LSI Backs Chelsio

LSI Logic is making a strategic investment in Chelsio Communications, leading a $12 million funding round the startup hopes will help it stake an early claim in the 10-Gbit/s Ethernet iSCSI chip market.

CEO Kianoosh Naghshineh refers to the funding as the "first close" of the round, hinting that Chelsio might extend the round. The $12 million brings Chelsio's total funding to $67 million.

Although Naghshineh was reluctant to name his new investor last week when contacted by Byte and Switch, Chelsio today confirmed that LSI Logic will lead the round. Previous investors, Invesco Private Capital and New Enterprise Associates, are also involved with the D round. The investors kicked in hoping the market for iSCSI TCP/IP offload engine (TOE) cards picks up with the help of 10-Gbit/s Ethernet.

"Now's the time when people start placing their bets," Naghshineh says. "It looks from the trenches like something's starting."

LSI is one of those placing bets. Although LSI and its storage systems group Engenio have not been iSCSI players, LSI CEO Ahbi Talwalkar said in recent investor conferences that his firm is considering getting involved in iSCSI if 10-Gbit/s Ethernet drives enough market demand.LSI had little to say about the investment in Chelsio. Bill Wuertz, SVP of LSI's storage component group, says iSCSI is a "promising" technology but wouldn't elaborate on any product plans. "This allows us to get involved, gain insight, and participate in this space," Wuertz says.

Early iSCSI users have found software initiators work well enough to eliminate the need for TOE cards, but the anticipated shift to 10-Gbit/s Ethernet and Microsoft's new TCP Chimney technology could accelerate the performance of hardware iSCSI initiators enough to create demand. (See Microsoft Accelerates iSCSI Support.)

Analyst Bob Wheeler of the Linley Group calls Chelsio the early leader in 10-Gbit/s iSCSI offload cards, although that isn't saying much. Chelsio was the only 10-Gbit/s player until March, when Netxen brought out a competing card. (See NetXen Singles Out 10-Gig.) SilverBack is also developing one with $16 million in funding it recently raised. (See Silverback Hoists $16M.)

"Chelsio did have some revenue last year," Wheeler says. "The 10-gig market has been small, but Chelsio has carved out a position in the storage space with iSCSI implementations. They're the only company that shipped a 10-gig TOE or iSCSI card in 2005."

Chelsio has design wins with both server and storage vendors. It has announced a slew of deals with small storage vendors such as Ciprico, Newisys, and Nimbus Data, and Naghshineh says Chelsio also has three OEM wins with larger vendors he can't name. (See Ciprico Selects Chelsio, Industry Embraces Chelsio, and Chelsio, Nimbus Promise SAN.)Still, he admits the market has been a long time coming. "The market is further away than I thought it would be, but OEMs are all making designs and rolling out products later this year or the first part of next year."

According to Naghshineh, Chelsio will use the funding to beef up sales and marketing for its second-generation Terminator 2 card and development of its third-generation TEO. (See Chelsio Stacks Its Chips and Chelsio Announces Next-Gen Adapters.) He hopes the funding will take the company to profitability, but manufacturing chips is an expensive proposition.

"I have a physical design director -- every time he comes in he hits me for a million dollars for this, a million for that," Naghshineh says. "If you don't get the silicon right, the fab cycles are so long, and the burn rate you go through to sustain the company to get to the next step kills you."

Dave Raffo, News Editor, Byte and Switch

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