QED Gets $20 million Funding

Electronic News, April 19, 1999 by Roberto Frazzoli

MIPS RISC provider gets funds to compete in embedded markets

Santa Clara, Calif.-Quantum Effect Design Inc. (QED), a provider of high-end MIPS RISC embedded microprocessors, announced that it has completed a new round of equity financing totaling $20 million.

The round, led by Goldman Sachs Group LP, included investments from new investor Cisco Systems and current venture investors Weiss, Peck & Greer, Norwest Venture Partners and Bessemer Venture Partners. The breakdown of the investment among the various investors has not been disclosed. Barry Cox, chairman of the board at QED, said that Cisco was "a major investor" in this round.

With new funding and the endorsement from a giant like Cisco Systems, the small QED contends it is now in a better position to compete against bigger high-end MIPS licensees, such as NEC and Integrated Device Technology. Cox expects QED's business with Cisco to grow significantly, also at the expense of other MIPS vendors such as IDT, who is also an investor in QED. "IDT and NEC have historically been the major suppliers of MIPS microprocessors to Cisco. If we are successful in our strategy - which we think we are being - that is going to have some effect on IDT's business with Cisco," he said.

But Dave Cote, vice president of marketing at IDT, does not expect the Cisco investment in QED to cause any major change. "The investment itself does not necessarily indicate what's going to happen with the business. We don't have any indication that as a result of this investment, or just in general, there is going to be a major change in our situation."

Mike Volpi, vice president of business development at Cisco Systems, said that the Cisco investment in QED does not imply anything in terms of design wins. "We are not going to shift things artificially from one vendor to the other. We use QED when they offer better superior solutions than IDT. The investment simply indicated the endorsement for the type of quality work that QED has been doing."

Andrew Allison, a microprocessor analyst who is the editor of the 'Inside the New Computer Industry Newsletter', raised another possible issue. "It's an investment by a customer... probably they are trying to influence what that supplier does." But Cox dismissed this concern. "We do not consider ourselves even close to a captive supplier of Cisco," he said. "We have a very aggressive plan for revenue this year; we do not anticipate that any single customer will represent anymore than 15 percent of the revenues of the company for this calendar year, and that would include Cisco."

Volpi confirmed that the goal of Cisco is not to control QED. "A ten percent investment in a company with no board seats is very little control. Our purchase order capability in the company gives us a lot more control than an investment," he said.

The microprocessor design team at QED seems to enjoy a very good reputation. "QED has managed to produce very good chips with a very small team of engineers," said Jim Turley, senior analyst at MicroDesign Resources. Andrew Allison also agreed on the quality of QED's work on the MIPS architecture. "It's a good fast implementation," he said.