Magazine / Cover Story / 0901

Lots of revenue. High profits. Long-term growth. These are the things that are important to shareholders in a company -- the measurements for deciding whether or not to invest.

Lots of revenue. High profits. Long-term growth. These are the things that are important to shareholders in a company -- the measurements for deci ing whether or not to invest.

While these factors are all highly important, before the revenues, before the profits, before the growth, there are critical elements that must be considered. The most crucial, perhaps, is building the right team. This is what the founders of Centillium Communications believed on the day in February 1997 when they met at Denny's to discuss the business they would create from the ground up.

Over coffee that day, the initial three founders, Shahin Hedayat, Tony Oâ Toole and Surendra (Babu) Mandava agreed that whomever they decided to include in the venture must have spunk and must have the right chemistry with them. Hedayat, Tony OâToole and Mandava had worked together at Cirrus Logic for the previous four years and knew Kamran Elahian, the well-known Silicon Valley investor and founder of Cirrus, very well.

The trio contacted Elahian and listened when he suggested that they talk with Faraj Aalaei to consider having him join the founding team. As discussions progressed, the five agreed to found the company that would later be well known throughout the semiconductor and communications industries as Centillium Communications. Each of these five men brought with them unique backgrounds and skills that would be critical in the success of the team.

The Initial Three
Hedayat, O'Toole and Mandava worked together at Cirrus Logic developing technology for voice-band modems. Each of them had begun to want to take his career in a new direction. Hedayat had been at Cirrus for 11 years and wanted to move into other areas of technology development. O'Toole specialized in technical design in ISDN modems at Cirrus and was also ready for a change. Mandava had been at Cirrus for four years and realized he go further with his career if he made a change at that point in time.

Together the three spoke about the future in their areas of technical specialty and agreed that the broadband market would explode in just a few years. They wanted to be involved prior to that explosion so they might help shape the market and profit from that opportunity. They did their research and agreed that digital subscriber line (DSL) would be ideal for providing high-speed Internet access to homes and businesses in the future.

They believed the technology would be better than cable modem service (for various reasons), and agreed that their company should be a leader in the broadband communications market.

The initial group had a significant level of technical expertise, enough to understand what it would take to build a semiconductor engineering team. However, they needed to add two additional things, and they were not sure how they would get them.

First, they needed funding. This turned out to be easier than expected because of the stregnth of the team, their concent and their track record. Elahian also helped opened doors with other investors later that year, enabling the team to secure $20 million in the summer of 1997.

The second thing they needed was someone who would help them take their idea and make it happen. Someone with enough business experience and a background in DSL to help them construct a winning business plan. That person was Faraj Aalaei.

Enter Aalaei
Aalaei was, at the time of the phone call from Hedayat, working for Fujitsu Corporation in Richardson, Texas. He was heading up the DSL equipment development group and was also ready for a change. In fact, he had spoken with Elahian some time previously about the possibility of launching a company and they had even teamed up to obtain funding for that idea, which for various reasons did not pan out. Through this effort, Elahian got to know Aalaei very well and believed that Aalaei would be the right person to add to the team of founders forming to create Centillium.

Aalaei had the technical background from his work at Bell Labs and also had the experience of building systems in the DSL arena, which would prove instrumental in the creation of the new company. In addition to his experience in these areas, Aalaei had a strong head for business and was skillful in marketing and sales. The team brought him in as the vice president of marketing. In early 2000, Aalaei became the CEO of Centillium Communications and would lead the company through the very successful initial public offering (IPO) later in the year.

Basics of the Business
Centillium Communicationsâ business strategy is built upon three cornerstones:

By delivering on these objectives, Centillium strengthens an already dominant position in the worldwide broadband communications market. Expertise in communication protocols, design of programmable Digital-Signal Processors, algorithms, analog and mixed-signal electronics, and system expertise has enabled Centillium to deliver market-leading solutions.

