marketplace so it’s likely to happen in networking as well.

What is the impact on customer ? Not much. Routers will route, switches will switch, and processing will occur as it always has. In the end, its more likely that silicon will get faster more quickly than our performance needs will rise. Already, merchant silicon companies are announcing products at or in excess of those used by Brocade and Cisco today.

The only concern is that networking adopts a feature of the storage market where all products must pay protection money be validated because of failure in the standards robustness. There is enough variance in FC products that they must be validated for use. It’s look to be a good money spinner in the storage industry and the temptation for big networking companies to follow a similar path will be strong.

Better, Worse or Indifferent.

The “custom silicon is better” argument has been comprehensively disproved by Intel, AMD and ARM. Once upon a time, CPU’s for computers were made by many companies and yet the industry has converged on just two core CPUs and half a dozen supporting chipsets. ARM is offering opportunities for servers in the future and dominating the portable electronics market, Intel owns everything else and AMD tries to keep up. If custom silicon could do it better , faster or cheaper then we would still have many vendors of CPUs.

It’s proven that companies who focus on making silicon chips, can do it faster and more efficiently than non-specific companies who attempt to develop their own. Today, Brocade and Cisco make their own silicon for most of their products in an attempt to differentiate themselves from competitors in their high end products but it’s questionable whether that approach has a long term future. It’s likely that high rates of forwarding performance can be delivered using Non Blocking Spanning Switch designs based on Fat Tree CLOS designs can readily be delivered by clusters of chips instead of custom designs.

I have the view that Merchant Silicon will dominate eventually, and physical networking products will become commodities that differentiate by software features and accessories – not unlike the “Intel server” industry (you should get the irony in that statement). As a result, any argument between “which is better – merchant or custom” is just matter of when you ask the question.

One interesting feature is that John Chambers continue to publicly state that custom silicon is their future. The are parallels with Sun Microsystems who continued to make their own processors in the face of an entire market shift, and that doesn’t appear to have worked out very well. In this another wrong footed innovation from Cisco ? Time will tell.