The telecommunications infrastructure market has undergone a tumultuous transformation over the past several years. In the wake of the overinvestment that characterized the late 1990s, the industry has seen little investment in new technology since its peak at the turn of the century. But today, the market is showing signs of revival.

Led by major service providers, the industry is entering a new technology transition as it migrates from circuit-switched to packet-based networks. Sprint, for example, recently announced plans to move up to half of its 8 million local lines to packet-based networks over the next six years, with the goal of moving all lines within the next 11 years. Competitors like AT&T and Verizon are making similar decisions as they look for ways to generate additional revenue by bundling voice and data services. In fact, while analysts at Pyramid Research forecast wireline capex to grow at an average of 3 percent over the next several years, spending on Internet Protocol-based equipment is expected to grow at four times that rate.

However, this is hardly the same industry it was just a few years ago. To survive the recent downturn, most telecommunications OEMs dramatically reduced staffing levels. As of last year the top nine public OEMs in the industry had reduced their head count by more than 50 percent from their peak in 2000. Nor did research and development escape the cuts. Today those same nine OEMs employ 47 percent fewer R&D engineers than they did just three years ago. More often than not, the group within R&D taking the greatest hit was ASIC design.

Where once developers used custom ASICs to build in product differentiation, today they are turning to off-the-shelf alternatives such as high-performance network processors to extend performance more cost-effectively. At the same time, growing support for industry-standard interfaces such as SPI-3 and SPI-4, and backplane fabrics such as PCI Express, Advanced Switching and Gigabit Ethernet, are helping reduce the need for proprietary solutions. This evolution allows OEMs to focus their critical resources on true differentiation rather than reinventing the wheel.

To succeed in this new environment of developing state-of-the-art infrastructure products with fewer engineering resources, OEMs should look to build close development relationships with their critical IC suppliers. Equipment makers will need suppliers that are intimately familiar with their application requirements and capable of consolidating costs by replacing what were once custom functions with off-the-shelf solutions.

By leveraging decades of expertise in the development of high-performance network silicon, by extending their system knowledge through new partnerships and acquisitions, and by staying at the forefront of technology by designing industry-leading semiconductor solutions, IC suppliers can offer OEMs the partner they need to develop high-speed packet-processing products for next-generation advanced network services.

Greg Lang, President and Chief Executive Officer, Integrated Device Technology Inc., Santa Clara, Calif.