3 Things Cavium Networks' Management Wants Investors to Know

By Ashraf Eassa Markets Fool.com

Chip specialist Cavium Networks(NASDAQ: CAVM), a company that bills itself as a developer of "semiconductor processors for intelligent and secure networks," hosted a conference call to discuss its third-quarter financial results last month.

Continue Reading Below

Image source: Cavium.

During the call, Cavium CEO Syed Ali touched on the progress that the company is making in trying to capitalize on several growth areas. Let's look at what he had to say.

Traction for OCTEON and OCTEON TX networking chips

One of Cavium's key product lines is its OCTEON line of networking processors, which the company says are used "in a variety of [original equipment manufacturer] networking and storage equipment."

"Design win traction for our OCTEON and OCTEON TX product lines was very strong during Q3," Ali said. He noted that the company saw "major wins" with "traditional customers in enterprise and service provider and security."

Continue Reading Below

Ali also claimed that it won designs at "new customers" that the company is "now addressing with the ARMv8-based OCTEON TX."

By way of reference, Cavium's OCTEON chips use Cavium-designed MIPS64 architecture cores, while its OCTEON TX products use Cavium-designed ARMv8.1 architecture cores.

Although the MIPS architecture has historically been very popular in the world of networking chips, many network chipmakers are transitioning their product lines to the ARM architecture.

First volume orders for XPliant networking switches

Cavium acquired networking switch start-up XPliant back in 2014. Networking switches, Cavium explained in its 2014 press release announcing its acquisition of XPliant, "are used to connect components within a system as well as to connect various systems such as servers, server racks, and networking appliances in the data center, enterprises and service provider networks."

At the time, the company pegged the total addressable market for Ethernet switch chips at "in excess of $1 [billion] per year."

Ali announced that Cavium began full production of its XP 80 switch chips and "successfully fulfilled" its first production orders for those chips in the third quarter. He expects "strong growth" from this product line in the fourth quarter.

"We expect our additional stream of Tier 1 OEM customers to achieve production and [general availability] over the next few quarters," Ali added.

ThunderX gaining traction; ThunderX2 even better

Cavium is one of the many chipmakers that's looking to grab a piece of the server processor market using the ARM architecture. However, in recent months several of its potential competitors, such asBroadcomandApplied Micro, have dropped out the the race, perEETimes.

The company is currently shipping its first-generation ARM-based server processor, known as the ThunderX, and recently announced that it plans to go into production on a second-generation version known as ThunderX2 at the end of 2017.

"We continue to see steady increases in customer deployments for ThunderX production platforms with several customers deploying and running production workloads," Ali said.

Ali also noted that ThunderX-based platforms "are now at five data centers in Asia and in the U.S."

The executive was also upbeat on the upcoming ThunderX2 platform, noting that it should deliver a significant performance increase over the current ThunderX processors. This, Ali asserted, should allow ThunderX2 to "address a larger set of applications" than today's ThunderX processors can.

"We expect this market to be a larger market than our ThunderX1 type product," Ali said.

10 stocks we like better than Cavium Networks
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Cavium Networks wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of Nov. 7, 2016

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool recommends Broadcom. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.