The news

Chelsio Communications secured a $25-million Series C to continue development and expand sales of its ethernet acceleration cards. INVESCO Private Capital led the round with Sequoia Capital, New Enterprise Associates, Global Catalyst Partners, Pacesetter Capital Group, Horizon Ventures, and Abacus Capital also anteing in. The latest round brings Chelsio’s total to $55 million.

Why it matters

If Chelsio succeeds, it will be for exploiting application specific integrated circuits (ASICs) to boost networking speeds. While the chips used as CPUs juggle many tasks, ASICs do one thing and do it well. This specialization can have huge benefits.

For example, dedicated graphics processing chips have taken the eye candy in gaming consoles and PC games to entirely new levels over the past decade. Chelsio plans to do much the same, by out-grinding more generalized chips to complete networking tasks much faster.

As web-based enterprise applications and storage devices go online, quickly processing network communications becomes critical. Before a computer can send information over the network, it must first translate the data into networking language. TCP/IP sets rules by which an application makes data transferable.

Generally, TCP/IP requires effort from the CPU to translate network communications. Chelsio sells a specialized processor exclusively for executing the TCP/IP protocols, which takes strain from the CPU and allows applications to run faster.

The first attempt at making TCP/IP-exclusive processors failed miserably. Companies designed the processors to operate on 1-GB -per-second networks, but improvements in CPU speeds rendered their ASICs obsolete. As a general rule, it takes one processor cycle, or hertz, to translate communications of 1 bit per second.

As Intel and AMD drove CPU speeds into the 2- and 3-GHz range, computers had plenty of resources for running applications and translating communications from the 1-GB-per-second network. Companies such as Alacritech, Qlogic, and Adaptec took a big hit.

Chelsio may be able to avoid the pain of past ASIC attempts. It has designed its product for 10-GB ethernet, the next quantum leap in network speed. Since AMD and Intel have failed to deliver on Moore’s Law of processor speed advancement, 10-GB ethernet may prove to be the right place for TCP/IP ASICs.

The team

The company, founded in 2001, now has 50 employees. Much of the management team has a Silicon Graphics heritage. CEO Kianoosh Naghshineh put in time as CEO of ASIC Designers, which designed and marketed the intellectual property behind these specialized circuits.

The competition

Chelsio will be competing with a slew of startups hoping to capitalize on a migration to 10-GB ethernet, and a couple of walking wounded from the 1-GB fallout. Players include private companies such as Alacritech, which has raised $35 million since its inception in 1997; Silverback Systems, founded in 2000, with $32.3 million in venture funding; Siliquent, which has scored $31 million, starting in 2001; and S2io, which has pulled down $42 million worth of funding in the last three years. Publicly held players include Adaptec, with more than $470 million in sales last year; Qlogic, which booked almost $530 million; and Intel, which sold $33.35 billion last year.

Each player offers slightly different functionality and features on its ASICs, but the competition will most likely come down to cost. The first to market with low-cost silicon may get the pop needed to establish long-term leadership.

Skepticism

Success hinges on 10-GB ethernet adoption in the data center. If storage networks and enterprise application servers migrate to faster network architecture, the computers will need processing muscle to keep up.

Mr. Naghshineh says he expects the company to become profitable in early 2006, but to get the product adopted, Chelsio will have to simultaneously boost its sales expenditures and cut its production costs. Reducing margins will be tough, especially when 10-GB hasn’t taken off yet.

If it takes until 2006 for 10-GB ethernet to move from the research lab to the enterprise, Chelsio will need every penny of its $25 million just to stay afloat.