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Terayon Spins Off Semiconductor Unit

Bolstered from its success in earning Data Over Cable Service Interface Specification 2.0 certification from Cable Television Laboratories Inc., Terayon Communication Systems Inc. will spin off its semiconductor business.

Terayon hopes the Imedia Semiconductor move can cash in on cable's evolution toward more advanced data networks. The deal is meant to help Terayon diversify its revenue streams as it gradually reduces its reliance on cable-modem revenue in favor of its semiconductor and cable-modem termination system businesses, said CEO Zaki Rakib.

"Today's launch is a major milestone for the cable industry as well as Terayon shareholders," Rakib said. "The creation of Imedia Semiconductor validates the success of our long-term investment strategy, initiated with the development of S-CDMA [synchronous code division multiple access] technology."

Last month, Terayon received a major boost from CableLabs, which included the S-CDMA specification along with A-TDMA (advanced time division multiple access) as mandatory technologies in the DOCSIS 2.0 specification.

Terayon has long been a proponent of S-CDMA technology. "We had discussions on S-CDMA starting back in 1998," Rakib said. Since then, Terayon worked to develop S-CDMA modem technology that would coexist with TDMA systems.

Once CableLabs approved the initial DOCSIS 2.0 specifications last month, Terayon set its plans to spin off Imedia into motion. Imedia has built and shipped 2 million chipsets for 6,000 headends worldwide, primarily those with Terayon CMTSs and modems.

For the 2.0 market, Imedia is launching its IM6000 chip and IM96000 manufacture-ready reference design for cable modems. Both are DOCSIS 1.0 certified, DOCSIS 1.1-based and DOCSIS 2.0-based S-CDMA and A-TDMA technologies.

The volume price of the IM6000 is $25, Terayon said. The IM6000 chipsets are currently in Terayon's TJ615 cable modems.

Rakib said Terayon will market its Imedia DOCSIS 2.0 chipsets to other vendors.

"We're in discussions with vendors and have had very substantial meetings all over the world," he said. "There is so much demand in understanding 2.0, we'll likely put together seminars next month."

The modem business is moving toward commodity pricing, and the spread of standards-based modems has winnowed the market for proprietary technologies. So Terayon is banking on Imedia to help unlock the company's value.

The fruits of that effort would be apparent next year, Rakib said. He's expecting design wins in first-quarter 2002, after CableLabs freezes the specification — expected by year's end — and some sales wins by the second quarter.

He hopes vendors will submit DOCSIS 2.0 modems with embedded Terayon chipsets to CableLabs by next April. DOCSIS 2.0 will allow cable operators to offer expanded data services, such as telecommuting, videoconferencing and peer-to-peer networking.

"The demand for broadband is increasing" despite the economic slowdown, Rakib said. "People want to have faster access to the Internet."

Operators are enjoying strong gains in penetration, and — coupled with rising retail prices and lower wholesale modem costs — that leads to a faster return on investment, Rakib said.