GigaOM

Solarflare Communications, a chip startup in Irvine, Calif., has raised $26 million in a third round of funding. That brings the total the company’s raised to $126 million, which is a lot of money for a chip startup, even when you consider that the amount includes money raised by Level 5 Networks, which Solarflare acquired in April 2006. But the startup is hoping to use that money to attack a big problem in the data center at prices lower than the current technology offers. And if it succeeds, it’ll make computing faster and data center operations more flexible.

Like many other communications chip companies, Solarflare is working on a way to deliver 10 Gigabit Ethernet over copper, which is cheaper than delivering it via fiber. That enables the high-speed transport technology to move outside of the telecommunications networks, where companies such as Infinera are already pursuing 100 Gigabit Ethernet over fiber, and into mass adoption in the data center. Getting the technology into servers at a reasonable cost would create a market 10 times bigger than that of networking switches.

Others chasing mass adoption of 10 GigE on the server side are Intel and Broadcom, which like Solarflare, have controller chips. Broadcom and Solarflare also have PHY chips sampling with customers. Solarflare CEO Russell Stern plans to integrate the PHY with the controller chip in 2009, beating Broadcom to the market. He will use some of the funding for that purpose.

It’s likely Broadcom will end up attempting an integrated 10 GigE over copper chip as well. Broadcom doesn’t talk about its chips until they’re sampling, but the company did make a mint by cornering the market for integrated 1 Gigabit Ethernet chips for servers. However, success for Solarflare or Broadcom is probably three years out and depends on creating an energy-efficient chip at the 32 nanometer process node, according to Bob Wheeler, an analyst at The Linley Group.

Power consumption is a big challenge for these chips because unless it’s managed properly, they run too hot for servers and switches. And because technology doesn’t stand still in the data center, where virtualization and ever-increasing amounts of data are screaming for fatter pipes, hybrid forms of networking technologies that mix fiber or Fibre Channel with Ethernet are emerging to bridge the Gigabit gap between servers and networking equipment. Broadcom has several products that take advantage of such a hybrid networking environment. Startups such as Arastra and Woven Systems are also in that sector, and may see gains at the expense of a unified 10GigE world, which means Solarflare’s market opportunity could fragment if cheap, integrated 10 GigE takes too long.