Providing Broadband Networking for All Market Segments
The broadband networking market can be divided into three major segments: residential consumers, businesses and multi-tenant building customers. These end user segments require a variety of broadband applications, beginning with high-speed Internet access. In fact, according to IDC, by 2003 30% of the ÒonlineÓ households will be using broadband services for Internet access.

Centillium's market-leading solutions for DSL allow consumers and small businesses to use existing copper telephone lines to transmit and receive data up to 100 times faster than today's fastest analog modems. Centillium markets its products directly to manufacturers of telecommunication equipment such as central-office switches, digital-loop carriers, access concentrators, gateways, residential and business gateways, customer premises equipment, as well as PC original equipment manufacturers (OEMs).

Equipment companies are using Centillium's Entropia VoP chip for development of next generation digital loop carriers and collapsed central office equipment. These pieces of equipment are intended to enhance currently existing networks by providing packet voice service capability to customers already served off of digital loop carriers. The equipment will also provide voice services to customers of competitive local exchange carriers that have limited space and want the most flexibility for the investment made in network equipment. Large incumbent carriers can benefit by integrating existing networks with newer, more efficient packet-based networks that cost-effectively transport voice services.

It is Centillium's vision to leverage the pipe into the home or businesses by distributing the bandwidth throughout to enable high-speed Internet, packet voice, video, audio and other multi-media applications. The idea is to enable multiple users to share the bandwidth through one piece of integrated equipment.

Inventing New Technologies & Driving Them Through Standards Adoption.
Centillium is continually inventing better ways to implement communications technologies. In the DSL market, Centillium's innovative technology is the basis for NEC and SEI equipment used in Japan by NTT. This technology has enabled Centillium to garner nearly 100% of the Japanese ADSL chipset market. Centillium's leading designs are the basis for many other equipment manufacturersâ DSL products in the U.S., Canada and Europe in addition to Asia.

The introduction of the Entropia VoP family of chips signaled Centillium's groundbreaking entry into the pocketsize voice market. Centillium continues to build upon this initial VoP product offering by providing solutions which bridge the circuit switched networks of today to the packet-based networks of the future.

Consistently Delivering Systems with the Highest Level Of Value
Centillium Communications has committed to provide its customers with chipset solutions with the highest port density, lowest power consumption, and best performance in the market. Centillium is highly focused on developing the most integrated chipset solutions for the communications and data equipment market. The Company brings several core competencies that ensure customers will receive the highest level of value in the DSL market, making it an attractive business partner for manufacturers of telecommunications equipment.

Success in Numbers
So far, the Centillium team has created a combination that works.. In 2000, the company performed very well financially, as depicted in the following chart.

From a financial perspective, Centillium exceeded its goals for revenues and unit shipments in 2000. The company delivered strong growth in sales with revenues of $56.5 million in 2000 versus $3.7 million in 1999. For the first two quarters of 2001 the company increased its revenues substantially again to $35 million and $45 million respectively, and reached profitability faster than any other semiconductor company. Centillium continues to maintain strong relationships with its DSL equipment vendor customers, including Nortel, Lucent, Sumitomo Electric Inc. (SEI), NEC, Copper Mountain, AFC, Siemens and Broadxent (formerly Creative Technologies). Several companies have signed contracts for Centillium's Voice over Packet chips, including Alcatel and Siemens.

As a sign of financial success, Centillium won a position in the Forbes Magazine ASAP Ramp Champs Top 20 list. Forbes ASAP published in February its 2nd annual list of the best-managed, fastest-growing technology companies, called The Ramp Champs. This survey selects the top 20 companies from a list of 100 technology, telecommunications, and biotechnology companies with the highest estimated sales growth. The Ramp Champs are then ranked according to the scores they achieved in the following categories: management, finances, market opportunity, and competitive position.

Expert Opinions
What does it take to build a successful business? Each of the Centillium founders agrees on one important element: a foundation of respect and trust among team members. Each of the founders has stressed this as the most important aspect of their success. Each trusts that the other members of the team can and will do what they set out to do so that the company can function as a well-oiled engine would, with inter-working parts. In addition, the team must have the right mix of key characteristics beyond technical expertise and business and management skills: